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Thu, Oct 23, 2008

Northwest Joins Others In Posting Q3 Loss Tied To Fuel Hedges

Low Oil Prices Translate Into Slumping Fortunes For Carriers

Northwest Airlines -- biding time until its planned acquisition by Delta Air Lines comes to fruition -- announced Wednesday it posted a $317 million loss in the third quarter of 2008, with that entire loss tied to fuel hedges that lost much of their value as oil prices plummeted over the past two months.

The Associated Press reports the nation's fifth-largest carrier lost $1.20 per share for the period, compared with a profit of $244 million -- or 93 cents per share -- in the same quarter of 2007.

There were some bright signs, however. Without the $410 million in losses Northwest incurred as it saw its fuel hedges fly south for the winter, the airline would have made a profit of $93 million... beating analysts' estimates and putting the carrier in rarefied company, compared to some of its competitors. (Also on Wednesday, United Airlines reported a staggering $779 million loss for the quarter. Without fuel hedge losses, that carrier still lost $260 million -- Ed.)

Northwest also managed a 12.4 percent increase in revenue, to almost $3.8 billion. And Tim Griffin, Northwest's executive VP of marketing, noted the airline hasn't seen a steep dropoff in bookings from companies, despite warnings those companies planned to cut back employee travel in the slumping economy.

"I think bookings have surprised us a bit on the upside, being a little more resilient than you might expect given the general economic news," he said.

Despite the generally gloomy news for the quarter, Northwest CEO Doug Steenland expects fortunes for most airlines to turn around in the coming months... noting recent capacity cuts implemented over the summer have left airlines "well-suited to deal with potential future demand softness."

Indeed, those cuts mean that while a threatened downturn in the industry would translate to an estimated $150 million cut in revenue for Northwest... the airline would still save $1 billion in fuel costs, should oil average around $78 per barrel through 2009.

"The airline industry in general and Northwest in particular are well positioned to prosper despite the current economic uncertainties," Steenland added.

"The industry's very lucky," noted Avondale Partners airline analyst Bob McAdoo. "It's fortunate that everybody made cuts, and then the economy seems to be heading south a bit and it's working out for people."

Northwest and Delta received shareholder approval for the planned merger in September. All that remains is anti-trust approval from the Department of Transportation, which is expected before the end of the year.

FMI: www.nwa.com, www.newglobalairline.com

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