Northwest to lay off 500, implement more savings measures
Tony Kennedy
Star Tribune
Thursday, July 19, 2001
Northwest Airlines will cut about 1,500 jobs, close reservations centers in Honolulu and Garden City, N.Y., and make other cuts to reduce spending by $135 million
during the remainder of 2001.
The cost-containment plan was announced today after Northwest said it lost $55 million in the second quarter on declining revenue. Over the first half of 2001,
Northwest has lost $226 million, mainly due to the evaporation of high-priced business travel.
Eagan-based Northwest estimated that two-thirds of the staff cuts will be achieved through attrition, voluntary leaves, and leaving open positions unfilled. Another
500 cuts will be made by layoff, including 130 management positions.
The action plan also calls for the closing of Northwest's flight attendant base in Chicago. Earlier this year, Northwest moved to close a DC-10 base in Honolulu,
affecting 180 pilots based there.
"The decision to reduce staff is a difficult one for us," Northwest Chief Executive Officer Richard Anderson said. "But Northwest, like the rest of the airline industry,
continues to experience the impact of a weak U.S. economy."
The carrier had announced June 19 that it would lose between $50 million and $75 million in the quarter, more than previously estimated. But the actual loss of $55
million, or 65 cents per share, was less than revised estimates. Analysts surveyed by First Call had projected a loss of 74 cents a share.
Northwest Chief Financial Officer Mickey Foret said the airline will do less flying in all of its geographic regions as part of the carrier's focus on improving
profitability. He said third and fourth quarter system capacity is now anticipated to drop about 1 percent from the same period last year.
First-half 2002 system capacity is expected to decrease about 3 percent year over year, Foret said.
Among the reductions are flights between Osaka, Japan, and the following: Seattle, Kuala Lumpur, Los Angeles and Manila. Non-stop flights between Detroit and
Rome will also be suspended over the winter.
While cutbacks are necessary, Anderson said Northwest will continue to modernize its fleet, upgrade its airport facilities and enhance World Business Class and
first-class service.
"Management continues to execute its strategic plan to position Northwest for growth when the economy rebounds," Anderson said.
The planned cost savings of $135 million follows an earlier belt-tightening that trimmed $209 million in annual expenses at Northwest. In that round of cuts, about
100 management jobs were lost.
Northwest said second-quarter operating revenue decreased by $170 million, or 5.9 percent from a year ago. Total revenues were $2.715 billion. Passenger revenue
per available seat mile, a measure of how much people are paying for seats, decreased 8.1 percent. The drop reflected the loss of business travelers, who traditionally
pay much more to fly than leisure travelers.
Meanwhile, second-quarter costs jumped 4.5 percent to $2.751 billion. Foret said the increase was due primarily to higher labor costs, a 15.6 percent year-over-year
increase in aircraft maintenance expenditures and higher fuel prices. Excluding the effect of higher fuel prices, unit costs increased by 2.9 percent, Foret said.
Overall costs increased despite a 21.5 percent decline in commissions paid by Northwest to travel agents. Paid commissions were $139 million in the quarter, down
from $177 million a year ago. Airlines have been cutting commissions for several years and more passengers are booking tickets direct via Internet, saving the airlines
money.
The second-quarter loss of $55 million compares to a gain of $115 million in last year's second-quarter.
-- Tony Kennedy is at tonyk@startribune.com .
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