Continued: NWA passenger revenue increases despite flight cuts, weak economy

Higher fares did not deter many passengers from flying on Northwest Airlines during the third quarter.

Northwest slashed its domestic flying by almost 10 percent in the quarter and its overall flight operations grew by just 2.9 percent, but the carrier boosted its passenger revenue by 11.3 percent to $3.3 billion.

Despite that performance, Northwest on Wednesday reported a quarterly loss of $317 million, pushed into the red by a noncash charge of $410 million for fuel hedges that will be settled in future quarters. Total revenue grew 12.4 percent to $3.8 billion

Setting that charge aside, Northwest CEO Doug Steenland, in likely the company's last earnings call as a stand-alone airline, said the carrier "earned almost $100 million" despite a fuel bill that was $688 million higher than the third quarter of last year. Steenland said he expects Delta's acquisition of Northwest to be completed before the year ends.

The price of crude oil hit $147 a barrel in July, but dropped below $70 a barrel this week.

With such a precipitous slide in fuel prices and capacity cuts in place, Northwest executives on Wednesday projected that the airline will make money in the fourth quarter.

Bill Hochmuth, a senior research analyst at Thrivent Investment Management, Minneapolis, viewed that profitability estimate as a "bold statement" because "there is still a lot of uncertainty regarding the economy and demand for travel."

But he acknowledged that Northwest has had strong discipline in controlling costs and will continue to take more planes out of its schedule.

In the final quarter of this year, Northwest's total flight operations will be 3 to 4 percent smaller. Flying done by Northwest pilots on domestic flights will be slashed 18 to 19 percent, while international flying will rise by 2 to 3 percent. Regional partners will pick up some of the flying done by Northwest pilots as they continue to take delivery of new 76-seat jets.

While auto sales and many retail stores are being hammered by the weak economy, Northwest executives didn't paint a bleak picture for the carrier in the fourth quarter.

Passenger bookings are "a little more resilient than you might expect given the general economic news," said Tim Griffin, Northwest's executive vice president of marketing and distribution.

With a smaller domestic schedule in the current quarter, the portion of seats sold on domestic flights is up about 1 percentage point, Griffin said. In the international market, he said, Northwest bookings are up 4 to 5 points in the Pacific, while they are down 2 or 3 points in the Atlantic.

"China has been weak," Griffin said.

Dave Davis, Northwest's chief financial officer, noted that during severe economic downturns the airline industry's revenues have not declined by more than 1.2 percent on an annual basis.

If that figure were applied to Northwest, Davis said that the carrier would only see a revenue drop of about $150 million. However, he said, Northwest would expect to save more than $1 billion in annual fuel costs if oil averages $78 a barrel in 2009 when compared with $104 a barrel in 2008.

Awaiting word on Delta pact

The U.S. Justice Department has not made any public statements about when it will release a decision approving or rejecting Delta Air Lines' acquisition of Northwest.

U.S. Rep. Jim Oberstar, D-Minn., said in a Wednesday interview that he doesn't know when federal regulators will conclude their work. However, Oberstar said, "I will vociferously object to any [approval] decision being made post-election, because that would be tainted."

Oberstar, chairman of the House Transportation and Infrastructure Committee, has opposed the merger because he argues it will reduce competition.

Delta and Northwest executives, who have emphasized that the merger would connect two networks that have only a few overlapping routes, have argued that the combination will enhance consumer choice. Executives of both airlines have continually expressed confidence in federal approval.

Since no decision has been released, Oberstar said he thinks regulators are taking their time to address serious concerns. "What seemed an open-and-shut case has proven to be far more open than shut and far more complex than the advocates asserted," Oberstar said.

Liz Fedor • 612-673-7709