Northwest Air posts net loss

CHICAGO (Reuters) - Northwest Airlines NWA.N posted a third-quarter net loss on Wednesday due to a writedown of the value of its fuel hedges as the price of oil plummeted from a record high.

Excluding the charge, the No. 5 U.S. airline reported a profit that beat Wall Street expectations. Northwest, which is merging with Delta Air Lines (DAL.N), linked the profit to gains in revenue on each seat flown.

The unit revenue gains were attributed to capacity cuts that have propped up fares despite an economic downturn.

"The fact that Northwest is able to report an adjusted quarterly net profit in a very challenging fuel environment is a testament to our strong unit revenue growth, capacity discipline and continuing focus on cost control," Chief Executive Doug Steenland said in a statement.

Airline shares were higher in morning trade, with Northwest up 5 percent at $12.64 on the New York Stock Exchange. Bolstering the gains was a $4 drop in the price of crude oil -- which influences the price of jet fuel -- to $68.20 a barrel.

Northwest is just the latest major airline to write down the value of its fuel hedges. Northwest reported a non-cash charge of $410 million.

The airline industry has been battered this year by high jet fuel prices that soared alongside crude oil, which hit a record in July. Prices have since plummeted, causing some airline fuel-hedge portfolios to lose value.

To combat high fuel bills, Northwest and Delta are merging. The deal will create the world's largest airline by traffic, with more than $35 billion in annual revenue.

Further offsetting fuel costs, Northwest and rival airlines are rapidly downsizing. Northwest said in June that it would cut its mainline capacity -- the number of seats for sale -- by 8.5 percent to 9.5 percent in the fourth quarter.

Still, some industry leaders have expressed concern that a weak economy could take a toll on airline bookings.

"The question remains what will happen to consumer demand over the next year," said Basili Alukos, Morningstar equity analyst. "If consumers cut back on flying and businesses trim travel expenses by using no-frills flying ... Northwest could stumble upon hard times."

NORTHWEST RESULTS

Northwest said its third-quarter net loss was $317 million, or $1.20 per share, compared with a year-earlier profit of $244 million, or 93 cents per share.

Excluding the non-cash charge of $410 million, Northwest posted a profit of $93 million, or 35 cents per share. On that basis, Wall Street had expected the company to earn 22 cents per share, according to Reuters Estimates.

The company ended the quarter with $3.4 billion in unrestricted liquidity.

Northwest said third-quarter operating revenue was $3.80 billion, up 12.4 percent. It domestic passenger unit revenue increased by 10.7 percent.

"Considering the bold pricing actions that occurred during the third quarter and the slowing down of the U.S. economy, I thought revenue growth was resolute," said Morningstar's Alukos.

"The industry, in general, proved it was capable of cutting costs, therefore, silencing its doubters," he said.

(Reporting by Kyle Peterson; Editing by Steve Orlofsky and John Wallace)