Northwest Airlines reports third quarter 2002 results

Northwest Airlines Corporation (NASDAQ: NWAC), the parent of Northwest Airlines, today reported a third quarter net loss of $46 million or 55 cents per common share. This compares to a third quarter 2001 net profit of $19 million or 20 cents per diluted common share.

The third quarter 2001 financial results included a $158 million after-tax grant from the Federal Government under the Airline Stabilization Act and $39 million in after-tax non-recurring charges related to aircraft write-downs and severance costs resulting from the events of September 11, 2001. Excluding these items, Northwest reported a third quarter 2001 net loss of $100 million or $1.18 per common share. Northwest's third quarter 2002 financial results were favorable to consensus estimates of a 75 cent loss per share.

"Northwest, like the rest of the industry, continues to address the impact of diminished revenue resulting from a post-September 11, 2001 drop in passenger demand and the continued depressed levels of business travel. While we cannot forecast when the airline will return to profitability in this difficult period, the performance of Northwest relative to that of other network carriers compares favorably," said Richard Anderson, chief executive officer.

Anderson continued, "Northwest has been aggressively managing its costs since March, 2001 and has taken a series of cost reduction and revenue enhancing steps designed to address the challenges in the current environment. During the third quarter and in early October, we took additional measures to adjust our workforce and contain costs to respond to the weak revenue environment. Our commitment to vigilant cost control is estimated to result in an incremental $300 million of annualized 2003 cost savings, in addition to the $1.7 billion annualized savings from past actions and flight schedule reductions. As we look forward, we will continue to make adjustments to adapt to the business environment to ensure the competitiveness of Northwest."

Among other measures, Northwest recently announced that it will close a maintenance facility in Atlanta, a reservation center in Long Beach, Calif., as well as three city ticket offices. Additionally, the airline will require employees to pay a portion of their health care premiums. These initiatives, coupled with other cost saving programs, including the increased use of technology and the ongoing focus of improving productivity, will contribute to the incremental savings.

Operating Results

Third quarter 2002 operating revenues of $2.56 billion were down 1.2%, while operating expenses were 7% lower, as compared to the third quarter last year. These quarterly comparisons include the impact of last year's events of September 11, which resulted in the shutdown of the entire airline industry for several days and the subsequent severe drop in air travel demand.

For the quarter, Northwest's revenue passenger miles increased 0.1% on 3.7% less available seat miles year-over-year, resulting in an industry-leading system load factor of 78.8%, up 3 points year-over-year and 5.5 points better than the collective average of the other major airlines.

Despite the industry-wide weak yield environment resulting from the lack of business travelers, Northwest's third quarter unit system passenger revenue (RASM) was up 2.4% year-over-year. Northwest continues to outperform the domestic industry average in RASM with both higher yields and load factors. In the month of August, the most recently available industry data, Northwest had a 12% domestic unit revenue advantage to the average of its competitors, driven principally by an 11% yield advantage.

Third quarter 2002 operating cost per seat mile (CASM) decreased by 2.2% year-over-year, despite capacity declining 3.7%, benefiting from cost reduction initiatives and lower fuel prices.

"These are challenging times for the industry, but Northwest is relatively well-positioned with its stronger liquidity, its disciplined cost focus, and its above-industry revenue performance," said Bernie Han, executive vice president and chief financial officer.

In the latest of a number of private and public market financings closed since September 11, 2001, Northwest in August 2002, successfully completed a pre-funded $749 million secured aircraft bond financing in the public capital markets to finance future aircraft deliveries. The financing was structured as enhanced equipment trust certificates (EETCs) that have an average life of 8.1 years, a final maturity of 19 years, and an initial average weighted interest rate of 4.07%. This transaction was Northwest's largest EETC ever completed.

Northwest had over $2.5 billion in total cash at quarter-end, including $116 million in restricted cash.

Other Activity

In late August, Northwest Airlines announced that it, Continental Airlines and Delta Air Lines had signed a cooperative marketing agreement designed to connect the three carriers' domestic and international networks, which provides for code sharing, frequent flyer program reciprocity, and a reciprocal airport lounge program. The proposed agreement is now being reviewed by the Department of Transportation (DOT) as well as the Northwest and Delta pilot unions. The company expects final approvals in the near future.

"This agreement will allow the three airlines to offer travelers a broad network, connecting thousands of markets. Ease of ticketing, check-in, and luggage handling will make travel on two or more of the carriers a seamless experience. The marketing alliance will benefit the three airlines' business and leisure customers by providing one of the most convenient route networks in the world," said Doug Steenland, president.

"The approval of the Continental/Delta/Northwest marketing agreement would allow Northwest to remain competitive, especially with United and US Airways which recently received DOT approval for a similar agreement," Steenland added.

Earlier this month, Northwest announced that it will launch an Internet site, "WorldAgent Direct," that provides travel agents with industry-leading features and services, including free and unrestricted access to the airline's special Web fares, simplified reporting not found on competing sites, and complete online booking capabilities. WorldAgent Direct offers an array of services from fully integrated reporting, to end-to-end support of the customer experience. Northwest will eventually tie WorldAgent Direct to its CorpNet share-based contracting program, an initiative unveiled in June that allows the airline and its corporate customers to transition to agreements that are based on the share of business they do with Northwest.

In August, Northwest improved upon its already successful Internet check-in service by expanding the check-in window to 30 hours prior to departure, a convenience not available from any other airline. The service was also enhanced with the creation of a round-trip check-in feature that asks customers returning within 30 hours if they would like to be checked in for their return flight. August usage of nwa.com Check-In increased 100% from the same month in 2001. 

During the third quarter, Northwest continued to offer new or upgraded service to a number of key U.S., European and Caribbean destinations. Among the new routes announced were Detroit-Madrid, Detroit-Huntsville, Memphis-Grand Cayman, and Memphis-Madison. The airline also announced new service from its hub at Minneapolis/St. Paul to Albany NY., Knoxville, Tenn., and Helena, Mont. In addition, new service began operating between Detroit-San Antonio and Minneapolis-Richmond, VA.

"These are examples of Northwest's continuing commitment to offer new and expanded service to destinations that appeal to our North American, European and Asia/Pacific customers. We continue to study additional routes that will make travel even more convenient across Northwest's global network," 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 more than 1,700 daily departures. With its travel partners, Northwest serves nearly 750 cities in almost 120 countries on six continents.