Northwest Air Down on Ticket Flap
08/25/04 - 02:34 PM EDT
Eric Gillin
The airline industry has yet to back Northwest Airlines' (NWAC Quote - Cramer on NWAC - Stock Picks) attempt to add new fees to tickets, jeopardizing the carriers' effort to cut $70 million a year in costs and causing shares to slump.
Northwest late Tuesday announced that it would charge an additional $7.50 on every roundtrip ticket booked through a global distribution center, or GDS -- a strike against Sabre (TSG Quote - Cramer on TSG - Stock Picks) and other companies that provide the databases travel agents use to book tickets. The move is strategic and one that Northwest hopes will push customers to book through its own Web site, thereby cutting distribution costs to $5 a ticket, on par with low-cost carriers like Southwest Airlines (LUV Quote - Cramer on LUV - Stock Picks) and JetBlue Airways (JBLU Quote - Cramer on JBLU - Stock Picks). In response, Sabre retaliated against Northwest, making it harder for travel agents to find and book the carrier's fares in its system, withholding discounts and saying the carrier is in breach of its agreement governing the listing of fares. Sabre's counterattack sends a strong message to the rest of the airline industry, which has yet to match Northwest's gambit. In reaction, shares of Northwest fell 7 cents, or 0.7%, to $9.75, but Sabre fared worse, dropping $1.96, or 8.1%, to $22.31. Northwest's rivals, meanwhile, tacked on gains. AMR (AMR Quote - Cramer on AMR - Stock Picks), parent of American Airlines, rose 7 cents, or 0.8%, to $9.75, while Continental Airlines (CAL Quote - Cramer on CAL - Stock Picks) rose 6 cents, or 0.6%, to $9.86, as they continued to benefit from the recent slide in oil prices. If Sabre's threats aren't enough, other carriers may not back Northwest out of spite. Traditionally, Northwest has been the spoilsport when it comes to implementing rate hikes. For the last two years, legacy carriers like Continental and American have pushed for $5 and $10 surcharges to cover the cost of fuel, only to roll them back when Northwest, which faces less low-cost competition on its routes, balked.
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