Northwest Flying Low
By Ted Reed
TheStreet.com Staff Reporter
7/27/2007 11:37 AM EDT
URL:
http://www.thestreet.com/newsanalysi.../10370461.html
A rash of cancellations last month by Northwest Airlines (NWA) apparently boosted results at United (UAUA) , and a planned August schedule reduction could also benefit the Minnesota-based carrier’s competitors.
Northwest said recently that it will reduce flying next month by about 4%, broadening a previously announced cutback. By doing so, the airline is hoping to avoid a repeat of the June cancellations, when it called off about 1,000 flights in the last 10 days of the month because of crew shortages.
United seems to have been a clear beneficiary. An “exceptional June performance ... was further enhanced by an unexpected but very welcome volume of close-in bookings, leading us to exceed the recent revenue guidance that we had issued,” United CEO Glenn Tilton said earlier this week during a conference call.
CFO Jake Brace later declined to quantify the impact but said he “would call it ‘not material.’”
Still, Morningstar airline analyst Brian Nelson said “there is no doubt” that Northwest’s cancellations helped United, “although obviously you can’t attribute United’s solid performance solely to that.” Nelson said United’s results underscore the impact that labor difficulties may have on Northwest, which will report earnings Tuesday.
Analysts surveyed by Thomson Financial are calling for a profit of 79 cents a share for the June quarter.
The recent cancellations reflect a continuing dispute with pilots, who contend that cutbacks made during Northwest’s 20 months in bankruptcy have led to short-staffing.
Under a contract negotiated during Chapter 11, pilots’ maximum flight time increased to 90 hours a month, up from 80. The new standard reduced the likelihood that pilots will volunteer to fly extra hours during the busy summer travel season.
In a letter to employees, Northwest CEO Doug Steenland said the carrier reined in the August schedule by 4%, rather than 3%, in order “to create additional reserves and reduce the maximum number of hours that our narrowbody pilots will be asked to fly during August.”
The maximum hours for those pilots in August will be 86, down from 88 or 90 hours a month ago, he said.
To further reduce flight hours, Northwest will take steps such as altering flight schedules to minimize delays in East Coast cities that suffer from air traffic congestion. The carrier also recalled all eligible pilots from furlough and said it will begin hiring new pilots.
The moves came after Northwest cancelled 109 mainline flights, including 36 for maintenance, during the July 21 weekend.
With many airplanes flying full during a busy summer, schedule cuts could push passengers to other carriers, although they would not be likely to require the type of last-minute changes that boosted United’s yields in June.
Wade Blaufuss, spokesman for the Northwest chapter of the Air Line Pilots Association, said that “reducing the schedule is a Band-Aid approach” and that the carrier should seek remedies in cooperation with its pilots.
He called for improved scheduling to minimize idle time during pilot trips, increased staffing and the restoration of additional pay for flight instructors and overtime pay for pilots who exceed 80 hours monthly.
“They are unwilling to spend additional money to fix pilot fatigue and morale problems on a permanent basis,” Blaufuss says. “Instead they are reducing schedules and forgoing increased revenue.”