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Friday 17 September, 2004 

Good morning

It has been a very busy week - as you know, most weeks I write a single web page feature item.  Well, instead of releasing a series of luggage reviews over several weeks, I thought it better to run the risk of overloading both me and you and to offer them all together, so you can immediately compare all the different bags reviewed.  So there is a massive wealth of material being released today.

I should acknowledge two people who acted as the inspiration for what has grown to be an eleven page series on luggage related issues.  Marcy Shackne, Travelpro's VP of Marketing, started the ball rolling by kindly sending a sample of their new Crew5 RollAboard bag several months ago, thinking a brief mention of this new product would be of interest to readers.

That is undoubtedly true, and Travelpro, as original inventors of wheeled rollaboard style luggage back in 1989, remain one of the leading brands today, with good quality products at fair prices.

After the initial concept was sparked by Marcy, the mentor who encouraged and helped me grow the entire article series is John McManus, founder of Magellan's, and a man whose judgment I respect and regularly rely upon.  John has forgotten more about luggage related issues than I'll ever know (and I don't think he has forgotten much) and his own personal integrity and competence is well reflected in the success of his excellent company.

And so, with the preceding as lofty introduction :

This Week's Column :  Wheeled Carry-on Luggage Reviews :  Is a carry-on bag costing ten times more than a competing bag really worth the extra price?  I review $2000 worth of wheeled carry-on luggage, ranging in price from under $40 to over $340, with detailed descriptions and recommendations, so you can answer that question when next buying luggage.

Dinosaur watching :  To no-one's great surprise (except perhaps a US Airways pilot friend of mine who proudly told me, just three weeks ago, how he'd bought some more company stock), US Airways is back in Chapter 11 again, and making brave but probably meaningless statements about restructuring and emerging as a viable low cost competitor.

How likely is this outcome?  On the one hand, there's nothing magic about low cost airlines - the basic formula is simple to understand and far from difficult to implement.  But, there is absolutely not any automatic entitlement of success and/or profit just because an airline gets its costs down low - that is only one part of the total business picture.

On the other hand, can an old dog be taught new tricks?  Corporate cultural inertia - while invisible and intangible, is a very real factor, and it is unlikely that not only will the prominent unions, but also the entire faceless army of US Airways employees, ranging from new hires to senior management, be able to make the necessary attitude reversals from the present situation :  a semi-adversarial relationship between employees, management and shareholders, a disdain for passengers, and a mindset that entitles employees to do as little work as possible in return for as much money as they can negotiate from the company.

Can these same people now make the change and feel good at working longer hours for less money;  will they be able to now cut through bureaucracy and empower lower level employees to make sensible decisions driven by customer service considerations?  Can they change from an inward and self-serving perspective to an outward looking customer driven approach?

The level of distrust and lack of faith in management on the part of employees at present is probably the largest factor in the refusal of employee unions to offer additional concessions, even when threatened with Chapter 11 or 7 bankruptcy as the alternative.

Let's understand exactly what the employee unions were saying.  They were not saying 'we refuse to give you a 25% reduction in our salary that would help the airline survive'.  Instead, they were probably saying 'there is no point in giving you a 25% reduction in our salary because, even if we do, we don't believe you'll competently manage the airline back to viability'.

Let's look at just how ineptly US Airways has been operated.  And because management is quick to blame fuel prices, let's look at the underlying numbers excluding fuel costs.

US Airways' cost per available seat mile, excluding fuel, in the first half of 2004 was 10c a mile.  Compare this to a former dinosaur that transformed itself - America West.  They paid 7.3c a mile.  JetBlue pays 6.4c and Southwest pays 5.7c.

Now, the other thing that  US Airways says is a problem is its high labor cost.  So let's take out the labor costs.  This means US Airways had a cost, excluding fuel and excluding labor of 5.8c a mile.  America West's cost is 4.7c, JetBlue is 3.8c and Southwest is 2.7c.

Two conclusions :

First, if everyone at US Airways worked for free, the airline's operating costs are still higher than what Southwest pays, including Southwest paying full labor costs!!!

Second, if we exclude labor and fuel from all four airlines, and look at the remaining costs - which in a grossly oversimplified manner can be considered to partially represent how well the airline is managed, US' costs are 23% higher than America West, 53% higher than JetBlue, and more than double the costs at Southwest, its new head to head competitor.

Do you now see why the unions are reluctant to give more money back to management?  No amount of giving back is going to solve the airline's problems, and as long as management blames high fuel and high labor costs, they are ignoring a massive remaining factor which surely they have the most direct control over.

Which leads to one other question needing to be asked :  Can the same management that made the series of bad decisions resulting in this new bankruptcy now be relied upon to rescue the company from the consequences of their actions?

These are not just empty rhetorical questions.  They strike to the very heart of the ultimate question - will US Airways survive?

Remarkably, management seems very confident about its future, spurning the threat of its Chairman and major shareholder, made just a month ago, to close the company down entirely.  'This management team isn't here to preside over a liquidation' said Brian Leitch, the airline's lead bankruptcy attorney, adding that the plan is to transform the airline 'into a vibrant competitor',  matching the low fares and low costs of airlines like Southwest and JetBlue.

Is this a realistic objective, or is it absolute nonsense?

My fear is that US Airways will not survive, or, if it does, it will only do so after closing down or selling off substantial parts of its current route system.  But don't shed a tear on their behalf - they don't deserve to survive.  If it weren't for Chapter 11's generous provisions, they'd have been forced to shut down twice in the last two years.  Their second failure now, subsequent to their exiting Chapter 11 in March 2003 can not be blamed on anything other than themselves - they self-evidently did not have a viable business plan upon exiting Chapter 11.

What should you do to protect yourself?  Four things.

First, don't book any more US Airways flights.  You will not be adequately protected if the airline closes down, even if you pay by credit card.  Best case scenario is that you get the cost of the ticket refunded to you, but offset against that is the need to buy a replacement ticket with another airline, probably at much higher cost, and less convenient schedules due to a sudden rush of people from former US Airways flights booking other flights.

Worst case scenario is you'll find yourself stranded somewhere inconvenient, and if you're lucky, another US carrier will fly you home, space available, at a nominal extra cost.  But that space available flight might mean waiting a day or longer at the airport in an agony of inconvenient uncertainty until finally getting a middle seat on another flight.

Second, if you have a substantial number of US Airways Dividend frequent flier miles, now would be a very good time to convert your miles to free tickets, and preferably not on US Airways' flights, but instead on one of their partner carriers.  Two reasons for this - first, who knows what flights they may choose to cancel as part of any possible reorganisation plans.  Second, once you have a ticket for flights on a partner airline, this will probably be honored even if/when US Airways ceases operation.

Third, for any flights you are taking which you'd normally have the miles posted to a US Airways Dividend account, have the US flight miles credited to any other carrier instead (ie probably United - only a slightly better choice than US Airways).

Fourth, choose a new preferred airline for future flights and mileage accrual.  If you have elite status with US, ask your new preferred airline if they'll give you immediate matching status (offer to send them your latest account statement showing your US elite status).

How is US Airways making use of its latest 'Get out of Jail Free' card?  In its first few days of Chapter 11, the following has occurred :

  • Shareholders have seen the value of their shares (to be delisted next Wednesday) plummet

  • US has skipped a $110 million payment it was obliged to make to its pension plans

  • Employees are being doubly threatened with unilateral reductions in pay and benefits

  • Creditors are at risk

  • The 'sanctity of contract' - one of the cornerstones of western commerce - has again been broken by US Airways unilaterally cancelling the leases on 23 airplanes it no longer wants or needs, but which it had been obliged to continue making payments on

  • It is breaking the covenants surrounding the government guaranteed $700 million loan, and has started spending the money that had been reserved as collateral to ensure that we - the taxpayers - don't get stiffed.  So US' actions are now threatening all of us

And that is just in the first few days.

If this occurred in any other context, it would be a headline grabbing corporate scandal.  But the blessing of Chapter 11 allows US Airways to get away with actions that by any other measure would be illegal and scandalous.

I think it remains scandalous, and suggest it should be illegal.  At the very least, there should be a time requirement from when one Chapter 11 bankruptcy is filed until when another one can be - rather like personal bankruptcies where you can only file a Chapter 7 bankruptcy once every six years.  At present, there is no downside to US Airways (or any other company) becoming a serial Chapter 11 abuser.

Some time back there were stories about US Airways potentially selling off some of its assets such as its East Coast shuttle operation.  These rumors are understandably circulating again, and personnel from at least two other US airlines have been spotted in the corporate offices of US Airways in the last short while.

This week's amazing coincidence :  No sooner had new carrier Independence Air announced new service from Tampa to seven destinations in the Southeast than Delta announced that it was adding new service on five of the same seven routes.

This week's other coincidence :  The dinosaur most likely to follow US Airways into bankruptcy is Delta.

Delta is finding itself in a vicious circle.  Senior pilots are choosing early retirement and to take a lump sum of up to half their total pension entitlement at that time.  They figure - and understandably so - that the future of their pension is far from guaranteed, and so they're cashing in as much as they can while they still can.

Presently Delta pilots can retire effective the first day of each month by filing papers as late as 11:59 on the preceding day and most pilots are choosing to file close to that deadline.  Gee - it is almost as if they have a grudge against their employer, don't you think?

Delta had to pay $117 million in lump sum payments to retiring pilots during the second quarter, and is not only having an unexpected drain on its dwindling cash but is now starting to run short of senior captains, too.

While most airline employees are being asked to accept pay cuts, there are still some exceptions.  For example, at Continental, their new president-designee will receive an annual salary of at least $720,000 plus benefits.  Continental's current president earns only $586,085.

How can CO justify paying the new president 23% more than the previous president (who had the benefit of seniority)?

Maybe they can do this due to some new savings they have announced in their telephone service department.

Do you like it when your phone call to book an airline ticket, or for computer support, is answered by someone offshore?  Not many of us do, for the simple reason that it is often difficult to understand and be understood.  The airlines should understand this by now, but displaying the amazing ability to do exactly the wrong thing that is unique to the airlines, Continental have come up with an 'improvement' over low-cost offshore call centers.

What is worse than speaking to a foreigner with substandard English skills?  How about speaking to a computer?  Don't you hate the new voice-recognition systems that some customer-unfriendly companies are adding - with the main feature being the inability of these voice recognition systems to actually recognize one's voice.

Now stand back, because here is some corporate nonsense designed to make you feel good about the latest service insult CO is inflicting us with :

A company called Voxify has created software called Automated Agents for call centers. The software has the conversational skills to handle advanced customer service calls and Continental has signed on. Continental said they chose Voxify for it's breakthrough technology and ability to deliver automated systems with superior customer experience. The airline will use this software to handle incoming calls involving flight reconfirmations, freeing their live agents to take other calls. Voxify Automated Agents are built for advanced customer service calls, such as fare finder and reservations and can accommodate customers with varying amounts of information. It responds to customer inquiries about existing reservations and provides the ability to reconfirm flights.  Callers experience an Automated Agent who understands how to give them what they need quickly and easily, approximating the effectiveness of a human being.

I wonder if CO proposes to charge us $5 when we call to talk to their computer, or only if we ask to be transferred to a real person?

Talking about computers, and using the internet to avoid booking fees, I tried to book a ticket on Travelocity this week.  I wanted to fly from Seattle to London, on British Airways, in their Premium Economy class.  Unfortunately, Travelocity only gives you a choice of Coach, Business or First Class.  Neither coach nor business class included the premium economy fares.

So I called their (800) number but a recorded message said that due to a high volume of calls, they would only speak to people making reservations for travel within the next three days.  Instead I was told to send them an email, which I was assured would be answered promptly.

And so, at 8.32am on Monday morning I sent them an email through their webform, with the simple question 'how do I book BA in premium economy class?'.  The webform promised me an email reply within four hours.

I am writing this more than three and a half days later.  Still no reply.  I think I'll fly Virgin instead (and book directly).

How long would a regular travel agency stay in business if they refused to take customer phone calls and didn't answer emails?

Reminds me of a friend who was complaining last week at waiting on hold for over an hour while calling an airline.  He is a senior executive, and his time must be worth a good three figure sum every hour.  I asked him why he didn't use a travel agent - their small fee would be many times repaid by the return of the extra billable hour to his company.

We've been discussing the perfidy of hotels who charge us outrageous fees the last several weeks.  But it isn't only the hotels that do this.  Some of the website booking services cash in on the act, too, and mark up the taxes (which are calculated on the wholesale selling price of the room, not the rate we pay) and other costs without telling their clients.

Because of these practices, InterContinental Hotels - operator of the Holiday Inn and InterContinental brands - announced it will remove its 3500 properties from Expedia.com and Hotels.com later tihs year.  They have asked the websites to break down and show the taxes and service charges, but both websites have refused to comply.

And now for the wonderful quote.  Jason Reindorp, an Expedia spokesman, said transparency is not the issue.  He told the Boston Globe that consumers who reserve hotels online know that booking fees are often charged.  He said

We do extensive research with consumers on this and they've told us they don't care

In my local area, a developer is holding the city government to ransom, insisting that if they don't contribute to his costs of building a hotel next to their planned expansion of the local convention center, he will cancel the project.

His rationale for needing city funding?  Although this might come as a surprise to many of us, he explains that hotels located right next to, or as part of, a convention center suffer from a disadvantage compared to normal hotels, because they have to rent large blocks of rooms to convention goers at discounted rates!

Similar duplicity is reported in a UK Financial Times article about the need for rail expansion in the US.  Rail freight is being moved in record quantities, and the railroad network is increasingly stretched to its limit, with the only and obvious solution being to build more track, doubling up lines where presently there is only a single track and much traffic congestion.

The federal Surface Transportation Board says the rail industry itself can not justify these investments - the average rate of return on invested capital in the rail industry is 6.8% and its cost of capital is running at a high 9.4%.

However, Clarence Gooden, chief commercial officer at CSX Transportation, one of the four largest US railroads, says the industry is 'not looking for government handouts'.

That is a great relief to us poor taxpayers, I'm sure.  But what does Mr Gooden think is needed?  He says

We need tax credit relief and a look at what type of incentives can help the industry make the mathematics work.

So when and how did tax credit relief and incentives cease to be government handouts?

Letter of the week award goes to the visitor who wrote me the following note :

I recently read your web site and was surprised at what comes across as an extremely cynical attitude you have about the airlines. You can count me as one that doesn’t hate the airlines as you seemed to imply that everyone does.

I think they provide an outstanding product and value.

This Week's Security Horror Story :  A passenger on an AA flight became 'unruly'.  Another passenger described how the man said he was God, and that he was a friend of Osama bin Laden.  He took his shirt off and wrapped it around his head like a turban, and stood up and was very menacing.  The man then began tearing up a stack of papers and chewing on his passport.

A passenger complained to a flight attendant, who asked the passenger to help out because the flight was understaffed.

The pilot then announced that as a security measure all passengers must remain in their seats for the remainder of the flight.  Passengers were not allowed to even go to the bathroom.  Instead, the flight attendants handed out paper cups to those passengers who desperately needed to answer the call of nature.

We don't know if the flight attendants cleared the paper cups when preparing the cabin for landing.

American Airlines officials subsequently said the precautions taken may seem excessive, but insisted they are needed in situations to keep control of the plane's cabin.

We know it is a strongly polarized election campaign this year, and as further evidence is this case where a flight made an emergency landing after a case of 'air rage' caused by a Kerry supporter who was arguing the merits of his candidate a bit too vociferously.

Good news for 15,000 of the 26,000 airline passengers who have filed claims alleging that items in their checked baggage have been stolen or damaged in the last 18 months. The TSA is paying $1.5 million to settle their claims.  The TSA will pay the entire claim in 38% of the 18,000 claims processed so far, half the claim in 33% and less than half in 12%. The remaining claims will be denied.

The TSA is also denying claims for damage to locks and damage to film.

Lastly this week, who ever said that tips were discretionary?  Certainly not the restaurant owner or local police force in Lake George, NY, who arrested a man after his group left without paying the 18% tip that was added to the bill.  Details here.

Until next week, please enjoy safe travels

              David M Rowell aka The Travel Insider

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