September 22, 2005

Airport Unfazed By Bankruptcies

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Both airlines servicing the Ithaca Tompkins Regional Airport are now under Chapter 11 bankruptcy protection. Northwest Airlines joined US Airways when it declared bankruptcy on Sept. 14, citing high oil prices and labor disputes as reasons for restructuring. Northwest, which started service between Ithaca and Detroit in early May, has promised to keep regular service running for now, but the long-term future of the airline’s presence in Ithaca is unknown.

Although filing under Chapter 11 is a sign of financial trouble for any company, local airport officials are confident that Northwest will recover and be able to continue its Ithaca service. Charles Hamilton MBA ’04, who advises business development for the airport, pointed out that bankruptcy has become “standard issue for the larger carriers.”

Since Sept. 11, 2001, approximately half of the “legacy” airlines, the big commercial carriers, have filed for Chapter 11. They continue to face competition from low-cost carriers like JetBlue and dramatic rises in fuel prices, especially since Hurricane Katrina.

Northwest has lost an estimated $3.6 billion since 2001, according to its public financial statements.

Hamilton said Northwest is relatively stable, with nearly $1.5 billion in cash with which to work as they restructure.

“They are in a much stronger position than Delta,” he said. Delta declared bankruptcy the same day as Northwest and had been showing even more signs of strain than Northwest for months.

Richard McDaniel, associate vice president for campus and business services and member of the Tompkins County Air Service Task Force, said that most potential partners, including Northwest, were in financial trouble during talks last winter.

“We were quite aware that they were struggling like everyone else,” he said. “It would have been nice to have someone interested in us who was financially strong” but there were no such options, he added.

Hamilton explained that despite this knowledge, Northwest was a good fit for Ithaca because it gave access to their Detroit hub, providing connections to western and international destinations.

Northwest’s website has a letter from President and CEO Doug Steenland confirming the continued service of all flights. The letter states that Northwest “voluntarily” declared bankruptcy so it can “continue its transformation into a new-era carrier” and deal with rising labor costs and fuel prices.

The website also states that code-sharing partners will remain in service, a clause that confirms Detroit-bound flights for at least a while longer. Under the name Northwest Airlink, code-share partner Mesaba Airlines runs planes from Ithaca on behalf of Northwest.

Jon Austin, a spokesperson for Mesaba, said, “We don’t know what the impact will be and are monitoring the situation very carefully, but as of right now, we are looking at normal operations.”

Part of the reason airport officials are so confident in continued Northwest service is because the number of travelers over the past few months has far surpassed expectations. Hamilton said Northwest was 31 percent over its target revenue for May-July 2005 in Ithaca and is well on its way to meeting revenue projections for its first year in Ithaca. If they do not reach the target, $5.3 million, the county will pay them $250,000 in compensation fees.

Mike Hall ’68, co-chair of the Air Service Task Force, stressed the importance of continued confidence in, and travel on, Northwest.

“The more that people stay with us, the more likely it is that there will be more service in the future,” he said. “Ithaca is not going to make or break Northwest, but we want them to recognize that Ithaca is an important market for them.”

It is still too early for Northwest to give a date of possible exit from bankruptcy, and McDaniel said the restructuring “could take years.”

US Airways, which declared bankruptcy in August 2002 may be emerging as early as this October, Hamilton said. Their plan includes a merger with America West, transforming the company into the country’s largest low-cost airline.

Northwest was brought to Ithaca last spring to fill a void in westbound service after US Airways stopped service to Pittsburgh in Nov. 2004. In response to Northwest’s preliminary success, US Airways will revive its daily Pittsburgh flights Nov. 9.

Archived article by Melissa Korn
Sun Senior Editor