Travel News Today

Northwest Airlines is set to exit bankruptcy on Thursday, marking the end of a 20 month spell in Chapter 11, and the first time in almost five years that a major US airline has not been in bankruptcy.

Northwest has spent the last year and a half hacking USD$2.4 billion off its annual costs, mostly from an aggrieved work force. Like other so-called «legacy' airlines, it has been forced to drastically slash its costs to keep pace with newer low-cost carriers and deal with wild spikes in fuel costs.

The company will officially relaunch as a slimmed-down carrier when Chief Executive Doug Steenland rings the opening bell on the New York Stock Exchange on Thursday.

Its shares will trade on the Big Board, marking the first time Northwest stock has changed hands on a major public exchange since it was de-listed from Nasdaq in September 2005.

Northwest's emergence from bankruptcy protection appears to signal the end of a five year period of extreme turbulence for US airlines, as it and its rivals have made huge strides toward ensuring their long-term survival.

But despite major cost cuts, Northwest faces intense competition, high fuel prices and furious employees who resent forfeiting USD$1.4 billion annually only to see their bosses net enormous payouts from stock and options awards.

Employee rage swelled this month when the company revealed a management compensation plan that awards Steenland stock and options potentially worth more than USD$20 million.

«Northwest may be emerging from Chapter 11, but it has a long way to go,» said Anthony Sabino, a law professor at St. John's University in New York.

«Much of the carrier's unionized work force is tremendously unhappy. And in an intensely competitive and service-oriented industry such as the airlines, the bad blood could cost Northwest dearly, if not doom it altogether,» he said.

Northwest, which has cut its debt and leasing obligations by USD$4.2 billion, is not facing these challenges alone. Three of the big US carriers --- Northwest, Delta Air Lines and United Airlines -- have all been in Chapter 11 in the last five years.

US Airways also went bankrupt and was saved from liquidation only by a merger with America West Airlines. American Airlines restructured without entering bankruptcy.

Without exception these airlines grappled with peeved workers, low-fare competition and high fuel prices.

The industry mounted a recovery in 2006 thanks to a string of revenue-boosting fare rises, but several failed fare increases in 2007 suggest rising fares are at an end.

Meanwhile, domestic competition is increasingly vigorous thanks to new entrants such as Virgin America Airlines and Skybus Airlines. Consequently, top airlines have warned of excess domestic capacity, which could erode pricing power.

In a government filing on Tuesday, Northwest predicted softening domestic revenue in 2007 due to industry supply increases and a slowing economy.

«I think they are very sensitive to the tenuous state of domestic demand,» said Velocity Group airline consultant Doug Abbey.

He said, however, that Northwest is better positioned than most airlines to support higher fares because of its dominance at its hubs in Detroit and Minneapolis.

«They really dominate those airports with relatively little low-cost competition,» Abbey said. «They're in a strong position to maintain higher yields.»

Some airlines have reacted by moving capacity to lucrative international routes where they face less competition.

Northwest also has tweaked its domestic operations by acquiring its regional partner Mesaba Airlines. It also has launched a regional subsidiary called Compass Airlines.

Some, such as US Airways CEO Doug Parker, have said airline mergers are the key to long-term survival as they alleviate excess capacity.

Early this year, talk of potential industry consolidation was rampant. Speculation died down in recent months, although some still believe consolidation is in the cards -- perhaps even a Northwest-Delta merger.

In January, Delta beat back a hostile takeover bid from US Airways, which in 2005 merged with America West Airlines.

«I'm just presuming, absent any crisis, airlines will do moderately well over the next six months, and then if things go south... then I think we'd see consolidation rear its ugly head again,» Abbey said.

(Reuters)