Further, Northwest Airline's (NYSE:NWA)most recent decision to increase "fuel surcharges" - - i.e. raise ticket prices - - will remain a sector theme for at least the next few quarters, so says independent stock analyst C. Leonard Bauer.
"Airlines are facing rising fuel costs at a time when passenger demand is still solid. That means they have power to raise prices and pass their higher costs on to the consumer," Bauer told BloggingStocks Friday.
Fuel surcharge
Northwest announced Friday that on March 18 it raised fuel surcharges generally by $10 or $20 each way for flights from North America to Europe, India, Japan and most other destinations in Asia, The Associated Press reported Friday. That brings the surcharges to between $115 and $155. The surcharge on flights from Japan to North America will rise by $20 to $160 beginning May 1. Northwest also said it plans to freeze hiring pilots and flight attendants and cut domestic schedules by 5% beginning in September 2008, The AP reported.
Northwest's shares fell 5 cents to $9.16 on the news on Friday at mid-day.
"Challenging economic times require smart, but difficult, decisions by the management team," Northwest CEO Doug Steenland said in a statement. "We are pro-actively making those decisions now to maximize our liquidity position." Northwest said it wanted to act quickly to preserve cash, which totaled $3 billion at the end of 2007, The AP reported. Northwest earned $746 million in 2007, excluding bankruptcy claims, The AP reported.
Second bag fee
Northwest's latest fuel surcharge occurred about a week after it increased charges for extra bags. On March 29, 2008, Northwest matched other U.S. network carriers and for North American travel implemented a $25 charge, each way, for the customer's second checked bag and $100 each for three or more checked bags, the company announced. The fee for bags greater than 50 pounds was also raised from $25 to $50 each way.
Bauer noted that the charge for extra bags, "is a de-facto fuel charge, because the charge pays for the fuel necessary to fly the extra weight represented by the bag." A crafty, decades-old technique that 'separates' a flying charge from the ticket price, Bauer said, but a charge that's necessary, nonetheless. Bauer added that he does not have a rating on Northwest nor own shares of the company.
"Aviation fuel costs are just galloping ahead, so there's really no two ways the airs can get around raising charges," Bauer said, noting that airlines are also revising schedules, implementing other productivity improvements and finding other ways to limit/cut costs in today's high-energy-cost environment.
Bauer said major airlines like Northwest have done much to streamline operations and cut costs, but ramping fuel expenses continue to weigh on operations.
"The airlines could really benefit from a moderation in oil prices to take pressure off fuel costs," Bauer said. "But then again, so could we all."
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