Northwest Exits Bankruptcy Protection
Thursday, May 31, 2007; 9:19 PM
MINNEAPOLIS -- With Northwest Airlines out of bankruptcy on Thursday, the nation's largest carriers have reorganized to compete better in a world of discount carriers and higher fuel prices.
Travelers munching pretzels for dinner, instead of a complimentary meal, on a crowded plane already know about some of the changes over the last few years, which included bankruptcy reorganizations by Northwest, Delta, United, and U.S. Airways.
Most major airlines have trimmed unprofitable routes and fly fuller planes on the routes that are left. Workers took pay cuts at the bankrupt carriers as well as American Airlines, which narrowly avoided bankruptcy in 2003.
In recent years, price competition from discounters held fares relatively low even as jet fuel prices rose and older airlines lost money because of heavy debt and the expenses of an older work force, such as pensions and retiree health care. But bankruptcy helped them shed or reduce those costs. And full planes mean airlines are closer to something they covet _ "pricing power," or the ability to raise prices to cover their expenses.
Older airlines like Northwest are "going to have a little more pricing power than there was in the past," said aviation consultant Mike Boyd, president of The Boyd Group in Evergreen, Colo.
Not all the airlines have changed in the same way. Northwest will soon go from having one of the oldest fleets in the business to one of the newest as it adds new 76-seat regional jets and, next year, takes delivery of Boeing's new 787 "Dreamliner." UAL Corp.'s United did relatively little to change its fleet, said Darryl Jenkins, who teaches airline management at Embry Riddle Aeronautical University in Daytona Beach, Fla.
Both new jets will fill key needs for Northwest. The 787 will replace the larger 747 on some routes _ giving Northwest a cheaper plane that's desirable for passengers and easier to sell out. And the new regional jets will do the same thing on the smaller domestic cities Northwest serves.
Airlines used to give in to the temptation to fly half-empty planes on marginal routes "more to torture competitors than to make money," Jenkins said.
"Going into the future we will see more crowded planes. Having empty planes is a luxury we no longer have," he said.
The risk of flying such full planes is that it's hard to recover from flight cancellations. Just ask the Jet Blue passengers stranded by an ice storm in February. The cascading effects of rescheduling passengers on Jet Blue's other flights tied the carrier up in knots for days.
If all of a carriers' other planes are in use and full, it's hard to find a replacement, said Bob Mann, who runs the airline consultancy R.W. Mann & Co. in Port Washington, N.Y.
"It can take not just hours but, in some cases, days ... to accommodate passengers" when flights are canceled, Mann said.
One thing that hasn't changed is the intense airline competition _ although that's less true in Northwest's so-called "fortress hubs" of Minneapolis, Detroit and Memphis. After Sept. 11, many expected some airlines to go out of business. Six months ago, airline mergers were thought likely. Instead, the players are mostly the same today as they were five years ago.
"It's still going to be a very competitive world. We'll see fare battles, we'll see snooze-you-lose fares," said Tom Parsons, who runs airline fare Web site bestfares.com. "It's still a slugfest, and that's good for the consumer."
The nation's six biggest airlines all won concessions from workers over the last few years. At Northwest, flight attendant pay now tops out around $35,400 a year, down from $44,190 before Northwest filed for bankruptcy protection, according to the union.
Northwest has said it will be trying to improve employee morale going forward through measures such as profit-sharing.
Jenkins said he was recently on a radio show in Minneapolis and heard from several unhappy Northwest flight attendants.
"I don't think anyone would characterize them as happy," he said. "You would rather have a service where everybody is happy. But the flight attendants there are still professional _ I don't think they're going to go out and be rude to anybody."
CEO Doug Steenland's pay has been a sore spot. He was set to get some $26.6 million in equity, including stock options that would vest in future years.
Steenland said his pay before Thursday was the lowest of other major airline CEOs besides Delta's Gerald Grinstein, who is retiring. He said his pay was set by the board and he wasn't involved. Asked if he would consider refusing his equity awards if they become too inflammatory with workers, Steenland said he wouldn't speculate.
Morale will continue to get better as workers get excited about being part of a successful airline, he said. He told the story of one Northwest executive in Detroit on Thursday who was told by a customer service agent, "I want to give you a big hug, and thank you for saving my job."
"I clearly detect a very strong swing in morale," Steenland said.
AP Business Writer John Wilen in New York contributed to this report.