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The Uncertain Future of Northwest Airlines

Much to the relief of the traveling public, the airline industry is finally rebounding after more than five years of bankruptcies, near-bankruptcies, and a pervasive pall of uncertainty and anxiety. The turmoil wasn’t just temporary time-outs afforded by Chapter 11 bankruptcies. National and Independence failed altogether, leaving members of their frequent flyer programs empty-handed.

Now the skies have largely cleared, and the prognosis is that the industry is on track to regain its previous stability. Demand for travel is robust, as summer flyers experienced firsthand. Many airlines have cut back their flight schedules, reducing capacity on less popular routes. Average ticket prices have been rising even as operating expenses have been slashed. As a result, sustainable profitability finally seems at hand.

United and US Airways both put bankruptcy squarely behind them and appear well positioned to survive over the long term. Aloha and Hawaiian Airlines have done the same. As a group, the airlines have turned a corner.

And then there’s Northwest.

Northwest veers off course

On September 14, 2005, Delta and Northwest submitted separate applications for bankruptcy protection. They both cited the need to shed costs and reorganize as more efficient airlines in order to compete effectively with the likes of Southwest and JetBlue, as well as with legacy carriers that had reinvented themselves as leaner, meaner operators.

It was highly improbable that two major carriers would file for Chapter 11 bankruptcy on the very same day. Industry-watchers (including me) speculated at the time that Delta and Northwest had coordinated their bankruptcies as part of a larger plan that included an eventual merger.

But over the past year, Delta’s and Northwest’s fortunes have been very different. Where Delta has moved forward briskly in securing the cooperation of its various labor groups, Northwest remains mired in an ugly standoff with its flight attendants that has the potential to bring the airline to its knees.

The current state of affairs is no great surprise given the two carriers’ histories, especially in the area of labor relations. Unlike Delta, which has had mostly benign labor-management relationships, Northwest has a long track record of friction with its workforce. Just over a year ago, in August 2005, Northwest’s mechanics walked off the job in a dispute over wages and work rules. The airline had replacements standing by and managed to keep its flight schedules largely intact. Not only did Northwest break the back of the mechanic’s union, but it signaled to other unions that strikes would not be tolerated.

Northwest’s likely landing spots

Will Northwest be left standing when the current industry shake-out is over? If not, what is the airline’s likely fate, and the fate of miles in Northwest’s WorldPerks frequent flyer program?

As Northwest’s management argued in court, a walkout could affect the carrier’s operations so severely that it would be forced to shut down permanently. That’s a worst-case scenario, in which a combination of canceled flights and consumer distrust would choke off revenue and lead to a complete collapse.

At the other end of the spectrum, Northwest could overcome its labor hurdles, successfully restructure as a low-cost carrier, and retain its place as one of the country’s largest airlines. At least for a time. Northwest is mentioned as a likely candidate in what some analysts expect to be a round of mergers and acquisitions as the industry continues to “rightsize.” In that case, Northwest might absorb or be acquired by another airline and continue operations as a different entity.

How would these various scenarios affect travelers? Only an outright liquidation—by far the least likely of the possible outcomes—would seriously inconvenience Northwest ticket-holders. In the event of a shutdown, Northwest passengers would have to rebook on other airlines, which would charge service fees to accommodate them. That is, of course, assuming that other airlines have available seats.

Members of Northwest’s WorldPerks program rightly worry that if the airline disappeared, so would their miles. Equally likely, however, is the prospect of another airline cherry-picking Northwest’s assets, including the mileage program. That’s what happened when TWA liquidated in 2001—American purchased TWA’s program and folded its members into its own. The odds were stacked against such a white knight rescue during the past five years, as the costs to acquire another airline’s program would have been prohibitive. But with the financial outlook improving, it’s a much more likely development today and in the foreseeable future.

In the meantime, travelers can count on only one thing from Northwest: uncertainty.

A to-do list for Northwest customers

Given that uncertainty, can travelers book Northwest with confidence? Ultimately it depends on one’s tolerance for risk, but I wouldn’t be overly concerned if my schedule required flying on Northwest in the coming months.

On the other hand, if there were viable alternatives, I would bump Northwest to the bottom of the list. That’s because there remains a chance that the flight attendants’ threatened labor disruptions will materialize, delaying or canceling my flights. Why expose yourself to uncertainty and risk, however slight, if there’s an alternative that’s a sure bet?

My motives are partly punitive as well. I’d want to send an unambiguous message to Northwest’s management and workers: Resolve your differences and eliminate uncertainty from the equation or I’ll take my business elsewhere.

As for miles in Northwest’s loyalty program, the chances of losing them are minuscule. But hoarding miles, whether in the program of a healthy airline or a struggling one, remains a bad idea. The safe, and smart, approach is to redeem miles for free tickets as soon as award thresholds are achieved.

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