Northwest's primary labour groups agreed to wage concessions that amounted to $886 million over three years as far back as July 1993. That successful management-labour agreement was struck without the work rule changes that played an important role in the employee takeover of United last year, as well as worker concessions at TWA and Alaska Air Group. Instead of slowing the negotiation with demands for productivity changes, management focused on the hard-dollar savings and, operationally, a route restructuring that highlighted Northwest's strengths as a network carrier with strong connecting hubs in Minneapolis-St Paul and Detroit. These northern hubs, the company likes to say, are 'cold and dark, but they are ours.'
So, when asked if labour productivity has improved much over the past year, Northwest officials candidly respond, 'not really.' However, when they discuss operating numbers, it is clear that better efficiencies are being achieved through greater aircraft utilisation and a general recovery amongst US carriers has brought stability to the carrier's pricing initiatives.
Northwest is not bringing new aircraft on line but is hushkitting its fleet of DC-9s, some of which are surplus to the carrier's baseline capacity. A relatively low level of available seat mile growth, which has essentially been flat since 1992 with a slight uptick in the past year, has not had a negative impact on the growth of revenue per ASM, however. 'Tweaking' the route network, says a company spokesman, has meant a shift away from markets with overcapacity like Boston-Washington, DC to 'less glamorous but more profitable' routes like Detroit-Richmond, Virginia. The only real growth area for the carrier has been in the newly liberalised US-Canada market, where Northwest has started operating in six new markets: Vancouver, Halifax, Ottawa, Calgary, Regina and Saskatoon. All but the latter two are performing 'beyond expectation.'
Significantly, while capacity has been static, load factors have been rising. In August, Northwest led the industry with an occupancy rate of 80.8 per cent, while the first six months of 1995 saw a 3.4 percentage point load factor increase to 71.2 per cent. In the second quarter, traffic eclipsed capacity growth by 6.4 per cent. Such healthy numbers are indicative of a better use of assets, but also a more stable approach to pricing. 'We are smarter about pricing our product overall, in terms of the fare structure and frequency and type of promotion that comes along. Innovative fare sales have generated incremental revenue while hub flying has been strengthened,' says the spokesman.
The results are that while costs have gone up slightly - a 2.8 per cent rise in expense per ASM for the first six months of this year - they were offset by a 7.8 per cent increase in revenue per ASM for the same period. Yield growth for the same period showed a 2 per cent rise. Second quarter results gave the airline a $104.8 million net result and strong third quarter figures are also expected.
Northwest is an example of a large, system-based approach to productivity enhancement that relies mostly on following broad industry trends such as electronic ticketing, agency commission caps and alliance building. In the absence of enforced employee productivity programmes, the latter - particularly the codesharing alliance with KLM - has produced significant, bottomline results.
Codesharing allows market access without direct investment of assets, time and personnel, and this holds true for Northwest's alliance with KLM as well as for its new, broad codesharing agreement with Seattle-based Alaska Air. That partnership grew from a single code on one flight between Los Angeles and Seattle to one that now encompasses 280 flights serving 37 cities, giving Northwest access to the US Pacific northwest, where it has a limited presence, and providing strong feed to the airline's Pacific network.
However, Northwest executives will be seeking strong worker productivity enhancements fairly soon. The 1993 employee concessions were designed to avoid a bankruptcy filing and the wage give-backs were only temporary. In July 1996 snapback provisions will take wage scales back to 1993 levels. The airline, hoping to maintain costs at current levels, is expected to demand work-rule concessions that will make up the difference.
Source: Airline Business
