Northwest has good reason to try to charge more for less. With jet fuel prices at record highs, the bankrupt airline lost an average of $85 million a week in the first quarter, twice as much as a year earlier. Even after forcing deep pay cuts from its pilots and other unionized employees, the Eagan (Minn.)-based airline is expected to lose $900 million in 2006, which would be the sixth consecutive year of red ink.
Customers may understand why they're being pummeled, but that doesn't make them any happier about it. Of the seven biggest airlines, Northwest fell more than any other in the Michigan customer satisfaction ranking, dropping it to last. Northwest also came in at the bottom in 2005's J.D. Power & Associates consumer satisfaction poll on 11 airlines. David Lawson, chief financial officer of Lawson Enterprises Inc., a marketing firm in Ambler, Pa., flies on a commercial airline three or four times a month. "If at all possible," he says, "I don't fly Northwest. I just have found a lack of interest in the customer."
Locked in cost-cutting mode, the airline is at war with its unions, and seemingly with its passengers. Ken Thompson, 59, a software engineer who lives in Birmingham, England, says he flies on Northwest about 20 times year to see clients in the U.S. and Canada. Comparing Northwest to an avowed no-frills airline, Thompson said: "With someone like Ryanair (RYAAY
), you pay nothing so you expect nothing. But when you pay more with Northwest, you expect more. Northwest acts low-cost without being low-cost."
Dell and Home Depot have awoken to their problems because of competitive pressure. But outside Chicago, Northwest dominates the Midwest, which means that as much as people gripe, many have little choice but to board its planes. Sooner or later, however, poor service and high prices will hurt Northwest, says Raymond F. Neidl, an airline industry analyst with Calyon Securities, as discount carriers move in to Northwest's markets and customers flock to them for lower fares and friendlier treatment.
Northwest counters that things are better than they appear to be. Although the airline declared Chapter 11 bankruptcy last September, Chief Executive Officer Douglas M. Steenland pointed out recently that compared with its passenger count, Northwest had the fewest customer complaints to the U.S. Transportation Dept. in the first quarter of the six so-called network airlines, which excludes Southwest Airlines Co. (LUV
That matters little to Steven Feldman, an IT manager at Boston Consulting Group. He says he doesn't like Northwest but flies on the airline because it's the only one with nonstop service between Boston and Detroit, where he has family.
But in mid-August, Feldman says he may try an alternative. Spirit Airlines Inc., a discount carrier based in Miramar, Fla., will begin twice-a-day service with $109 round-trip fares. That's one-third Northwest's current price of $330. Dropping its prices close to Spirit's, which Northwest intends to do with $119 tickets, might make customers a lot more satisfied. But maybe not. "The whole disappearing pillows and pretzels thing is emblematic of a general decline," Feldman says. By Michael Arndt in Chicago, with Moira Herbst in Newark, N.J.