Northwest Airlines Reports Third Quarter 2008 Financial Results

Business Wire, Oct 22, 2008

Strong unit revenue growth drives $93 million net income, excluding impact of out-of-period fuel hedges;

$3.4 billion in unrestricted liquidity at quarter end;

Northwest/Delta merger approved by shareholders and closing of the transaction anticipated during the 4(th) quarter;

Continued strong operational performance

EAGAN, Minn. -- Northwest Airlines Corporation (NYSE: NWA) today reported a third quarter 2008 net loss of $317 million, or $1.20 per share. The reported results include a $410 million non-cash charge associated with marking-to-market out-of-period fuel hedges as required by Statement of Financial Accounting Standard (SFAS) 133, Accounting for Derivative Instruments and Hedging Activities. Excluding this charge, Northwest reported an adjusted net income of $93 million for the quarter, or $0.35 per share. These results compare to the third quarter of 2007 when Northwest reported an adjusted net income of $232 million, excluding charges related to SFAS 133.

Excluding taxes and out-of-period charges related to SFAS 133, Northwest paid $3.79 per gallon for jet fuel in the third quarter compared to $2.11 a gallon in the third quarter of 2007, an increase of 79.8 percent. Northwest's total fuel costs excluding SFAS 133 charges increased by $688 million versus the prior year. While still at historically high levels, the price of fuel has fallen significantly. Since reaching its peak in July, as of October 20th, the price of crude oil has declined over $70 per barrel to $74 per barrel. For every $1 per barrel reduction in the price of oil, Northwest's fuel costs are lowered by approximately $40 million annually.

Third quarter passenger unit revenue (PRASM) performance was very strong with domestic mainline PRASM up 10.7 percent and system consolidated PRASM up 8.1 percent. In commenting on third quarter results, Doug Steenland, Northwest's president and chief executive officer said, "Our third quarter pre-tax margin of 2.5%, excluding the impact of out-of-period fuel hedges, was among the highest in the industry. The fact that Northwest is able to report an adjusted quarterly net profit in a very challenging fuel environment is a testament to our strong unit revenue growth, capacity discipline and continuing focus on cost control." Steenland continued, "In September alone, our domestic consolidated unit revenue growth was 20.4 percent versus September 2007."

Strong Operational Performance

Northwest continues to run a very reliable airline. Based on Department of Transportation reporting, Northwest was the industry leader among network carriers for the month of August in on-time performance, fewest mishandled bags, fewest customer complaints and highest completion factor. When measured on a year-to-date basis through August, Northwest ranked first in departure within zero performance, fewest mishandled bags and fewest customer complaints. Northwest also ranked second in completion factor and third in on-time performance.

Steenland noted, "Northwest continues to maintain its historical position of operational leadership in the industry. For the first nine months of the year, Northwest achieved 19 one hundred percent completion factor days system-wide and 29 one hundred percent completion factor days in North America. This outstanding performance has continued into October. Through October 20th, we have had eight perfect system and nine perfect North America completion factor days." Steenland added, "Northwest's stellar operational performance is the direct result of the hard work and dedication of my co-workers and for that, I say thank you."

Third Quarter Financial Overview

Operating Revenues

Northwest's operating revenues for the third quarter rose to $3.8 billion, up 12.4 percent from last year. Consolidated passenger revenue increased by 11.3 percent versus the third quarter of 2007 to $3.3 billion on 2.9 percent more available seat miles (ASMs). Consolidated passenger revenue per available seat mile increased by 8.1 percent.

Mainline passenger revenue increased by 6.0 percent versus the third quarter 2007 to $2.7 billion on 1.3 percent fewer mainline ASMs, resulting in a 7.4 percent improvement in PRASM and a 0.4 percentage point decrease in load factor. Domestic mainline PRASM was particularly strong during the quarter increasing by 10.7% versus 2007. The strong growth is the result of recent capacity reductions and fare actions in the industry.

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Commenting on the airline's revenue performance, Tim Griffin, Northwest's executive vice president of marketing and distribution said, "We are pleased with our strong third quarter consolidated PRASM growth of 8.1 percent." Griffin added, "Consistent with previous guidance, we expect to see continued unit revenue strength in the fourth quarter with double digit domestic consolidated PRASM growth."

Regarding the effect the current economic environment will have on industry demand, analysts have recently noted that during even the most severe historical economic downturns, industry system-wide operating revenues have declined by no more than 1.2 percent on a year-over-year basis. If the current economic landscape were to yield a similar case scenario, the resulting decrease in revenues for an airline the size of Northwest would be approximately $150 million annually. Offsetting that potential decline, the projected reduction in crude oil prices, based on forward prices as of October 20th, from the full year 2008 average of $104 per barrel to the 2009 full year average of $78 per barrel would result in over $1 billion of reduced annual fuel costs.