But Battles Still Lie Ahead

Be honest. When Delta Air Lines and Northwest Airlines each filed for Chapter 11 bankruptcy protection on the same Septembet day in 2005, how many of you thought both of those carriers would still be around, and solvent, almost two years later? Show of hands, please.

Well, shame on you. (And us -- Ed.) It took Northwest one month longer than its Atlanta-based rival to emerge from under the cloud of bankruptcy protection, but it's happened. On Thursday, Northwest flew out of Chapter 11, having cut $2.4 billion from its annual costs, largely through cuts in pay and benefits to its workers.

Reuters reports Northwest CEO Doug Steenland officially rang in a new era for the carrier, as he rang the opening bell on the New York Stock Exchange -- where the airline's stock is now being traded, after being booted off the NASDAQ exchange in November 2005.

"We believe that we have a viable business plan that will continue to deliver profits in the future," Steenland said, adding Northwest now plans to focus on improving customer service, easing employee relations, and upgrading its fleet of aging airliners.

It's not hard to postulate which one of those goals will prove to be the most challenging. Though the airline now has its pilots, flight attendants, ground workers, and other unionized employees locked into contracts for the next four years, that does not mean those workers are thrilled with their respective terms of employment.

Workers were furious when it was announced last month Steeland and some 400 other Northwest executives would share in lucrative stock bonuses, as employees now slave under contracts that slashed $1.4 billion in annual pay and other perks. While those employees can't legally strike the airline, there are certainly other ways they can show their disdain.

"Northwest may be emerging from Chapter 11, but it has a long way to go," said St. John's University law professor Anthony Sabino. "Much of the carrier's unionized work force is tremendously unhappy. And in an intensely competitive and service-oriented industry such as the airlines, the bad blood could cost Northwest dearly, if not doom it altogether."

The airline also faces outside challenges -- namely, the fickle nature of the airline travel market. While US airlines benefited from reductions in capacity in 2006, just as domestic air travel numbers returned to pre-2001 levels, there are signs that bubble may burst in the near future. And then there's the rising cost of fuel; fare increases to offset those spikes have met with varying levels of success.

On the positive side, one analyst says Northwest is helped tremendously by the locations of its domestic hubs -- in Detroit and Minneapolis -- places where low-cost carriers like Southwest and JetBlue haven't taken hold.

"They really dominate those airports with relatively little low-cost competition," said Velocity Group airline consultant Doug Abbey. "They're in a strong position to maintain higher yields."

Also benefiting Northwest is its large international network, specifically to Asia. Other airlines have also placed greater emphasis on international travel in the past two years -- where they face less direct competition with one another, and can charge higher fares -- to offset losses on the highly competitive domestic market.

"I think they are very sensitive to the tenuous state of domestic demand," Abbey said, on Northwest's reliance on international travel.

To address those concerns, Northwest established a separate regional subsidiary, Compass Airlines, which will soon begin flying efficient 76-seat Embraer 175 airliners on routes throughout the US. In January, the carrier also agreed to buy troubled regional operator Mesaba Airlines out from bankruptcy, and will soon be sending its new subsidiary 36 Bombardier CRJ700s.

Over time, those planes could ultimately replace many of Northwest's aging fleet of DC-9s... some of which are pushing 40 years old (and, more to point, offer 1960s-era fuel efficiency.) Earlier this year, Northwest retired the last of its similarly aged DC-10s on long-haul routes, replacing them with a mix of Boeing 747s and 757s, and Airbus A330s.

Northwest will also be the first US carrier to fly Boeing's upcoming 787. The airline is due to receive its first composite-bodied widebody in 2008.

Northwest's emergence from Chapter 11 also marks the first time in five years that a major US airline hasn't been under bankruptcy protection. The question for Northwest, and other domestic carriers, is... how long will that last?

FMI: www.nwa.com