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Donate Here] Friday 23 April, 2004 Good morning Last week's request for reader assistance brought about a response that exceeded expectations but which, alas, does not meet ongoing operational requirements. To date, 86 readers very kindly (and often, very generously) responded with contributions. However, this leaves 99% of readers as yet silent. As an interesting comparison, 1115 readers sent in responses to the cell phone battery instant survey. None of us want to see the newsletter's content diluted by increasingly desperate appeals for funding assistance. So, for all our sakes, could I ask another 86 kind readers this week (this hopefully means you!) to join with their fellow readers and me and to also contribute any small amount, even if only 'just to shut me up'! I'll then stop being 'in your face' about this for six months or so. Please visit this page - How to Donate - and send in a credit card contribution to help keep this site up and active. I strive mightily to provide content, on the site and in the newsletter, that is both interesting and valuable. If you agree, please show your appreciation. Exciting news for one lucky person.... Our Australian mining friends have chosen a winner from the Opal Competition, who will be presented with two lovely 1 carat Opal cabochons. Carl Blackburn in Texas, Judith Abbott in New Hampshire, Miraisy Molina in Puerto Rico, Phil Kirkham and Tanya Korchagina in Britain, and Tom Ransom in Washington all made the short list with excellent entries (as were many of the unplaced entries too, of course). And the winner - Lisa Harbaugh, Travel Manager at Unlimited Vacations and Cruises of Cuyahoga Falls, OH, suggested David Letterman should buy the Virgin Rainbow to use in the 'Will it Float' section of his tv show If Dave reads this newsletter (!) he should contact me - maybe we can indeed arrange for him to borrow (or buy!) the $4 million Virgin Rainbow Opal and see if it does sink or float. Last week's Instant Survey asked if you were a heavy or light cell phone user, and whether you recharged your phone every night ('whether it needed it or not'); when the battery showed half full; or when the battery was nearly dead. Unsurprisingly, heavy users were more likely to charge their phone every night (58% compared to 24%) and light users were more likely to wait until the battery was almost dead (54% vs 22%). Interpret these numbers as you may, but one thing is clear. Many users are regularly finding themselves desperately short of battery life on their phone. I have too-regular battery crises (but I also run my car until the gas tank is almost empty!), and so am always on the lookout for emergency solutions to a dead cell phone battery. Which brings me to this week's feature column : This Week's Column : Sidewinder Cell Phone Battery Charger : Your cell phone battery just died in the middle of an important call. If you have one of these $25 devices, you start cranking and a couple of minutes later, are back on the phone again. Dinosaur Watching : Was it surprising, or was it inevitable, that US Airways CEO David Siegel would resign during his one month 'window of opportunity', during which he could leave and collect a severance package estimated by Forbes at $5 million? Although described by some industry watchers as surprising, Joe Brancatelli predicted this at the time Siegel made his disappointing video presentation, a month back - the very same video presentation in which Siegel was offering, with plenty of conditional statements, to waive the entitlements he is now cashing in. Siegel was widely praised (by the same people who are now surprised at his departure) for rushing US Airways through a quick bankruptcy, during the course of which he secured $1.2 billion in new capital and reduced annual costs by $2 billion. But are these the prime measures of the success of a Chapter 11 reorganization - a fast exercise that reduces some costs and brings in some more cash at the same time? No. A Chapter 11 is to give a 'time out' during which a company can restructure itself so as to be able to survive into the future in whatever new form it adopts. Whether this happens quickly or slowly, and whether it involves some, lots, or no extra capital and/or cost savings does not really matter. All that ultimately matters is that the company in its new form has a good positive chance of future survival. By that measure, who wishes to describe US Airway's restructuring as successful? Almost from the day it emerged from Chapter 11, the company and its managers have been talking about the need for further cost savings, and further restructuring. Industry analyst Ray Neidl from Blaylock Partners gives US Airways a 50% chance of survival - even if it does cut its costs still further. For this 'achievement', CEO Siegel gets to retire with a $5 million settlement. Not bad for someone who joined the airline in 2002, took it into bankruptcy, then out of bankruptcy perhaps prematurely, said that the airline is now locked in a do or die battle with Southwest in Philadelphia, while giving few clues as to how US Airways has any remote hope of winning that battle, and then leaves at the airline's most perilous point. But, don't blame David Siegel for making the best of the situation for himself. Blame instead the Board of Directors that gave him such a ridiculous contract in the first place. Was there truly no-one else suitable for the US Airways CEO position who would not have accepted the job without the promise of a $5 million bonus if they left at the end of two years? Can the Board really say they have been doing the best job possible of protecting their shareholder's interests? Although US Airways was praised for rushing through its bankruptcy in eight months, in a manner that now seems to be have too fast and ill-considered, United Airways is taking a more leisurely approach. It has asked for an extension of its time to submit its reorganization plan until 30 June, 18 months after declaring bankruptcy in December 2002. Did you see United's full page advertisement in the Wall St Journal earlier this week? A corporate image ad, and probably costing something like $25,000, the ad didn't even include a phone number to call to book a United flight. Or maybe they're not expecting the ad to be anything other than an 'impress our bankers' type ad. If their bankers have any sense, they'll be horrified. I wrote last week about the excuse being cited by dinosaur airlines for why they can't make any profit - the rising cost of jet fuel. Reader Eli says
Eli might be surprised to learn that he is partially correct. There is an important difference between the jet fuel some airlines use and that used by other airlines. Some airlines - predominantly low cost carriers such as Southwest and JetBlue - have purchased forward contracts for much of their jet fuel needs, locking in rates that are based on oil costs in the mid $20s per barrel. In contrast, many of the majors have not hedged any of their fuel costs, and so they are paying spot prices based on oil fuel costs in the mid $30s per barrel. The hedging issue is very much a gamble, and it is incorrect to say it is always best to hedge your fuel costs (ie, setting your future costs based on your present costs). This makes sense if you think prices will increase more than the fixed contract price of a forward purchase, but if prices go down, you're stuck with paying high prices for your fuel. Of course, betting on oil price rises seems to be, alas, a fairly safe bet at present, and in reality the main reason airlines such as American and United did not hedge their jetfuel purchasing was primarily due to a lack of money to spend on buying these contracts. Reader Tom points out another interesting fact about the impact of jetfuel costs.
So, if the dinosaurs can't blame their problems on jet fuel costs, what can they blame? The obvious answer is 'labor costs', isn't it. But - beware of obvious answers, they're often wrong! If you think of a leading 'high cost' airline and a leading low cost airline such as American and Southwest - the difference in per employee labor costs is only 7.5%. This is not the gaping chasm it is often portrayed as being. Further proof that it isn't just about jetfuel costs comes from reformed dinosaur America West - they reported a first quarter profit and expect to be profitable for the full year as well. Interestingly, they said their costs dropped significantly, despite higher jet fuel prices. Talking about AA, kudos to AA for easing off on one of their previous onerous restrictions on frequent flier award tickets. You can now change the date or time of your travel on a MileSAAver award ticket without being charged $100. You'll still be charged if you change the cities you fly between, but not if you simply change dates/times. Bravo. I wrote last week about US Airways (now former!) CEO being given a salary package valued at something up to $11 million, while the airline struggles to avoid going completely broke. So how much does Southwest pay its CEO? Well, his pay went up 8.4% last year, making a salary of $330,773 and a total package worth $578,000 plus stock options of perhaps $115,427. Southwest made a profit of $442 million last year, nearly double its 2002 profit. In other words, the CEO of the country's perhaps best performing airline gets paid only one tenth as much as the CEO of the country's perhaps worst performing airline. I wrote last week about the negative reaction to KLM's decision to pay its top executives generous bonuses while announcing 4500 redundancies and seeking to cut costs (ie wages) from its remaining employees. Pressure from unions, the public, and the government have now forced their board to withdraw their 'synergy bonuses'. Synergy?! Some interesting predictions from European low cost carrier, Ryanair. They predict fares will drop 20% on their routes over the next year due to growing competition, and expect a 'ferocious price war' in the fall, leading to the possible collapse of one of their smaller competitors by the end of the year. Some good news. Fewer bags are being lost these days, with UA and NW in particular reporting that they are now losing only half as many bags as four years ago. As a result, 'only' 2.2 million people arrived at their destination without their bags last year. This week's bad news about Boeing. Seems like a regrettably regular occurrence to talk disparagingly about our one remaining airplane manufacturer, and this week is alas no exception. In this article, Boeing is described as formerly being as arrogant and dominant, but now humiliated and schizophrenic. The writer puts his finger on the key problem at Boeing - it no longer seeks to innovate. Interesting factoid : In the fourth quarter of 2003, a period with generally improving air travel, the number of short flights, 500 miles or less, dropped nearly 10%. Why? Increased hassles are forcing more people to choose to drive longer distances instead of fly. I wrote last week how Holland America Line silently changed their no tipping policy and now charge passengers a mandatory $10 a day for tipping. They're not the only cruise line tightening the screws on their passengers. Carnival has just advised it will no longer provide birthday, anniversary and other celebration cakes for free. They will charge $7.95 for a small cake or $9.95 for a larger one. No charge - yet - for having crew members gather around and sing a celebratory song. In other cruise news, for the first time since March 1940, two Cunard Queens have been berthed together in New York. Back then, the Queen Mary and the Queen Elizabeth were both in New York on the same day, this week, on Thursday, the QM2 and the QE2 met in New York. By all accounts, the QM2 is an extraordinary ship. This Week's Security Horror Story : Although airport security is now more 'in your face' and aggressive than before 9/11, after receiving classified reports this week from the Homeland Security Department's Chief Investigator, the General Accounting Office and a private company, the House Aviation subcommittee ranking Democrat, Pete DeFazio said that passenger screening is no better than it was 17 years ago. 'The inadequacies and loopholes in the system are phenomenal' he said. The chairman, John Mica, described the situation as so serious he plans to hold an emergency meeting with Homeland Security Secretary Tom Ridge and other key agency officials in the next 10 days to discuss ways to tighten airport security. 'We have a system that doesn't work' he said. More details here. An example of the system working at its very finest occurred earlier this week when an Indiana congressman was found to have a loaded 9mm pistol in his briefcase while going through security at Louisville Airport. Rather like the lady I wrote about last week, he explained he simply forgot it was there. Unlike the lady last week, he was 'briefly interviewed' by 'courteous' FBI agents, and no federal charges have been filed, although airport police have filed minor charges against him. Rep Hostettler is not certain he is guilty, however, because he says the firearm was found in an area that was technically before the secure part of the airport where it would be illegal! An interesting loophole, and, if successful, it would seem to excuse everyone from liability whenever they were found to have anything illegal while going through the security screening! The pen is mightier than the sword. A man of Middle Eastern descent was pulled from a Continental Airlines flight in Houston after a security guard noticed papers carried by the man with the words "suicide attack" and "martyrdom attack" written on them. Apparently, the man had just attended a Muslim conference in Houston and jotted down the notes during a seminar. He was later released and allowed to board another flight. In Pittsburgh they're trying to get permission from the TSA to allow non-passengers past security, just like the good old days. This is as a result of lobbying from shops in the secure areas that have suffered massive reductions in business. Sounds like a good idea, but will the TSA increase their security staffing to handle the increased traffic through the security screening? Will non-passengers have to show ID to get through? Will they be subject to random secondary screening, also? Very scary news from Britain. Although the underlying math was faulty, the headlines shouted 'Passengers warned of six-hour check-ins' (for international flights from Britain to the US) due to increased security requirements. While it is unlikely that checkin requirements will stretch to six hours, the increased hassle of traveling to the US, and the gross discourtesy with which many visitors now find themselves subjected to, has resulted in a stunning 30% drop in foreign visitors traveling to the US since 9/11, as explained here. The US is one of the few countries in the world that doesn't have a national tourism promotion body active internationally to bring in tourists. Most countries recognize the growing importance and value of tourism - it is another form of export earnings that helps the balance of payments, and provides major economic boosts for employment and regional development in the host country. With the massive trade imbalance we suffer at present, we desperately need international tourism. That is not to say we should be imprudent at who we allow to visit, but we shouldn't make it progressively more and more difficult and less and less pleasant to visit. We're squandering a massive opportunity to improve our economy and our employment. Lastly this week, here's a catalog that hopefully your boss will not like. Until next week, please enjoy safe travels and think positive thoughts |
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David M Rowell aka The Travel Insider