Fuel Costs, Charge Cut Into Northwest Loss

First-quarter revenue rises 8.8%, but its loss per share is more severe than anticipated.
By Ted Reed ,

Updated from 11:11 a.m. EDT

As has been the case throughout the airline sector, a steep increase in fuel costs pushed

Northwest

(NWA)

to a loss for the first quarter of 2008.

Excluding special items, the loss was $191 million, or 78 cents a share. Analysts surveyed by Thomson Financial had estimated a loss of 30 cents. Revenue rose 8.8% from a year earlier to $3.1 billion and was in line with estimates. Including special items, namely a noncash goodwill impairment charge of $3.9 billion, Northwest lost $4.1 billion, or $15.78 a share.

Fuel costs added $445 million in year-over-year expenses. In the same quarter a year earlier, Northwest reported net income of $73 million before items.

"Sustained high fuel prices represent an extraordinary challenge to Northwest and the entire airline industry," said CEO Doug Steenland, in a prepared statement. Partially in response, Northwest and

Delta Air Lines

(DAL) - Get Report

have announced plans to merge.

Delta reported its

own sizable loss

Tuesday, as have competitors such as

AMR

(AMR)

,

UAL

(UAUA)

and

Continental

(CAL) - Get Report

earlier.

Referring to the mammoth charge it recorded, Northwest said it must measure the value of goodwill annually, "or whenever significant events that could be indicators of a change in value have occurred." Due to the recent stock price decline, the merger and other industry trends it, the company has "determined that an impairment to goodwill is required." On an earnings conference call, Steenland reiterated that Northwest had no discretion in deciding whether to record the charge.

The carrier said it will lower capacity by about 5% in September, removing 15 to 20 additional aircraft from service and leading to slightly reduced capacity for the full year. Also, the carrier will suspend cargo service to Bangkok, Singapore and Guangzhou effective July 1 and Taipei effective Aug. 1.

Most other legacy airlines, as well as low-priced carriers

JetBlue

(JBLU) - Get Report

and

AirTran

(AAI)

, have announced plans in recent days to cut capacity.

For the quarter, Northwest's consolidated revenue per available seat mile rose 5% after special items, as capacity increased 2%. Mainline RASM rose 3.4% before items.

Cost per available seat mile, taking out fuel and items, was up 4.5%, partially as a result of reduced mainline capacity, one-time items related to leaving bankruptcy and the timing of maintenance checks.

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