Assume the Crash Position

The turbulence at Northwest Airlines has some people fearing the sky is falling. It could be the sound of ticket prices dropping.

What happens if Northwest Airlines goes bankrupt? Until recently, Minnesota businesses and travelers have considered that occurrence the worst-case scenario. Now, with the Eagan-based carrier apparently losing $4 million a day and company insiders dumping its increasingly worthless stock, bankruptcy also seems like the most likely scenario.

NWA management may favor bankruptcy as a strategy to slash debt and pension obligations and sever expensive union contracts. (United Airlines has ruthlessly pioneered this in recent years, filing in 2002, while continuing to line the pockets of its executives.) The looming strike by NWA union mechanics and new federal bankruptcy rules, effective in October, that will make reorganizations more difficult, would be the triggers for this drastic business plan. Yet bankruptcy is no sure bet. US Airways has teetered since its own bankruptcy filing in August 2002 and has yet to reemerge as a profitable carrier. And only four of the eight major "legacy" airlines that have filed Chapter 11 since 1989 have managed to stay in business.

Some airline and financial analysts have expressed high anxiety that an NWA bankruptcy would decimate inbound and outbound service from MSP. (United, for instance, has slashed its fleet from more than 600 planes five years ago to 455 this year.) The fallout from these schedule cuts, experts claim, would inevitably render the Twin Cities a faint cluster of lights on the outskirts of the global economy. In a KARE-11 report aired last week, local airline expert Terry Trippler expressed the typical worries that without Northwest "we certainly wouldn't have another Best Buy, Target, Dayton's, 3M...transportation is the key."

However, some airline insiders in other cities that have experienced cuts in service and hub losses describe an opposite effect. Last year, 28 million of Minneapolis-St. Paul International Airport's 36.7 million total passengers--some 76 percent--flew on Northwest. Meanwhile, according to a study by Severin Borenstein, an industry expert at the Hass School of Business at the University of California, Berkeley, travelers to and from MSP in the second quarter of 2004 paid 24 percent above the nationwide average for airfare. A decrease in Northwest's dominance at MSP, some out-of-town sources suggest, could be a boon for travelers and local businesses.

A prime example of how this could happen is Nashville, which lost its American Airlines hub in 1995. Today, with the presence of low-cost carriers, fares are below the national average. And in the last 18 months, despite being hub-less, the city has recruited six new corporate headquarters for companies with revenues of more than $100 million per year.

Raleigh-Durham presents another example, having lost its American Airlines hub and the 200 daily departures the airline provided in 1995. After snaring Southwest in 1999, however, 8 million passengers last year were origination-destination travelers--that is, they're either coming or going from the city instead of stopping over there--as opposed to just 3.7 million when American was at its peak. And they pay less for the privilege.

Ultimately, an NWA bankruptcy filing will almost surely be disastrous for the company's many union employees. But it may not be for the market at large.

To find out how some other cities fared as a result of airline turbulence, City Pages called Janet Miller, senior VP of economic development at the Nashville Chamber of Commerce; Donna Oliver, a 37-year travel-industry vet and office manager of Travelplex in St. Louis, Missouri; and JoAnn Jenny, spokesperson for Pittsburgh International Airport. Pittsburgh's US Airways hub, which once carried 89 percent of the airport's passenger load, was downgraded to a "focus city" in November of last year.

 

Janet Miller, Nashville Chamber of Commerce

City Pages:What were the effects of the hub loss in Nashville?

Janet Miller: As a hub city, there may have been 10 direct flights to New York City a day from here. And we've seen those same markets get picked up, only we have less frequency. We still have very good service to all of the major cities and tier-one markets. The second- and third-tier cities see a slight drop-off. Getting to some place like, say, Norfolk, Virginia, is more challenging.

CP:How did this affect Nashville businesses?

Miller: We've actually had more success in recruiting [corporate] headquarters in the last two years than probably [we've had in] the history of the city. Having a hub is not the deal breaker when it comes to recruiting headquarters. Having diversified carriers and competitive costs has a lot to do with it as well.

CP:How long did it take Nashville to get to that point?

Miller: The first two years were the hardest, especially psychologically for the city. I'd say after two years, the airport had a very aggressive strategy. It started turning itself around really quickly. Southwest saw an opportunity here. The O&D [origination and destination] traffic was still great. If there's a demand in the marketplace, someone's going to step up to meet it. The frequency is the only number that's really down.

CP:What about ticket prices? Are passengers paying for the decrease in flights?

Miller: From a pricing standpoint, it is so much more competitive. It's very expensive to fly into Atlanta, because Delta owns that market. In Nashville you can get anywhere for around $300 to $400.

CP:What about businesses that rely on cargo flights? Have they been adversely affected?

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