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Northwest Swings to Profit on Contained Fuel Costs

Northwest Airlines on Monday said it swung to a profit in the third quarter as it kept fuel and other costs under control and moved on from its bankruptcy restructuring.

Northwest shares rose more than 3 percent Monday.

Net income for the three months ended Sept. 30 was $244 million, or 93 cents per share, compared with a loss of $1.18 billion, or $13.50 per share, during the same period a year earlier. Revenue dipped to $3.38 billion, down slightly from $3.41 billion a year ago. Northwest reduced capacity by 0.9 percent as it reorganized.

Analysts polled by Thomson Financial predicted earnings per share of 76 cents on revenue of $3.36 billion.

Northwest's significant losses in the year-earlier quarter were the result of bankruptcy expenses. Excluding those items, Northwest said its pretax profit rose 57 percent to $405 million, compared with $258 million previously. The carrier exited bankruptcy protection on May 31.

"We tried to make sure we realized the competitive cost structure coming out of Chapter 11, coupling that with the strong demand we're seeing, produced industry-leading results that we're pleased and proud to report today," Northwest Chief Executive Douglas Steenland told CNBC.

Northwest said its pretax profit margin widened to 12 percent, while its pretax profit was the highest in ten years.

The airline said it spent an average of $2.11 per gallon on fuel before taxes and some hedging gains, down 1.5 percent from a year ago. Northwest said hedges generated $23 million in fuel savings for the quarter. It predicted that it would pay $2.40 per gallon for the fourth quarter. Total fuel spending dropped 7.9 percent to $873 million.

Northwest said it spent $12 million on incentives aimed at eliminating the cancellations that plagued it at the ends of June and July. Hundreds of flights were canceled at the end of each of those two months because Northwest couldn't find enough pilots to staff its flights. Attendance incentives put in place in August eliminated those cancellations, and Northwest completed more than 99 percent of its flights in August and September.

Steenland said on a conference call that Northwest would examine whether to spin off its frequent-flier program, but no decision had been made yet.

"Clearly this is worthy of further analysis and we are undertaking that work," he said.

Steenland said Northwest would take delivery of its first Boeing 787 in the first quarter of 2009, one quarter later than expected. Steenland said Northwest would not get any compensation from Boeing for the delay.