Friday 13 June, 2003

Good morning.  I enjoyed a lovely three day weekend at Roche Harbor Resort this past weekend.  The resort itself was just okay rather than excellent, but the setting was idyllic and the overall experience wonderful, except for two mishaps.

The first mishap was the web server dying shortly after I left town on Friday.  Apologies to anyone who tried visiting the site over the weekend.  The second mishap was leaving my jacket and wallet behind when checking out.  The sage advice in my series about 'Protect Yourself Against Document Loss' flashed briefly through my mind, along with the fervent wish I'd more carefully followed all the suggested steps!  Fortunately the resort found the jacket and wallet and couriered them back to me, with nothing missing.

I discovered to my surprise that I haven't offered a single column this year on the topic of security, and so, to quickly rectify that omission -

This Week's Column :  Security - A Sham or a Shambles? : Here are an unlucky 13 examples of the contradictions that make up our national security at present, and suggestions on some lessons that should be learned.

Deathwatch Part 1 - United :  After United declared bankruptcy in December, its share price tumbled from about $4 to $2, and then subsequently slowly dropped further down to as low as 50c before inexplicably strengthening all the way back up to nearly $2.  And then the other shoe dropped on Tuesday this week, when United said, in a regulatory filing, that it was 'highly likely' that existing shares would be canceled as part of a reorganization plan.  By the end of Tuesday, the shares closed at about 75c, and the last two days have stayed almost flat around the 50c mark.

The really puzzling issue is - why are people buying these shares, even at 50c?  United has all but promised that they will soon make them valueless - an outcome that is very common when companies exit Chapter 11.  14 million shares were sold on Thursday alone, meaning also that 14 million shares were purchased.  Who is buying these shares, and why?

United has announced a new method of boarding its planes.  All passengers are now assigned to one of four different groups, with a group number prominently printed on their boarding pass.  Group 1 is for premium level frequent fliers, group 2 is for Economy Plus customers, group 3 is for customers in the last ten rows of the plane, and group 4 is for everyone else.  UA claims that testing has shown that this new procedure speeds boarding time by up to 30%.  I hope it also reduces the number of people that 'cheat' and board the plane before their turn!

Deathwatch Part 2 - Air Canada :  On Tuesday, bankrupt United said its shares would probably be worthless when it exits Chapter 11.  On Wednesday, bankrupt Air Canada said the same thing.  But now, two trading days later, its shares also retain a surprising amount of value, having dropped only 40% since Tuesday, closing Thursday at C$1.17.  Their shares dropped from C$2.10 before their bankruptcy filing to C$0.69, before drifting up again to just over C$2.00.

Pierre Bernard, portfolio manager for BLC Edmond de Rothschild in Montreal, said 'On paper, Air Canada is worth zero given the context we see today' and Raymond James airlines analyst Ben Cherniavsky reaffirmed their company's target price of C$0.00 for the stock.  Almost 20 million shares of Air Canada changed hands on Thursday, all at prices well above this target price!  Who is buying these shares, and why?

More seat problems from American :  Hot on the heels of their shrinking 'More Room Throughout Coach' program comes an announcement this week that AA is discontinuing its practice of blocking out middle seats next to seats occupied by elite members of their frequent flier program.  Until now, these seats were sold last, so as to maximize the likelihood of their most frequent fliers having an empty seat alongside.  AA now says that doing this was hurting the efficiency of self-service check-in.  Problems in how their self-service kiosks handle seat assignments meant that passengers were having to see a real person to complete their check-in when all other non-blocked seats had been taken, and solving this software limitation 'proved to be technologically impractical without considerable time and expense'.

Of course, the idea of actually spending money to preserve a valuable and valued service for customers that are, in turn, American's most valuable and valued frequent fliers would actually seem to be a splendidly sensible idea to most of us.  But, displaying their dinosaur tendencies, when faced between doing something positive that would, in turn, preserve the loyalty of their most lucrative customers, or doing something negative and turning their backs on these same customers, AA with unerring precision chose the outcome that their customers would least appreciate.

Is this a good time to mention the nice wide seats on JetBlue!  JetBlue made a startling announcement earlier this week.  Until now, their airline operating model followed Southwest's proven formula of having only one type of plane in their fleet (the A320).  Earlier this week, JetBlue announced an order for 100 Embraer 190 planes.  These are small regional jet type planes, and are expected to be fitted with 100 seats.  The planes will give JetBlue the ability to service shorter routes more economically than with the larger A320, and will also allow them to service 'thinner' routes (ie routes with fewer passengers) and to give more flights to other routes.

JetBlue will be the launch customer for this new model plane, with the first seven planes arriving in 2005, and then additional deliveries at a rate of 18 planes a year.  The airline currently has a total of 42 planes and projects that by the end of 2011, it may have as many as 290 planes.

None of these planes will be Boeing planes, of course.  Which is perhaps part of the reason why Boeing is projecting to deliver only 280 planes this year, and 275 planes in 2004.  Airbus projects to deliver 300 planes this year.

Boeing seems to be learning from the airlines it supplies to, and in the finest traditions of American free enterprise, when a company finds it increasingly difficult to make a profit unaided in the marketplace, they - well, naturally, they turn to the government for assistance.  On the national level, new FAA legislation before Congress includes a provision that would require airlines to display information for passengers about where their planes were manufactured.  Forbes describes this as 'part of a "Buy America" campaign pushed by lawmakers concerned with the success of overseas aircraft manufacturers, like Europe's Airbus'.

But although Boeing might assemble its planes in the US, it is increasingly shopping out the work that goes into creating the sub-assemblies to other companies, all around the world.  Indeed, it even operates a 200 man design bureau in Moscow these days (and that is not the Moscow that is in Idaho!), and on Thursday announced another 270 layoffs in the Seattle region, with the jobs being replaced by foreign workers, perhaps in Chile.

Boeing's current 'Where will we build our new 7E7' campaign is pressuring states that are hungry for Boeing's business, with Washington state, Boeing's traditional home, feeling the most pressure of all, for fear of losing still more of Boeing's contribution to the state budget.  But with all the outsourcing, the actual number of jobs that the new assembly program would represent is surprisingly low - this article suggests between 800-1200.  Not many for a company that, in its recent past, employed something like 100,000 people in the Seattle area alone.

In return for perhaps 1000 new jobs, Washington state has now passed a package of benefits and tax breaks that would give Boeing a massive $3 billion over 20 years.  Let me do the math on that, because it is plain that none of the politicians did.  As I pointed out in a letter published in Thursday's Seattle Times, this represents a payment of $150,000 per worker per year!  Assuming an average cost per employee of $50,000 a year, the state is paying Boeing three times their payroll cost.  I'd start up any type of business tomorrow if the state offered to give me three times my payroll costs for 20 years.

But perhaps the most surprising piece of Boeing news this week was the announcement by Randy Baseler, their VP for Marketing.  He said they believe their 34 year old 747 will 'continue to play an important role in the future', and spoke about probably increasing its size and range still further.  This statement flies in the face of the much reduced sales of 747s that they have booked over the last couple of years (other than freight versions) and their decision to abandon a super-jumbo that would have competed with Airbus' new A380.  At that time, Boeing said there was no market need for a larger jumbo, and claimed that airlines were wanting smaller planes to enable more nonstop flights between secondary cities.

Of course, Airbus has been gleefully ringing up the orders for its 555 seater A380 since then, and now Boeing has decided to invest in the smaller 7E7 - a plane that will hold 200-250 passengers in three classes - in other words, a passenger capacity almost identical to the 767-400ER and substantially fewer than the 777 (368 in 3 classes) or the 747-400 (400 in 3 classes).

As a backdrop to Boeing's marketing uncertainties (first a super jumbo, then not, then the slightly faster plane, then not, and currently a proposed 7E7 and now an expanded 747 too) it is relevant to note that Boeing has yet to commit to the 7E7 project.  Boeing's timeline shows that this decision will not be made until the end of this year or early 2004.

And, talking about on-again/off-again, the sudden eruption of speculation about a possible merger/buyout between Virgin and British Midland seems to have subsided, with BMI's chairman categorically stating that there are 'no discussions currently taking place about a merger or about less ambitious forms of co-operation between the two airlines'.

My strong sense is that the general travel market is improving.  More people are traveling again.  I'm getting this feeling from many different sources, and, barring anything unexpected, it is possible that the industry has bottomed out and can now look forward to improvements in all respects.  Here's an article that supports my perception.

More Wi-Fi good news.  Long Beach Airport now offers free Wi-Fi connectivity throughout its terminal area.  Wi-Fi networks cost only a few hundred dollars to establish, and if a company already has an internet dataline, have very minimal ongoing operating costs.  Is it too much to hope that other airports will follow LGB's example and also offer free connectivity?  It makes a profound difference to how one can spend an hour or two between flights!

This week's 'Come Back to Planet Earth' award is shared by two people quoted in a generally interesting and wideranging Denver Post article.  Alan Sbarra, described as an analyst with 'Unisys R2A, a well-respected aviation consulting firm' says 'The internet is bringing "revolutionary" change to the industry, offering travelers near-perfect information with which to compare fares'.

Near-perfect information?  Not that I've seen.  Well, at least, not unless you're prepared to spend hours of research, digging through countless offers from countless airlines and websites and other various internet sellers of travel.

His co-winner is John Pincavage, a former airline analyst who now runs his own consulting firm, who says 'It takes five minutes and six clicks of the mouse for Web shoppers to book a flight'.

Not in my universe.  Let's see.  Click on an Internet Explorer browser.  Several clicks to somehow navigate to an airline web site.  Click for departure city.  Click for destination.  Three clicks for departure day, month and time.  Another three for return day, month and time.  A click or two to choose between roundtrip/one way, fare type, and maybe another click for number of passengers, and then a click to search for fares.  A click to select an itinerary, or maybe a click for more options, or maybe a click to change dates/times, or maybe a click to another website.  We're already at about 20 clicks, and have yet to start booking anything, let alone chase down seat requests, special meal requests, enter credit card numbers, and so on and so on.

This Week's Security Horror Story :  Newsday published a story on Tuesday saying the Transportation Security Administration gave screeners answers to exams they were taking to see how much they knew about operating the machines that detect bombs in luggage.  The paper's investigations revealed that the exams were based on lesson quizzes given during the training and that 24 of 40 screeners interviewed said their review questions and answers were identical to the final exam questions.  The other 16 said questions were very similar to those on the final exam.  One screener at LaGuardia said his instructor read questions and answers to the exam just before giving it.  The 40 screeners interviewed were picked at random from five airports.

And now for the real horror part of this story :  The TSA says they weren't doing anything wrong because the training was conducted as prescribed by the TSA curriculum guidelines!

A really scary new device is an intelligent airplane passenger seat that claims to be able to help flight crews detect potential terrorists, and also to warn if a passenger has been sitting still for too long (ie if they are dead, or, less alarmingly, running the risk of developing DVT).  If a passenger is very anxious and moving about, the seat could interpret this as being a potential terrorist.  On the other hand, if you've finally transitioned from being anxiously awake and are now relaxed and asleep, the seat might wake you to tell you to move about to combat DVT risk.

Additional sensors and analytical software may one day be able to distinguish between the nervous flyer and terrorist.  And, most alarmingly, this seat is described as being part of 'a bigger project to make airline cabins more friendly'!

Lost - one airplane.  Last seen two weeks ago, taking off from the airport in Luanda (capital of Angola), apparently stolen.  US officials say they have to remain open to the possibility that terrorists may be involved in the plane's disappearance, perhaps with a plan to crash the plane into a building somewhere in the world.

Lastly this week, a tale of restaurant patrons who enjoy fainting and spontaneous vomiting as side effects from eating their favorite cuisine.  Coming soon to a restaurant near you?  One hopes not!

Until next week, please enjoy safe travels and good food.

David M Rowell aka The Travel Insider
ps :  Don't forget to visit Joe Brancatelli's site for his weekly updates, too.

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