Image: Northwest Airlines jet
Amy Sancetta  /  AP
The nation’s fifth-largest airline flew a smaller but fuller fleet this year, and the results showed up on the bottom line.
updated 10/29/2007 5:45:08 PM ET 2007-10-29T21:45:08

Usually companies “emerge” from bankruptcy, but for Northwest Airlines it was more like a sprint.

In its first full quarter after leaving Chapter 11 this summer, Northwest Airlines Corp. reported a $244 million profit on Monday, much higher than analysts expected. The nation’s fifth-largest airline flew a smaller but fuller fleet this year, and the results showed up on the bottom line.

Other airlines reported similar results earlier this month, with Delta and United airlines beating analyst expectations as well.

Fuel prices will have a big impact on whether those profits continue. Oil touched a new trading high of $93 a barrel early Monday, and even when adjusted for inflation it’s not far from the highs of the early 1980s.

In the past, Northwest has been able to pass along about half of the cost of fuel price increases to passengers, Chief Financial Officer Dave Davis said.

As fuel prices rise, Northwest and other airlines have generally been willing to reduce flights and raise prices rather than fly unprofitably. Northwest is in a good position in that area because of its 103 DC-9’s, which are paid for, so they can be parked with little damage to profits.

“We have significant fleet flexibility, particularly with our DC-9’s, to further reduce capacity should we see an impact on demand,” Davis said.

That hasn’t happened yet, though, Davis said. “Bookings remain strong through the remainder of the fourth quarter and we have seen no evidence of slowing demand,” he said.

Northwest said it had locked in about half of its fourth-quarter fuel, with most of that in a range between $56 and $75 a barrel. It has hedged about 10 percent of the fuel it will need in the first quarter of 2008 between $63.50 and $84.

In the current quarter, Northwest said hedges generated $23 million in fuel savings for the quarter. Total fuel spending for the quarter dropped 7.9 percent to $873 million.

Northwest has been adding international and regional jet offerings and trimming mainline seats within the U.S. It said overall capacity would go down 1 percent to 2 percent during the fourth quarter. Other airlines have been shifting seats to overseas routes as well.

“All of the major airlines are saying, ’If need be, we can reduce our capacity,”’ said Avondale Partners analyst Bob McAdoo. “Which is what you need to do. Because at some prices, some of this capacity you’re flying around doesn’t make sense.”

The Eagan-based airline had a profit of $244 million, or 93 cents per share, for the three months ended Sept. 30. That compared to a loss (driven by bankruptcy expenses) of $1.18 billion, or $13.50 per share, during the same period a year earlier. Revenue dipped to $3.38 billion, down slightly from $3.41 billion a year ago.

Analysts surveyed by Thomson Financial predicted earnings per share of 76 cents on revenue of $3.36 billion.

Northwest said it spent $12 million on incentives aimed at eliminating the cancellations that plagued it at the ends of June and July. Hundreds of flights were canceled at the end of each of those two months because Northwest couldn’t find enough pilots to staff its flights. Attendance incentives put in place in August eliminated those cancellations, and Northwest completed more than 99 percent of its flights in August and September.

President and Chief Executive Doug Steenland said on a conference call that Northwest would examine whether to spin off its frequent-flier program, but no decision had been made yet.

“Clearly this is worthy of further analysis and we are undertaking that work,” he said.

Steenland also declined to say whether Northwest was currently holding any merger negotiations. Earlier this month Delta Air Lines Inc. CEO Richard Anderson — who ran Northwest before Steenland — said Delta was evaluating whether a deal with another carrier was in its best interest.

Steenland said Northwest would take delivery of its first Boeing 787 in the first quarter of 2009, one quarter later than expected. Steenland said Northwest would not get any compensation from Boeing for the delay.

Northwest shares rose 29 cents, or 1.7 percent, to close at $17.64 Monday.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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