Northwest Airlines Announces Revenue Enhancements and Capacity Reductions in Response to Extraordinary Fuel Costs
Thursday, April 03, 2008; Posted: 03:42 PM

NWA today announced several actions that are in response to the high cost of fuel and current economic uncertainties.

In announcing the measures, Northwest Airlines President and CEO Doug Steenland said, "Over the past several months, the price of oil has risen dramatically to all time highs and there is no reasonable basis to conclude that oil prices will materially decline anytime soon. These increased costs are significant and call for a strong response from us."

Steenland added, "Today we are summarizing our current plan to mitigate these fuel cost increases. This plan includes revenue enhancements, capacity and fleet reductions, as well as reductions in capital and operating expenses. Let me emphasize that, while we need to reduce costs in this difficult environment, we will not be going back to our employees for pay cuts."

I. REVENUE ENHANCEMENTS

Fuel Surcharges and Fare Increases

Faced with these financial challenges, regrettably, Northwest Airlines must pass through these extraordinary fuel cost increases to its customers through fare increases and fuel surcharges.

On March 18, 2008, for international routes, Northwest increased one-way fuel surcharges from North America to Europe, India, Japan and most other destinations in Asia ranging from $115 to $155. Fuel surcharges on flights from Japan to North America are now approximately $140 one-way but will increase to $160 one-way for ticketing starting May 1, 2008.

For domestic routes, since Jan. 1, 2008 Northwest has participated in 11 attempts by various carriers to increase fares to reflect rising fuel costs, although most have been rolled back because some airlines failed to match.

Domestic Luggage Fee Increases

Also in response to record fuel costs, on March 29, 2008, Northwest matched other U.S. network carriers and for North American travel implemented a $25 charge, each way, for the customer's second checked bag and $100 each for three or more checked bags. The fee for bags greater than 50 pounds has also been raised from $25 to $50 each way.

The new policy takes effect on May 5, 2008, and is expected to generate approximately $25 million in added revenue for 2008. For 2009, the policies are expected to add between $40 and $70 million in revenue on an annual basis.

The airlines' full fare customers, WorldPerks elite customers and U.S. military remain exempt from the new luggage policies.

II. CAPACITY REDUCTIONS

Schedule Reductions

In September, after peak summer travel concludes, Northwest will reduce its scheduled domestic system capacity by approximately five percent versus the 2008 business plan. Full-year domestic available seat miles (ASMs) are expected to be flat to down slightly versus 2007.

Northwest is continuing to expand its international service with the addition of new flights between Detroit and London Heathrow; Minneapolis/St. Paul and London Heathrow; Seattle and London Heathrow; Minneapolis/St. Paul and Paris; Portland, Ore. and Amsterdam; and Dallas/Ft. Worth and Amsterdam, which will be operated by Northwest's joint venture partner, KLM Royal Dutch Airlines. Northwest will review whether any changes to the international schedule are needed after the peak summer travel season.

Fleet Reductions

As a result of the five percent domestic capacity reduction from planned levels, Northwest will remove an additional 15 to 20 aircraft from service. Two DC-9s will be removed in June and the remainder in the fall to coincide with the planned schedule reductions. These fleet reductions will include approximately 10 DC-9s and the balance being a mix of Boeing 757s and Airbus A320s and A319s.

III. LIQUIDITY ENHANCEMENTS

Northwest Airlines currently has the strongest liquidity position among U.S. network carriers and is committed to maintaining its industry-leading cash position. As of Dec. 31, 2007, Northwest's unrestricted cash on hand was $3 billion which equaled 24 percent of revenues for the full year.

"Challenging economic times require smart, but difficult, decisions by the management team," said Steenland. "We are pro-actively making those decisions now to maximize our liquidity position."

Capital Expenditures

Northwest is reducing non-aircraft capital expenditures for 2008 by approximately $100 million. The airline now intends to invest approximately $150 million in non-aircraft capital expenditures in 2008.

Improved Profit and Loss Statement

The airline will also seek to realize profit improvements of $100 million on an annual basis through cost reductions, productivity improvements and revenue enhancements. To the extent that the schedule changes will result in the need for fewer employees, every effort will be made to achieve these reductions through attrition.

With the reduced flying, Northwest has suspended its plans to hire additional pilots and flight attendants. The last training classes for both groups conclude in June.

Northwest Airlines is one of the world's largest airlines with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,400 daily departures. Northwest is a member of SkyTeam, an airline alliance that offers customers one of the world's most extensive global networks. Northwest and its travel partners serve more than 1,000 cities in excess of 160 countries on six continents.

SOURCE: Northwest Airlines