From: Reuters
Published April 3, 2008 06:41 PM

Northwest to cut capacity to counter high fuel

WASHINGTON (Reuters) - Northwest Airlines Corp <NWA.N> will park aircraft and cut domestic capacity by an estimated 5 percent later this year and take other steps to counter skyrocketing fuel costs, the company said on Thursday.

The airline said it hopes cost reductions and revenue enhancements like previously announced fuel surcharges, higher fares, and new fees for bags, will improve its bottom line by $100 million on an annual basis.

"These increased costs are significant and call for a strong response from us," said Northwest Chief Executive Doug Steenland.

The move comes after Northwest and Delta Air Lines Inc <DAL.N> failed to seal a merger deal last month after pilots from both airlines failed to reach agreement on how they would work together. The companies wanted labor support before proposing a deal to shareholders.


Delta announced capacity cuts last month, including a proposal to eliminate 2,000 jobs, mostly through buyouts and attrition.

Other airlines also have trimmed growth plans to stem the impact on high oil prices. Industry finances are growing steadily bleaker when fuel costs, sagging domestic travel demand and a weakening economy are weighed.

Northwest shares lost about 2 percent to close at $9.21 on the New York Exchange. Shares gained slightly in after hours trading.

The biggest U.S. airlines have been hurt by soaring fuel prices and low-fare competition that makes it hard for them to raise fares to cover sharply rising costs. In response, airlines have sought ways to bolster revenue and cut expenses.

Northwest, which will remove between 15 and 20 mostly older aircraft from its fleet.

The company has suspended plans to hire more pilots and flight attendants.

The carrier, which emerged from Chapter 11 bankruptcy protection last year during which it slashed employee pay and benefits, said it has no plans to seek wage concessions with these new moves.

Northwest is expanding international service to maximize revenue from premium business customers, and will review whether changes to that schedule are needed later this year.

Other airlines also are trimming growth plans with jet fuel prices soaring on crude oil costs exceeding $100 per barrel.

After peak summer travel concludes in September, Northwest will reduce its scheduled domestic system capacity by about 5 percent versus the 2008 business plan. Full-year available seat miles, a measure of available seats, are expected to flatten or drop slightly compared with 2007 on domestic flights, Northwest said.

The aircraft reductions will include DC-9s and a mix of Boeing Co <BA.N> 757s and Airbus <EAD.PA> A320s and A319s.

Northwest also said it is reducing non-aircraft capital expenditures for 2008 by about $100 million to $150 million.

As of December 31, 2007, Northwest's unrestricted cash on hand was $3 billion.

(Reporting by John Crawley; Editing by Gary Hill and Carol Bishopric)

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