Northwest Airlines said Tuesday it will cut its capacity later this year by 3 percent to 4 percent because of high fuel prices. The reductions were deeper than those announced in April, though they are smaller than cuts announced by many other airlines.
The airline said it will try to shrink its staff through voluntary means, but layoffs are possible, too. Northwest said it has not yet arrived at the number of positions it wants to eliminate.
Northwest Chief Executive Doug Steenland said Northwest is aiming to match its capacity to customer demand as airfares increase.
"We don't anticipate doing anything in addition, but if fuel continues to be challenging we clearly have the wherewithal to take additional action," he told analysts at a conference on Tuesday.
Still, Steenland acknowledged that even the cuts announced Tuesday would not get Northwest to its profit goals. When one analyst asked why Northwest didn't cut enough to meet its profit goal, Steenland said cutting more flights would run the risk that another carrier would simply move in and take that business.
"You have to do it always with an eye on the competitive ball," he said.
Northwest Airlines Corp. said it expects to reduce mainline flying by as much as 9.5 percent compared with a year ago. Domestic flying, including regional carriers, is now slated to go down by 7 percent to 8 percent. The cuts are expected to take effect in the fourth quarter, which begins in October.
But it said regional flying would rise by as much as 55 percent as it adds new 76-seat jets. Chief Financial Officer Dave Davis said the smaller jets cost about 30 percent less to operate because of lower labor and fuel expenses, even after making the debt payments.
The major airlines have been announcing capacity reductions because of sharp rises in fuel prices. On Tuesday, Air Canada said it will cut up to 2,000 jobs and cut capacity 7 percent. In May, American Airlines, the largest U.S. carrier, said it would eliminate an unspecified number of jobs and cut capacity up to 12 percent after the busy summer travel season. Delta Air Lines Inc. said in March it would cut U.S. capacity about 10 percent in the second half of 2008.
Delta plans to acquire Northwest in a deal it hopes will close around the end of this year. Oil was headed toward $100 a barrel when the deal was announced. It's above $130 now, prompting Northwest to call the prices a "fuel crisis."
Northwest has hedged about half of the fuel it still needs this year, Steenland said.
He also said the case for the Delta-Northwest deal is stronger than before because eliminating corporate overlap between the two carriers will make their finances stronger.