NWA reduces schedule by 12%, and grounds 20 aircraft

aerbase

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Aug 20, 2002
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ST.PAUL, Minn., March 21 /PRNewswire-FirstCall/ -- Northwest Airlines (Nasdaq: NWAC - News) announced today that it will reduce its system-wide flight schedule by approximately twelve percent, as measured on an available seat mile basis.

The carrier is taking this action because of a drop in passenger demand due to both the threat of and now the commencement of hostilities with Iraq. As world events unfold, Northwest will continue to monitor passenger demand to determine whether additional actions are necessary.

Because of the reductions, Northwest estimates that approximately 20 DC-9, A320, 757-200, DC10-30, and 747-200 aircraft will be removed from service. Schedule changes will impact the airline''s North American, Asia/Pacific and European routes.

Northwest is proactively contacting customers impacted by the schedule reduction. Passengers may also check the status of their reservations at the airline''s web site, www.nwa.com , by calling Northwest Airlines Reservations at 1-800-225-2525, or through their travel agent. Schedule changes will be displayed in all reservation systems by March 29.

We apologize to our customers for any inconvenience this schedule reduction might be causing them. However, we must take this measure in response to the reduction in demand due to the war with Iraq, Richard Anderson, chief executive officer said.

STAFF REDUCTIONS

The airline also announced that because the level of flying is being reduced substantially and aircraft are being removed from service, Northwest is forced to reduce its overall staffing level by about 4,900 employees. All employee groups will be affected.

The carrier will decrease its payroll through attrition, voluntary leaves, leaving open positions unfilled and layoffs. A relief package including pay, medical coverage and flight privileges will be offered to employees who are furloughed due to the latest staff reduction.

Furloughed employees eligible for relief pay are those whose contractual rights do not allow them to take another job in the Northwest Airlines system. The package provides between one and four weeks of base pay, determined by years of service with the company. In addition, it includes medical coverage through April 30, 2003. Full travel privileges will remain in place through December 31, 2003.

Clearly, the last two years have been a difficult and painful period for our employees. Due to the weak demand for business travel which emerged in March, 2001, the subsequent impact of the terrorist attacks on the United States in September of that year, and now, armed conflict with Iraq, we have been forced to reduce our workforce by some 17,000 employee positions, Anderson added.
 
Given the fact that Northwest has consistently been the one to foil any attempts at fare increases, I wonder how those affected by this layoff feel about the company right now.
 
I bet they''re not too happy about being laid off, but I''m not so sure many of them will think it has anything to do with NWAC not raising fares.

While casual observers think airlines can just raise fares $20 and not have all sorts of trouble, the reality is just not true. If it were so simple, don''t you think that the industry would not be in the state it is in today?

NWAC hasn''t gone along with some fares because it believes the moves will not be revenue-positive for NWAC, and I bet people who''ve worked there for a while understand that the company has a slightly different mix of travelers than some of the other cartel airlines (NWAC always has been a bit more reliant on leisure travelers).

NWAC doesn''t hold back on the fare increases to hurt its competitors -- it''s to not hurt itself. They''ve got a lot more data on how pricing affects NWAC than you or I do or anyone else does.
 
I see where you're coming from, but still disagree to an extent.

We didn't see massive problems when all the airlines added a fuel surcharge. Ticket prices, on average, are at a 20-25 year low. Capacity keeps falling, but yields haven't yet risen significantly. It's no big mystery as to what needs to happen to return airlines to profitability. Either costs must come down or revenues must come up. Realistically, it needs to be some of each.

I see airlines mainly attacking the cost side of things at the great expense of the employees (concessions, furloughs...we all know this story). While I do believe that the industry needs to lower it's cost structure overall, it also needs to be able to charge a reasonable fare for it's product. A fare increase across the board (at all the airlines) of $10-20 per ticket would not restore profitability, but would be a big step in the right direction and would help buy time to turn things around. If it happens at every airline, it shouldn't shift the balance of competition significantly.

I will admit I don't have the same marketing data that those at Northwest have, and that my scenario is a rather simplistic assessment of the situation, but I still think that there's more to their refusal to raise fares than you suggest. I think they're wanting to continue to put pressure on the industry until a competitor or two are forced into liquidation. Their own employees are being forced to pay for this tactic with their jobs.

Just my opinion, for what it's worth.
 
Hey, as a shareholder in a couple airlines doing relatively well, I''m not going to argue with the idea of raising fares. Definitely, fares are very cheap, and that''s because there''s too much capacity for demand.

I don''t think these recent capacity cuts will be enough to help the cartel airlines break even, but they''re better than nothing. So we''ll see.

>>>While I do believe that the industry needs to lower it''s cost structure overall, it also needs to be able to charge a reasonable fare for it''s product.>A fare increase across the board (at all the airlines) of $10-20 per ticket would not restore profitability, but would be a big step in the right direction and would help buy time to turn things around.  If it happens at every airline, it shouldn''t shift the balance of competition significantly.>I still think that there''s more to their refusal to raise fares than you suggest.  I think they''re wanting to continue to put pressure on the industry until a competitor or two are forced into liquidation.>Their own employees are being forced to pay for this tactic with their jobs.
 
What the public screaming for low fares and bashing the majors in favor of the low-fare carriers always forgets is the following:

When only SWA, JBLU, AirTran and the likes are left, about 70% of the United States currently served by commercial air carriers of any kind will be without air service of any kind...

Perhaps this needs to happen prior to the recovery of the industry. "Cartel" airlines will never be the same, but IMHO there will always be a place for them.
 
It might be 70% of the land mass that is without service, but not 70% of the population.

From what I can tell, at least 50% of the US population lives in a metro area where a LCC exists, and probably 80% are within a 90 minute drive of an airport where LCC''s exist.
 
With only low-budget carriers left, there will be no first class seats for air marshals and congressman to use. Where would they sit?