Airlines have enough pricing power to partly offset any spike in oil prices, but travelers will probably pay higher airfares next year if fuel prices don't fall, Northwest Airlines Corp. chief executive Doug Steenland said.
In an interview published Monday in the Star Tribune, Steenland said high oil prices will be the chief challeng facing the Eagan-based carrier in 2008.
"If fuel prices stay at the level that they are at now, airfares will have to go up. If airfares go up to reflect this price of fuel, I think there will be fewer passengers," Steenland told the newspaper.
Northwest expects to earn more than $700 million this year, and Steenland anticipates that the carrier will remain profitable in the coming year.
"It becomes harder to maintain your profit margins when fuel is at $90 a barrel versus the $65 a barrel that we had in our business plan," Steenland said.
Steenland stressed that while the consensus among oil analysts is that prices will drop in the second half of 2008, nobody can precisely forecast when or by how much.
Looking ahead, Northwest will inaugurate nonstop service between the Twin Cities and Paris on April 8. It also will begin flying to London's Heathrow Airport from the Twin Cities in March. It will add Detroit and Seattle routes to Heathrow a few weeks later.
"We will also be focusing on how we can continue to expand our presence in China," Steenland said.
While the weak U.S. dollar may depress leisure travel to Europe, Steenland said the impact on Northwest is mitigated by its business partnership with KLM Royal Dutch Airlines.
"The opposite side of the coin is that the United States is now very cheap for people who are shopping and traveling with euros in their wallets," Steenland said, meaning a higher percentage of Northwest and KLM passengers may come from Europe.
Steenland declined to say whether Northwest would be a buyer or a seller in any potential merger. But he suggested that the Twin Cities would remain a major hub whatever happens.
"One of the real underlying assets of Northwest are its hub positions and its heartland overall presence," Steenland said.
"Those are strengths that we've built up over time that I think are recognized as strengths."
--- Information from: Star Tribune, www.startribune.com