Northwest to restore capacity cuts
The airline expects to benefit from lower costs and higher fares.
Liz Fedor, Star Tribune
Last update: May 27, 2006 12:33 AM
With its goal of lower labor costs in sight, Northwest Airlines is preparing to put more planes in the air.
The airline, which slashed its capacity 10 percent early this year, plans to reverse course and expand its flying the remainder of this year and into 2007, according to a Northwest memo obtained this week by the Star Tribune.

The expansion would take advantage of heavy passenger demand and Northwest's new ability to operate with much lower labor and aircraft lease costs.

That's assuming its flight attendants and ground workers, like the pilots, agree to concessionary contracts. Union votes will conclude within the next two weeks, and ratification of the tentative contracts would allow Northwest to meet its goal of $1.4 billion in annual labor savings.

As part of its plans, Northwest intends to accelerate the retirement of its old DC-10s, which will mean that Twin Cities travelers flying to London, Amsterdam and Honolulu will soon make their trips on quieter, more efficient Airbus A330s.

"The high cost of fuel has driven the decision to expedite the retirement of the remaining DC-10 aircraft," Tim Rainey, a Northwest senior vice president, said in the memo, which was sent to pilots.

The memo doesn't say how many flights Northwest will add or on what routes, but the expansion is large enough that the airline won't go through with previous plans to furlough up to 200 pilots. "In addition, we are forecasting the need to begin recalling pilots next year to support the planned operational growth and normal attrition," Rainey said in the memo.

Northwest also will bring back three Boeing 747-400s for overseas flights. The planes, which seat 403 people, are the largest in Northwest's fleet.

Rainey's memo also included a projection for more domestic service on Boeing 757s in 2007.

Northwest's decision comes as airlines have been finding it easier to fill seats, even as they charge higher average ticket prices. Meanwhile, other carriers have been expanding while bankrupt Northwest was pulling back to conserve cash.

At Northwest, 83.8 percent of its seats were occupied in the first four months of this year. Many of its competitors were also flying nearly full, while expanding their businesses. Continental boosted its systemwide capacity by 10.3 percent and Southwest increased its seat miles by 8.7 percent so far this year. Continental's passenger traffic rose 12.8 percent, and Southwest's jumped 16.5 percent.

American, the world's largest airline, held its capacity flat, but its passenger traffic still grew by 3.2 percent.

"Customers are willing to pay higher fares and recognize that they have to, given what's occurred with fuel prices," said Bill Hochmuth, a senior research analyst for Thrivent Asset Management.

For Northwest, the change toward a larger flight schedule could preserve its place within the industry's pecking order. Long the No. 4 U.S. carrier, Northwest was passed by Continental and Southwest in terms of the total number of miles flown through April.

Continental flew 31 billion miles for the first four months of 2006, while Southwest reached 29.6 billion. Northwest flew 27.4 billion miles. It reduced its seat miles flown by 12.4 percent in the domestic market and 7.1 percent on international flights.

Mark McClain, chairman of the Northwest pilots union, called the flight schedule expansion "good news."

About 5,000 pilots are on the Northwest payroll, with another 700 on furlough.

McClain said Northwest had higher operating costs than many of its competitors when it entered bankruptcy in September. The airline has since used the bankruptcy process to negotiate labor concessions and reduce the cost of aircraft leases and other expenses.

"You are lowering your costs across the board," McClain said. "As you do that, you can then start seeking more market share because you are cost competitive."

But high fuel costs remain an obstacle to profitability.

While Northwest wants to put more seats back on the market, it's still seeking to minimize its fuel costs, prompting the replacement of the DC-10s. The new Airbuses will allow Northwest to save up to 30 percent on fuel, said Northwest spokesman Kurt Ebenhoch.

On the Twin Cities-Amsterdam route, the A330-300 can carry 25 more passengers than the DC-10 while consuming 6,100 fewer gallons of fuel each way, Ebenhoch said. At $1.87 a gallon -- Northwest's first-quarter average fuel price -- that would have been a savings of $11,407 per flight
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