Cost Woes Again at Northwest

Revenue rises, but the company has a loss after factoring in fuel and labor costs.
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Northwest Airlines

(NWAC)

continued to gush red ink in the second quarter as fuel costs surged and the airline's labor costs remained higher than many competitors.

The Eagan, Minn., airline Tuesday reported a loss of $225 million, or $2.59 a share, vs. a year-earlier loss of $182 million, or $2.11 a share.

Excluding unusual items, Northwest lost $279 million, or $3.21 a share, slightly narrower than the $3.29-a-share average loss forecast from analysts surveyed by Thomson First Call. A year earlier, the adjusted loss was $78 million, or 90 cents a share.

Revenue totaled $3.20 billion, up 11.3% from $2.87 billion a year earlier. On average, analysts had forecast $3.08 billion.

Invoking the specter of bankruptcy, the airline's executives continued to say they need employee concessions and federal pension reform.

"We need to rapidly achieve at least $1.1 billion in labor cost savings and resolve our pension plan challenges by freezing our defined benefit pension plans and obtaining federal legislation that addresses existing problems in the pension laws," said Doug Steenland, Northwest's president and CEO. "Failing to do so will force Northwest to consider other alternatives, including filing under Chapter 11 of the U.S. Bankruptcy Code."

Northwest and rival

Delta Air Lines

(DAL) - Get Report

have been lobbying Congress for more time to fully fund their traditional pension plans.

Northwest has already achieved $300 million of its $1.1 billion labor-savings goal. The company has been in talks with all of its work groups. Last week, however, the National Mediation Board released the airline from talks with its mechanics' union, starting a 30-day "cooling-off" period, at the end of which the mechanics can strike and Northwest can put replacements to work.

Northwest said its average cost for a gallon of jet fuel was $1.64 in the latest quarter, up 52.2% from the second quarter of 2004.

Excluding fuel and special items, Northwest said unit costs crept up 1.1% from a year before.

U.S. airlines have benefited in recent months from a series of fare hikes and surging passenger demand, which in many cases has boosted unit revenue. Northwest said its revenue per available seat mile, or RASM, increased by 3.1% from a year before, helped by a 1.0% increase in yield, or average fare.

Passenger traffic increased 6.6%, while Northwest held capacity growth to 4.4%. That combination boosted the airline's load factor, or average percentage of seats filled, to 84.2% from 82.5% a year before.