Prior to its acquisition by Delta Airlines, it was the sixth largest carrier as measured by domestic passengers. In addition to routes in the United States, the airline offers service to Europe and Asia, and transports more domestic cargo than any other U.S. passenger airline. As was the case with many legacy carriers, Northwest was forced into bankruptcy as a result of reduced profitability following the September 11th attacks and the introduction of low-fare discount airlines.
Northwest’s restructuring goals during bankruptcy included annual cost reductions of $2.4 billion. Through collective bargaining with employee labor unions, Northwest management negotiated approximately $1.4 billion in annual labor cost savings. Northwest achieved non-labor savings through restructured agreements with its regional airline affiliates, optimization of interest and insurance contracts, lower fuel burn, and reduction in facilities costs. The airline has also reduced its fleet by 9.2%, which has resulted in fewer available seat miles (ASM).
While cost cutting made the company profitable in 2006, there are a multitude of risk factors working against the airline. The most prominent among these is the price of oil. Crude oil prices climbed 55% from 2004-2006. Northwest's fuel costs have risen in tandem, with the average price of fuel per gallon rising from $1.1817 to $2.0247 during the same period. Despite industry-wide fears for long term viability, CEO Doug Steenland claimed that his company can maintain profitability even if oil stays at $100 a barrel on 1 October 2008.Management also fears union demands for wage increases, given that employees were forced to accept salary cuts during bankruptcy  .
The Northwest fleet of 371 aircraft provides service to 240 destinations across three continents. The airline utilizes domestic hubs in Detroit, Minneapolis/St. Paul and Memphis, and international hubs in Amsterdam and Tokyo. The Amsterdam hub is operated through a joint venture with KLM Royal Dutch Airlines.
Northwest’s operating revenue has increased yearly from 2003 until 2006. However, while the trend continues to be positive, the magnitude of the year on year percentage increase has fallen over time. From 2003 to 2004, operating revenues climbed by nearly 12%, as a result of an over 25% gain in regional carrier revenue and a nearly 10.5% increase in mainline passenger revenue; in contrast, operating revenue increased by only 2.3% from 2005 to 2006, due to a significant slowing in both regional carrier and mainline passenger revenue growth. Total revenue passenger numbers were actually lower in 2006 than in both 2004 and 2005; 2006 operating revenue growth remained slightly positive only as a result of higher average fares.
The airline’s operating income numbers were quite poor for the years 2003-2005. The decrease in income observed from 2003 to 2004 was motivated by a nearly 14% increase in costs that outpaced revenue growth. These higher costs were led by a more than doubling in the price of both aircraft fuel and regional carrier expenses, as well as a 78% increase in aircraft maintenance costs. Operating expenses continued to expand into 2005, due to an additional 30% increase in regional carrier expenses and a 42% rise in wage and benefit costs. By 2006, bankruptcy protection allowed Northwest to cut expenses across the board, which combined provided a nearly 10.5% decrease in operating costs, allowing for profitability in 2006.
Operational terminology unique to the airline industry includes available seat miles (ASM), revenue per available seat mile (RASM) and cost per available seat mile (CASM). The three metrics are determined as follows:
Northwest's closest competitors include the following:
Northwest is the sixth largest airline in the United States, capturing approximately 7% of the domestic commercial airline market. The top fifteen U.S. airlines by market share are ranked below, where market share is measured in terms of domestic revenue passenger miles.
|Airline||Revenue Passenger Miles (Billions)||Traffic Pct Change||Available Seat Miles (Billions)||Capacity Pct Change||Load Factor (%)||Utilization Pct Change|
|American Airlines (AMR)||11.85||(3.1%)||13.86||(1.2%)||85.5%||(1.7%)|
|Delta Air Lines Inc. (DAL)||11.69||0.2%||13.68||0.7%||85.4%||(0.5%)|
|United Airlines (UAUA)||10.34||(3.6%)||11.97||(0.6%)||86.5%||(2.6%)|
|Continental Airlines (CAL)||7.71||(0.9%)||9.16||1.4%||84.1%||(2.0%)|
|Southest Airlines (LUV)||6.88||0.7%||8.80||5.7%||78.8%||(3.9%)|
|Northwest Airlines (NWA)||6.56||1.4%||7.48||2.4%||87.7%||(0.9%)|
|US Airways Group (LCC)||5.67||(0.5%)||6.67||0.4%||85.0%||(0.8%)|
|JetBlue Airways (JBLU)||2.30||2.3%||2.77||3.2%||79.5%||(0.7%)|
|AirTran Holdings (AAI)||1.89||15.5%||2.23||13.0%||84.7%||1.8%|