Northwest Airlines Monday reported pretax profit of $405 million for the third quarter, its best performance in 10 years and third best in company history.
It reported $244 million in net income for the period ended Sept. 30, or 93 cents per diluted share. Operating expenses were down $122 million, or 4 percent.
"These results are consistent with our five-year business plan, when adjusted for higher fuel prices," said Doug Steenland, president and chief executive. "This strong performance makes it possible for us to continue to invest in the airline so that we can enhance shareholder value, remain competitive and preserve and enhance the jobs of our co-workers."
The company is making headway, he said, by investing in more fuel-efficient planes and turning its eyes to further investment in Asia and Europe.
"Northwest is halfway through its $6 billion refleeting program, which includes the delivery of 32 Airbus A330s; 72 76-seat regional jets manufactured by Embraer and Bombardier; and 18 Boeing 787s," Steenland said.
He said the efficiencies will produce a return on investment greater than 15 percent, both because they allow Northwest to retire older, less-efficient planes and use 76-seat planes to operate year-round routes that until now it could only afford to operate seasonally.
Because Northwest will also be the first airline in the North America to receive the Boeing 787, it will use its advantage to beef up routes in Asia, where it has been an industry leader since the 1940s.
Although operating revenues for the quarter were $3.4 billion, down slightly from last year, the airline, it said, made up ground with a 3.5 percent increase in the amount of revenue it made flying one passenger one mile, an industry measure of efficiency.
"Northwest is just about the strongest in the industry this quarter," said Ray Neidl, analyst at Calyon Securities in New York. "They have done a good job in bringing down interest costs through debt reduction and nonfuel costs while restructuring."
The quarter was a marked improvement in tone and scope from the second quarter, when the airline was mired in flight cancellations that cost it more than $45 million in June and July.
By mid-August, it said, cancellations had dropped off substantially after Northwest offered overtime incentives for pilots and reduced the hours in their monthly schedules.
Like other carriers this quarter, the elephant in the room is the persistent rumor about airline consolidation.
Industry experts predict significant announcements before the end of the year.
Although Northwest refused comment on specifics, Steenland said it is easy to conclude that "six major domestic network carriers are too many."
He blamed the fragmentation for "destructive boom and bust cycles that serve no one," and listed pluses that include seamless travel for passengers across a broader network and the elimination of duplicate routes and overhead.
But the risks, he said, include the uncertainty of regulatory review and the complexity of combining work forces, which likely would mean more expensive labor contracts.
With planes fuller than they have ever been and crude oil prices over $90 a barrel, the easiest way to make money, said Michael Boyd, aviation consultant in Evergreen, Colo., is to change the equation.
"What airlines want to do is take out product and charge more," he said. "That's good business, but whether it is possible or not is yet to be seen. It's a real tricky thing trying to put airlines together."
But with "United perfuming itself for sale," Boyd said, airline executives, including Steenland, are entrenched in their boardrooms considering what the scenario might mean for them.
"One is that it could be a good thing if your competition is mired in a messy merger."
-Jane Roberts: 529-2512
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Northwest Airlines Corp.
Quarterly pretax profit: $405 million, up 57 percent
Unrestricted cash: $3.1 billion
Total debt: $9.2 billion
Unsecured claims yet to be resolved: $1.1 billion
Guidance: Seat capacity in the fourth quarter will be down 2 to 3 percent, based on a reduction in domestic flights of 6 to 7 percent.
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