Large Airlines Must Slash Costs to Survive, NWA President Says

MACKINAC ISLAND, Mich. (AP) -- Northwest Airlines and other large U.S. carriers must slash labor and other costs to weather the commercial aviation industry's worst economic storm, company president Douglas M. Steenland said Thursday.

With budget airlines now representing 30 percent of domestic capacity, the bigger companies ''must, in essence, become low-cost carriers,'' Steenland said. A ''relentless'' campaign to reduce expenses has saved Northwest $1.7 billion since 2001, but isn't enough, he said.

''By any measure, our labor costs are too high,'' he said in a speech during the Detroit Regional Chamber's annual Mackinac Policy Conference. Northwest is Michigan's largest passenger air carrier and has a hub at Detroit Metropolitan Airport.

''Because of the explosive growth of the low cost carriers and the bankruptcy and near-bankruptcy of several of our traditional competitors, there is now a new labor cost structure in the United States airline industry. We must lower our costs to compete effectively with other airlines and to return to profitability.''

The airline industry is ''going through the most difficult period of time in its entire history,'' recording $23 billion in losses since 2001, Steenland said. Last year's losses totaled $10 billion, and this year shows little hope for improvement.

Aside from the 2001 terrorist attacks, the industry has been beset by economic recession, the expansion of low-cost competitors, the Iraq war, the SARS outbreak and higher fuel prices.

Northwest recently called for $1.1 billion in annual labor cost reductions, including $300 million in pay and benefit reductions conceded by pilots and salaried employees. The company is negotiating with other unions in hopes of wringing $800 million in labor savings from the budget this year.

Pension reform is another crucial step, Steenland said. Northwest wants to avoid the pension cancellations experienced by United Airlines and U.S. Airways during bankruptcy proceedings, he said, adding that means prodding Congress to approve airline pension reform legislation.

A pending bill would require the companies and their unions to negotiate a pension freeze and grant a longer period than the three years now permitted for covering unfounded liabilities in their plans. Then they would put together employee-contribution plans such as the 401(k), an approach already taken by low-cost airlines.

''We want to make sure that we do our best for all our employees to preserve their hard-earned pension benefits,'' Steenland said.

Aside from cost-cutting, Northwest's long-term strategy calls for continued investment in new airplanes, airports and high-tech improvements such as self-service check-in kiosks, he said.

The company purchased 203 planes between 2001 and 2004, and recently ordered 18 Boeing 787 aircraft, which will be used primarily for flights between the United States and Asia.