ST. PAUL, Minn. – An unprecedented spike in jet fuel prices has Northwest Airlines thinking what might seem unthinkable these days: seeking even more concessions from workers.

Northwest has insisted since late March that it must slash annual labor costs by $1.1 billion to remain competitive. So far, it’s made modest progress.

Its 4,400 union mechanics and cleaners launched a strike on Aug. 19 rather than agree to job cuts and wage and benefit reductions to help the carrier meet that target. Two other unions representing flight attendants and ground workers have dug in against cuts.

Meanwhile, since Northwest set its cost-cutting target, runaway prices have added approximately $900 million to its annual fuel bill.

To cope, the Eagan, Minn.-based airline may set the bar even higher for cuts it needs from workers. “We’re going to have to take a look at it,” chief executive Doug Steenland told Knight Ridder Newspapers this week.

It would not be the first time the airline has revised its target. Its March declaration for $1.1 billion in cuts was itself a $150 million hike over its original goal, an increase it attributed in part to rising fuel prices at the time. Northwest has posted operating losses of some $3 billion since 2000.

The airline can’t do a thing about fuel prices because it buys fuel as needed rather than purchasing in advance like some rivals to lock in lower prices. That leaves two options: increase revenue by raising fares or slash expenses by cutting labor costs.

Airlines have passed along a series of small fare increases, but the $40 or so in combined hikes aren’t enough to soften the blow of increased fuel bills. Airlines are loath to raise fares further because they fear losing customers to rivals.

Cutting labor costs might be more palatable, but Northwest hasn’t been terribly successful at convincing unions to give up jobs, money and benefits. For some, it means 25 percent pay cuts along with increased duties and less say over schedules.

Pilots signed on in November to an agreement that saves the airline $265 million annually, far less than the airline wants from that group. Nonunion workers have kicked in $35 million. It is still seeking $107 million from ground workers, and $143 million from flight attendants, but talks have been slow going.

Mechanics, of course, balked at an agreement that Northwest said would have saved $176 million a year and took up picket signs instead.

Experts say going back and asking for more, especially with the mechanics on strike, will make negotiations tougher. Still, it’s a likely scenario for Northwest, says Rich Gritta, an aviation economist at the University of Portland in Oregon.

“That’s what I think they’re thinking,” he said. “If you’re smart, you’re thinking this may do us for this year, but we may be back later.”

The problem is that the unions already are angry and upping the ante will aggravate them further and make them less likely to yield, Gritta said. “That’s where it gets dangerous.”

That may be, but thus far airline unions across the country have repeatedly agreed to negotiate concessions, said Gary Chaison, an industrial relations expert at Clark University in Worcester, Mass. “There’s very little the union can do because the alternative is bankruptcy,” he said.

And rising fuel costs provide a persuasive argument. “If you can make a credible case, you can ask for more,” Chaison said.

Northwest certainly has the big numbers needed to plead a case for more concessions. Its numbers show an airline being eaten alive by fuel costs.

Northwest’s rule of thumb is that every $1 increase in the price of oil raises the airline’s annual operating costs by $50 million.

Northwest buys about 2 billion gallons of fuel at year to keep its fleet of more than 400 planes flying. Given those prices, Northwest says its annual fuel bill has increased about $1.2 billion since Jan. 1.

Northwest spent $2.2 billion on fuel last year and estimated it would spend an estimated $3 billion this year, based on current prices. Oil prices are expected to remain high for the foreseeable future, due to strong demand in China and India.


So why not just raise prices?

Airlines argue that there is just too much of their product out there, meaning they are afraid to raise prices because customers will flock to competitors that don’t follow suit. The rise in Internet ticket purchasing has transformed home computers into powerful price-comparing machines.

That said, there have been eight small increases that have raised prices for round-trip tickets, perhaps $40 on average since mid-February, said Terry Trippler, an airline expert at online booking company

Trippler believes fares must increase substantially. “The average price has got to increase or the number of airlines in America today is going to decrease,” he said. “You can’t just cut your way to profit.”

(c) 2005, St. Paul Pioneer Press (St. Paul, Minn.).

Visit the World Wide Web site of the Pioneer Press at

Distributed by Knight Ridder/Tribune Information Services.

AP-NY-08-25-05 2016EDT

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