ST. PAUL, MINN. - (April 16, 2003) - Northwest Airlines Corporation (NASDAQ: NWAC), the parent of Northwest Airlines, today reported a first quarter net loss of $396 million or $4.62 per common share. This compares to a first quarter 2002 net loss of $171 million or $2.01 per common share.
First quarter 2003 results included $78 million in pre-tax charges for severance and pension curtailment expenses associated with workforce reductions, which were driven by capacity reductions resulting from the Iraq War. Excluding these charges, Northwest reported a first quarter 2003 net loss of $318 million or $3.71 per common share. This compares to consensus estimates of a $4.67 loss per share.
“While Northwest Airlines continued to manage its costs aggressively during the quarter, the travel downturn that began some two years ago has further deteriorated due to the war, and shows no signs of improving,” said Richard Anderson, chief executive officer.
The impact of reduced travel demand due to the conflict with Iraq forced Northwest in late March to significantly reduce system-wide ASMs (available seat miles), ground approximately 20 aircraft and reduce its active workforce by 4,900 positions.
“Because we believe that revenues will not recover to historical levels, we are continuing to address costs in every area of the operation. As labor is the single biggest expense of running Northwest, we are now conducting discussions with each of our unions concerning cost restructuring.”
“In light of the cost adjustments made at many of our competitors, it is imperative that we reduce our labor expenses so that we can restore Northwest to profitability,” Anderson added.
Operating Results: First quarter 2003 operating revenues increased 3.2% to $2.25 billion versus the first quarter 2002. Operating expenses increased 8.4%, primarily as a result of higher fuel prices and unusual items. Operating cost per seat mile (CASM) increased 5.2% compared to the first quarter of 2002. Excluding the unusual items and fuel, unit costs decreased 3.1%. During the quarter, fuel prices averaged 85 cents per gallon, which was 44% higher than in the first quarter of last year. First quarter 2003 fuel expense, which included $49 million in benefits from fuel hedging, was $120 million higher year-over-year.
“Northwest remains focused on reducing our cost structure and maintaining the highest liquidity position possible during these uncertain times,” said Bernie Han, executive vice president and chief financial officer. “We have now completed six rounds of cost initiatives since the spring of 2001 and are fully utilizing all options to achieve non-labor cost reductions.” The quarterly results reflect a tax benefit limited under the provision of SFAS 109, which resulted in a tax rate of 7%. Until it is again profitable, the Company will likely not be in a position to record future tax benefits. Northwest’s quarter-end total cash was $2.34 billion, including a $217 million tax refund received in February. Quarter-end unrestricted cash was $2.15 billion.
Other Activity: On March 31, the U.S. Department of Transportation (DOT) approved a marketing alliance between Northwest, Delta Air Lines and Continental Airlines, that will permit Northwest to build on its successful marketing agreement with Continental. “We are pleased that the DOT approved the agreement that will allow us to offer increased service levels and broader choices of destinations for our customers,” said Doug Steenland, president. “Through codesharing with Delta, service to smaller communities, a hallmark of Northwest’s current route network, will be enhanced. Over time, the new partnership with Delta will provide additional revenue opportunities for Northwest,” Steenland added.
In late February, Northwest celebrated its first year of operation at its new WorldGateway terminal at Detroit Metropolitan Airport. As customer feedback attests, features of the new facility, including nearly 100 E-Service Centers that greatly reduce check-in times, are making the travel experience easy and efficient. “Our customers appreciate that the WorldGateway is one of the few airports in North America, along with our other domestic hubs, where international and domestic gates are located in the same facility, improving efficiencies for both travelers and the airline,” Steenland added.
Northwest Airlines: Northwest Airlines is the world`s fourth largest airline with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,500 daily departures. With its travel partners, Northwest serves nearly 750 cities in almost 120 countries on six continents. In 2002, consumers from throughout the world recognized Northwest’s efforts to make travel easier. A 2002 J.D. Power and Associates study ranked airports at Detroit and Minneapolis/St. Paul, home to Northwest’s two largest hubs, tied for second place among large domestic airports in overall customer satisfaction. Business travelers who subscribe to OAG print and electronic flight guides rated nwa.com as the best airline Web site. Readers of TTG Asia and TTG China named Northwest “Best North American airline.”