Northwest (NWA) Raises Fares, But Will Anyone Pay Them?

April 4, 2008 by Douglas A. McIntyre

The management at Northwest (NWA) knows when it is in a pickle. Fuel prices are moving up and passenger traffic is likely slowing as the recession keeps people off airplanes. The only way to make some of that up is through higher ticket prices. But, that won’t work.

Northwest and other big carriers, most of them saddled with debt and troubled by crude hanging out at $100, have watched this week as Aloha Air and ATA have filed for bankruptcy and stopped operations.

According to The Wall Street Journal "The move is the latest by a major carrier to trim service and pile extra fees on customers as relentless growth in the cost of fuel threatens the industry’s attempt to put a half-decade slump and a round of bankruptcies behind it."

The trouble is that, in a bad economy, getting people to pay more is a losing tactic. Potential passengers who have to pay more will fly less. This even applies to the business traveler. At some point his company, faced with a tough economy, holds him off as many customer trips as possible.

While the airlines are faced with problems, they are not insurmountable. With possible bankruptcies at larger carriers looking more likely in the second half, the airlines are going to have to go to their employees for help, In Chapter 11, lay-offs are not just likely, they are a certainty. Asking workers to come in fewer hours would cut costs significantly at companies which have tens of thousands of employees. It would also allow the carriers to aggressively cut the number of routes which they fly, taking out those they are not highly profitable.

It is also time for the airline companies to go see their lenders. Better now than when the bankruptcy papers are being walked into court. Chapter 11 filings often leave banks with cents on a dollar. Extending debt over a longer period at least offers some chance of being made whole.

Renegotiation with worker’s unions and banks may be the only thing that saves airlines and it is not such a bad thing for employees and lenders, especially given the alternatives.

Douglas A. McIntyre