business

Facing high fuel costs and a softening economy, Northwest Airlines said Thursday it will cut its domestic flight schedule by 5 percent this fall.

The Eagan-based carrier did not announce layoffs. It said it hopes to cut jobs through attrition.

"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," Northwest CEO Doug Steenland said in a written statement. "These increased costs are significant and call for a strong response from us."

Northwest plans to take 15 to 20 airplanes out of service, beginning with two old, fuel-guzzling DC-9s in June.

The sharp rise in fuel prices is forcing airlines big and small to adjust their business plans on the fly in order to boost revenue and trim operating costs.

On May 1, Northwest also is increasing a fuel surcharge on flights from Japan. Last week, it matched competitors in charging $25 for passengers who check a second bag.

Northwest's decision to reduce its U.S. flying follows two large rivals -- Delta Air Lines and United Airlines -- that also chose to shrink their fleets.

With more than $3 billion in cash on hand, Northwest is positioned to ride out the financial threat caused by oil that's exceeded $100 a barrel in recent weeks.

Many smaller carriers are not faring as well. Indianapolis-based ATA Airlines ceased operations Thursday after filing for bankruptcy. Aloha Airlines, based in Honolulu, shut down passenger operations after its Monday flights.

Locally, Champion Air, based in Bloomington, disclosed Monday that it will go out of business May 31, and Sun Country Airlines is temporarily reducing its pilot workforce by nearly a third.

After the peak summer travel season ends, Northwest intends to reduce its domestic schedule by 5 percent compared with its 2008 business plan. Compared with 2007, domestic capacity "will now be down approximately 8 percent," said Northwest spokeswoman Tammy Lee.

Most of the airplanes will be taken out of the schedule this autumn. That's when about 10 DC-9s will be removed from service; the other planes that will be idled are Boeing 757s and Airbus A319s and A320s.

"I'm actually surprised it isn't a little more, simply because the DC-9 is such an economically obsolete airplane," said aviation consultant Robert Mann. The airplanes are more than 30 years old, and the amount of fuel they consume "is killing them right now," Mann said.

Because of the reduced flying schedule, Northwest has suspended plans to hire more pilots and flight attendants. The last training classes for those employee groups will end in June.

In addition, Steenland said, "While we need to reduce costs in this difficult environment, we will not be going back to our employees for pay cuts." In 2006, Northwest reduced its labor costs by $1.4 billion a year, and most employees have taken double-digit pay cuts.

"We believe that Mr. Steenland's decision to reduce costs and increase revenues by avenues other than employee pay, benefits and layoffs is the correct choice due to the steep cuts already taken by employees," the Northwest pilots union said in a Thursday statement. The pilots characterized Steenland's moves as "prudent" because they are necessary to "maintain the financial viability of Northwest Airlines."

Northwest has been expanding its regional flying, and its Compass and Mesaba subsidiaries have been taking delivery of 76-seat regional jets. Lee said that those regional jet deliveries will not be altered. However, she added, "We anticipate some reduction in regional-jet flying for the fall."

To boost revenue, Steenland said, Northwest has increased fares and fuel surcharges. Since Jan. 1, Northwest took part in 11 attempts by various airlines to raise fares, but "most have been rolled back because some airlines failed to match," he said.

Terry Trippler, a Minneapolis-based airline expert, said the capacity cuts by big airlines and the shutdowns of the smaller airlines will translate into higher fares.

Trippler said airlines are focused on survival. "Some people are flying now on tickets they bought six months ago," when oil prices were much lower, he said, so the airlines are playing catch-up in raising fares.

Northwest began 2008 with a business plan that assumed that oil would average $88 a barrel this year. At that price, it estimated its annual fuel bill would total about $4.4 billion. If oil averages $104 a barrel, Northwest recently estimated, that bill could rise to $5.2 billion.

Liz Fedor • 612-673-7709