Northwest to Cut U.S. Capacity, Hike Fares, Park More Planes

[PARK HERE: Pinal Airpark in Marana, Arizona, where airlines park planes in the sun]

NORTHWEST: 'You want a whopper with that?'

Citing "the high cost of fuel and current economic uncertainties," Northwest Airlines says it will continue raising fares, reduce capacity by 5 percent in September and park 15-20 more planes, including DC-9s and some 757s.

More fuel charges are ahead. For corporate travel buyers, fuel charges are different that fare increases because as a rule, fuel charges are added to the bottom line after negotiated discounts have been subtracted. This year, major airlines have been boosting ticket prices through a mixed series of fuel charges and posted fare hikes.

The Northwest statement said, "On March 18, 2008, for international routes, Northwest increased one-way fuel surcharges from North America to Europe, India, Japan and most other destinations in Asia ranging from $115 to $155. Fuel surcharges on flights from Japan to North America are now approximately $140 one-way but will increase to $160 one-way for ticketing starting May 1, 2008."

It continued, "For domestic routes, since Jan. 1, 2008 Northwest has participated in 11 attempts by various carriers to increase fares to reflect rising fuel costs, although most have been rolled back because some airlines failed to match."

By the way, it's disingenuous to say of fare increases that "most have been rolled back." Most have sailed through, across the board. On a few occasions, such as last week when Delta tried to ignite a new round, airlines have retreated in some attempts to raise fares, but in general it has been a steady drumbeat all year.

I know, 'Wot, an airline is being disingenuous?!' It's in their DNA, man.

[Rick Seaney, who does a superb job covering airfares at his invaluable FareCompare.com, jumped right on this whopper, giving the Northwest assertion a "4 Pinocchios" rating and showing in detail just how incorrect it is. I'm pasting Rick's e-mail to the bottom of this post.]

Northwest also matched other U.S. network carriers and for North American travel slapped on a $25 charge for a second checked bag, effective May 5. Full-fare passengers, WorldPerks elite-status members and the military are exempt from the added charge.

While squeezing domestic capacity, Northwest, like other major airlines, is continuing to beef up more profitable international routes (and their domestic feeders). So look out, domestic markets that don't provide sufficient international feed to the hubs. Get granny on a plane to London quick!

Northwest said it is "continuing to expand its international service with the addition of new flights between Detroit and London Heathrow; Minneapolis/St. Paul and London Heathrow; Seattle and London Heathrow; Minneapolis/St. Paul and Paris; Portland, Ore. and Amsterdam; and Dallas/Ft. Worth and Amsterdam, which will be operated by Northwest’s joint venture partner, KLM Royal Dutch Airlines."

In reducing domestic capacity, Northwest said it will "remove an additional 15 to 20 aircraft from service. Two DC-9s will be removed in June and the remainder in the fall to coincide with the planned schedule reductions. These fleet reductions will include approximately 10 DC-9s and the balance being a mix of Boeing 757s and Airbus A320s and A319s."

Northwest likes to send its sidelined planes to the vast desert parking area at Pinal Airpark in Marana, Arizona, where the Evergreen Maintenance Center has been doing brisk business in recent years receiving major airlines unwanted planes and getting them into shape for re-sale around the world. Evergreen president Jack Keating told me during a recent visit there that they can't find enough qualified aircraft technicians to handle the demand.

Northwest said it won't go back to its workers for more pay cuts.

"To the extent that the schedule changes will result in the need for fewer employees, every effort will be made to achieve these reductions through attrition. With the reduced flying, Northwest has suspended its plans to hire additional pilots and flight attendants."

Here is FareCompare.com's Rick Seaney's research note today, responding to the Northwest assertion that most attempts at fare hikes this year have been rolled back:

"The reason for this research note tonight is an enquiry I received from an airline analyst about a statement that was widely reported today regarding Northwest Airlines: http://www.forbes.com/markets/feeds/afx/2008/04/03/afx4852116.html

A portion of the statement notes:

“In addition, for domestic routes, since Jan. 1, Northwest said it has participated in 11 attempts by carriers to increase fares to reflect rising fuel costs. However, most fares have been rolled back because some airlines failed to match, the company said.”

The specific question posed to me by the analyst was the discrepancy between my previous analysis of airfare hikes – which had Northwest significantly matching 6 of 10 attempted airfare hikes in 2008 -- and the contradiction with the Northwest statement that “most fares (domestic) had been rolled back”.

The airfare hike timeline that FareCompare.com has meticulously recorded shows 10 attempts to increase airfares in 2008 – 6 successes and 4 failures – noted below:

· January 3^rd, initiated by United, $10 roundtrip, successful (sticky)

· January 11^th, initiated by United, $30 roundtrip, unsuccessful

· January 17^th, initiated by American, $20 roundtrip, unsuccessful

· January 24^th, initiated by Continental, $20 roundtrip, successful (sticky)

· February 22^nd, initiated by United, $10 roundtrip, successful (sticky)

· February 28^th, initiated by Delta, $10 roundtrip, successful (sticky)

· March 7^th, initiated by United, $10 roundtrip, successful (sticky)

· March 14^th, initiated by United, $4-$50 roundtrip, successful (sticky)

· March 19^th, initiated by Delta, $10 roundtrip, unsuccessful

· March 27^th, initiated by Delta $10 roundtrip, unsuccessful

I went back to our database (one of the largest in the world) of current and historical airfare information and compared all the airfares published by Northwest Airlines as at they existed on January 2, 2008 (no airfares are filed on New Years Day) to the prices today April 3, 2008.

With deference to the Washington Post, I am going to give this Northwest Airlines statement -- which implies their domestic U.S. airfares have not materially increased in 2008 – a rating of “4 Pinocchio’s”.

The following chart from our database clearly shows that the bulk of the domestic airfares from Northwest Airlines are up from $30 to $120 roundtrip for both leisure and business travelers since January 2, 2008.

Glossary:

• City Pair – Airfare filed between 2 cities
• City Pair Count – Number of city pairs with an increase or decrease of X dollars roundtrip
  • Example 50 cities to 50 cities (all combinations both directions) is approximately 1200 city pairs
  • Northwest files airfares for approximately 15,000 city pairs.
• X-Day – Advance Purchase Requirement (Days before Departure) -We bucket airfares by city pair and cheapest price point for several of the most frequent “days” before departure requirements on airfare
  • 7 or fewer days before departure are “business traveler” airfares (most expensive)
  • 10 or more days before departure are “leisure traveler” airfares (least expensive)
  • Airlines typically have 7 to 10 price points for any given city pair
• Up/Down – All increase or decrease dollar amounts are roundtrip

Some quick observations about this Northwest airfare comparison:

• The bulk of Northwest passengers are paying at least $30 or more roundtrip compared to January 2, 2008
• Approximately 2/3 of all Northwest passengers are paying at least $50 or more roundtrip compared to January 2, 2008
• A little over 1/3 of all Northwest airline passengers are paying at least $90 more roundtrip compared to January 2, 2008
• A negligible amount of Northwest passengers are paying less than they did on January 2, 2008
• In covering airfares for over 6 years, I have never seen a 3 month period for a legacy airline without at least a few thousand “decreases” – basically there are none this year

I am not sure why Northwest Airlines made this statement, but it certainly is not accurate according our proprietary historical airfare processing system.

Regards,

Rick Seaney

CEO, FareCompare.com

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