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Friday 5 November, 2004 

Good morning

I'm back ashore after a lovely week visiting the islands off Scotland's west coast.  The Scottish islands are amazing - scenically very beautiful, and extraordinarily empty of people; and indeed not even very many animals, apart from sheep and cattle that seem to delight in sleeping on the middle of the road.  Many of the roads are not only one-way but also are unfenced, and so sheep and cattle are variously grazing by the side of the road, walking on the road, or sometimes even lying down in the middle of the road.

This evening promises to be interesting and noisy - it is Guy Fawkes night in Britain, when they celebrate an attempt at blowing up the Houses of Parliament several hundred years ago by letting off fireworks and burning effigies of the lead conspirator (Guy Fawkes).  I suspect it will be a while before we in the US celebrate 9/11 in a similar manner.

Now that the election has come and gone, certain things no longer seem as desperately important as they did a week ago, but nonetheless I must set the record straight on an unfortunate error in last week's newsletter.  John Edwards was not responsible for the $5 million verdict against a flu manufacturer.  It seems, when it comes to fact checking, I am regrettably no better than Dan Rather.  I think I can fairly say, however, that my mistake was probably not a measurable factor in Senator Edwards and his partner from Massachusetts losing on Tuesday night.

I managed to find time on some of the ferry crossings last week (the longest was three hours) to write up my experience in Virgin Atlantic Airways' Upper Class Suite, and so :

This Week's Column :  The Sweet Life at 35,000 ft :  Virgin's Upper Class Suite takes an innovative new approach to lie-flat seat/bed combinations.  The outcome - more comfort both when seated and when lying down.  Add the usual (for VS but not for any other airline) array of other goodies offered to their Upper Class passengers, and the result is a strong reason to choose VS for your next flight.

Dinosaur watching :  The headlines suggest that United improved its third quarter result compared to last year - losing $274 million this quarter compared to $367 million last year.  But, if you ignore one time and other 'unusual' items and look at the basic ongoing trading, United lost more money than it did last year - $177 million compared to $133 million.

Generally airlines post their best results in the third quarter because it includes the busy summer travel months of July, August and September.  If this is UA's best quarter, what does the future hold?

When United declared bankruptcy in December 2002, it confidently predicted to be out of Chapter 11 within 18 months.  Nearly two years later, it remains en-mired in Chapter 11, and no matter which set of numbers you look at - the 'encouraging' $274 million loss or the 'discouraging' $177 million loss, it continues to consistently lose money at a surely unsustainable rate.

With nearly two more years of losing money subsequent to Chapter 11, isn't UA running out of time?  At what point should the bankruptcy judge say 'Enough already' and close the company down?

This point may be rapidly approaching.  United's ongoing losses mean it is running the risk of breaching its financial qualifying requirements for its bankruptcy debtor-in-possession financing.  This breach, expected to occur during the current quarter, could trigger UA's creditors calling in their markers and forcing the company to close down.

How likely is this to happen?  Not very.  Most of UA's creditors are probably betting that UA may somehow return to profitability, giving a better return on the money owed to them than if they closed the company down and tried to sell off United's assets.  UA's value as a going concern is vastly greater than its value if it ceases trading.

We're seeing some examples of how airline assets can drop in value with ATA's bankruptcy at present.  Rather than buy gates from ATA, Southwest is responding to ATA's weakness by simply increasing its present operations at Midway, adding another 16 flights a day, and in doing so, makes ATA's gates less desirable for any other airline to consider purchasing.

And in ATA's major hub of Indianapolis, Northwest has announced plans to expand its operation, hastening the demise of ATA.  NW says that it has been planning this expansion since 2001, and would have us believe it is just a coincidence that it announces it a week after ATA goes into Chapter 11.

You really have to (almost) feel sorry for ATA.  Not only are they now under attack by other airlines quick to exploit their weakness, but their big hope for salvation - cash from selling their Midway gates to AirTran - is under threat from an unexpected quarter.  Chicago Mayor says he'll only approve the gate transfer if AirTran will hire all of ATA's Midway employees.  This is not something AirTran would particularly want to do.

Who benefits if the deal falls through?  ATA might have to close up entirely.  Their employees lose their jobs.  Midway loses the revenue from its now empty gates.  Chicago area passengers lose some valuable airline competition.  No-one benefits.  Mayor Daley might want to rethink this one.

I'd mentioned months ago some rumors about Southwest switching to pre-assigning seats.  At the time, Southwest hotly denied the rumor.  Now their President, Colleen Barrett, says they may indeed move to regular pre-assigned seating.  But it might take them as long as a year to implement this new service.

More excess capacity excuses.  I commented last week on the excuse du jour now being trotted out by failing airlines - their woes are being blamed on 'excess capacity'.  United's CEO, Glen Tilton, used the excuse this week to explain away his airline's dismal loss, by saying 'Excess capacity has led to the lowest fares in more than a decade', even though his airline is consistently running with the highest load factors ever.

As I said last week, this is a nonsense excuse, and here are four proofs.

1.  American Airlines - the world's largest carrier, and so a fair measure of capacity issues - reported its October traffic on Tuesday.

For October 2004 AA reported the highest ever October load factor in the company's history - 74.9%.  And, as further proof of the nonsense beneath the excess capacity excuse, the company's second highest October factor was in October last year (70.2%).  There was not excess capacity a year ago, and there doubly is not excess capacity today.

Interestingly, not only did passenger numbers grow, but at the same time, AA reduced its domestic capacity by 2.6%.  In total, AA boarded 7.5 million passengers in October.

2.  Last week, America West's Chairman and CEO, Doug Parker, said 'We are disappointed to see our string of profitable quarters come to an end. These results are driven by an extraordinary increase in fuel prices and excess industry domestic capacity'.  This week, America West (HP) announced their October traffic data.  Revenue passenger miles were at an all time record high, and 11.7% up on last year.  And their load factor was also up, both for the month (a new record of 79.4%) and for year to date.  And Executive VP Scott Kirby had obviously not been clued in to the new excuse, because he said 'We are pleased to report our fourth consecutive month of record load factors'.  So how do four months of record load factors (ie fewer than normal empty seats) equate to excess capacity?

3.  Delta's October load factor increased to 74.1% in October, up from 72.9% the year before, with an 8.3% growth in system traffic and a smaller 6.5% increase in capacity.

4.  Even floundering US Airways, laboring under the negative of its second Chapter 11, reported that its October load factor of 75.6% was the highest October load in its entire corporate history.

Suggestion to failing airlines :  Stop blaming your problems on high labor costs.  Stop blaming your problems on high jet fuel costs.  Stop blaming your problems on excess capacity.  Try blaming your problems on inept management.

Southwest currently has a very generous offer open to its most frequent travelers.  If you fly fly 50 roundtrips within 12 months -- or earn 100 credits -- you'll be given a Companion Pass, allowing you to designate someone who can fly with you- totally for free - for 12 months.

Discount European airline Ryanair announced a record profit for its most recent quarter.  Earnings increased by 14.9%, with a profit of $188.3 million.  Ryanair is Europe's largest discount carrier.

And the airline thinks it may have found a new way to boost its earnings in the future - in-flight gambling, which could easily be added to the in-flight seat-back video sets.  CEO Michael O'Leary contends that an airline in flight is in a no-man's land free of any governmental jurisdiction that might otherwise prevent them adding gambling.

Once bitten, twice shy.  Officials with the Pittsburgh airport have asked the US Airways bankruptcy judge to guarantee that the airport receives adequate notice if the struggling airline decides to reject its gate leases. Last year, when US Airways was emerging from its first bankruptcy filing, the carrier rejected its Pittsburgh leases, an apparent violation of a promise made to airport officials weeks before that decision. 'We were lied to' in 2003, the airport authority's attorney says.

I wonder what 'adequate notice' would be on a 20 year lease agreement?

American Airlines launched a new 60-day marketing test on its flights from the U.S.A. to Tokyo -- selling coach passengers an "amenity kit" with socks, eyeshades, earplugs, a toothbrush, and toothpaste for $5. The kits will also be sold in some Admirals Clubs around the country.

Would you pay $5 for this?  I got a better kit than that, for free, when traveling in coach class to and from New Zealand with Qantas.

Canadian discount airline WestJet has hired a new Executive Vice President, Marketing and Sales.  This person will head up the marketing, sales, scheduling and revenue teams at WestJet.  Strangely, the appointee has never worked for an airline.  For the last five years, Sean Durfy worked for the City of Calgary's Enmax Energy Corporation subsidiary, and before that at a different energy marketing company.  He is also a director of the Calgary Zoo.

But - who knows.  Perhaps, with no airline experience to handicap him, Sean will do very well!

Some bold statements from Canada's Transport Minister, Jean Lapierre, in a speech given in Toronto :

For nearly a quarter of a century, the federal government's air policies have been built on protecting what we have, rather than building something better, protecting against loss of service, against the loss of our national flag carrier.

The time for this approach is over. Now is the time to build an aggressive, forward-looking, market-driven framework that will help the industry compete regionally and globally.

This certainly sounds good.  He then went on to pose a series of rhetorical questions about whether the government should do things such as relaxing foreign ownership, allowing foreign airlines to offer flights between Canadian cities, and opening Canadian skies to US airlines.

Don't hold your breath expecting anything to come from this any time soon.  The rhetorical questions will quickly evolve to become real questions and then stumbling blocks, and while Mr Lapierre will be remembered for his positive vision, nothing will come of it.

Hotels succeed where airlines fail :  Airlines are having difficulty increasing their fares, but in most cities, hotels are having no such problem, with room rates up 6%-12% compared to same time last year, and are expected to increase another 7.5% next year (compared to a 5% increase in airfares).

Interesting relativity :  A hotel room in Manhattan can commonly cost $350-450/night now.  A roundtrip airfare from just about anywhere in the country to New York usually costs less than the cost of one single night in a hotel once you get there.

The last Boeing 757 rolled off the production line this week, ending a 22 year production run.  It is the 1050th 757 built, and more than 1030 of the planes are still being flown.  I've never liked the 757 - the very long single aisle could make for very slow unloading, but with 1050 sales, it certainly was a commercial success.  This leaves Boeing with only two active passenger plane types - the 737 and the 777, with the 7E7 due to appear in 2006.

More cell phone battery problems.  Kyocera is recalling one million batteries in the US, relating to their three models K400, 32000 and Slider.  Phones were sold by Alltel, Virgin Mobile, Cricket, MetroPCS, US Cellular and Verizon.  Bizarrely, Kyocera says that some of these batteries might be counterfeit and so of lesser quality and more likely to burst into flames.

How can the battery you get with a new cell phone, sealed into the box by the manufacturer, be counterfeit?

Is this an act of brilliance, or not?  Hertz are equipping some of their rental locations with Wi-Fi, albeit not free, but rather connected to the Wayport chain of Wi-Fi outlets.  Personally, when I'm collecting a car, I make use of their wonderful Express service and rush off the shuttle bus, into my car, and drive it immediately off the lot.  I never have the time or desire to spend time in their depot sending/receiving emails first.  And when I return a car, I'm usually running late and can't relax until I finally get checked in, through security, and to the gate.  Their Wi-Fi service would be zero use to me.

But Hertz say their research shows that many renters want to be able to get their email upon arrival at the end of a long flight and before driving to their first meeting.  So maybe this is useful for you, even if not for me.

Perhaps it is a good idea, because a couple of days after Hertz's announcement, Avis confirmed its role as number two by rushing out an announcement saying that it too would offer Wi-Fi.  In both cases, locations will start to go online at the end of this year - Hertz are promising more than 50 and Avis 88.

This Week's Security Horror Story :  Reader Mike was flying from Houston to Las Vegas, and was selected for secondary screening.  His shoes were X-rayed, and he had to show a surgery scar to establish that a 'beep' from the hand wand was from a piece of metal inside him.

But, notwithstanding the intensive secondary screening, including having his shoes X-rayed, his crutch was totally ignored.  Mike wonders if the TSA have ever read the book/seen the movie 'Day of the Jackal' in which a gun is disguised/hidden as a crutch.

When Mike's flight to Vegas finally took off, he noticed a lot of empty seats on board, and a flight attendant told him there were 18 people who missed the flight due to being delayed going through security.  The next flight to Vegas wasn't until the next day.

Readers David and Corey write about similar experiences.  David realized that he would be selected for additional security screening because he couldn't print out a boarding pass from the internet.  David's point is simply this - if a terrorist can find out before arriving at the airport or not if they will be selected for secondary screening, doesn't that rather defeat the point of it?

He also writes that an Immigration official told him he shares a similar name with a well known drug trafficker, although the drug trafficker is black and Canadian whereas David is white and American.  After reading in his local paper that the TSA is helping catch drug smugglers, he wonders if this is mission creep - isn't the TSA supposed to be simply protecting planes from terrorists, not catching drug smugglers?

In Corey's case, he was changing flights and was already in the secure area of the terminal when told he would have to go back to security for secondary screening, and was asked to go back to security by himself.  His point is similar to David's - if he was a terrorist, and already in the secure area with something illegal, wouldn't he simply hide it or give it to an accomplice before going back to be rescreened?

Reader Bill was flying through Geneva and what did he find for sale in one of the shops inside the secure area?  Swiss Army Knives, complete with a sign saying 'Swiss Army Knives OK for boarding in Geneva'.

Reader Penny was flying out and handed her suitcase in to the TSA to be checked.  It had a TSA approved suitcase lock on it.

The screener noticed this and said 'Oh yes the supervisor has a key to your lock, but it's locked in his office and he's not there'.

There's been a growing saga surrounding a Delta flight attendant who has an on-line blog.  She has done a reasonable job of disguising the airline she works for and the city she is based in - she refers to the airline as 'Anonymous International Airlines' and her city as 'Quirksville, TX).  She posted some pictures of herself at work and was suspended by Delta for doing so.  She promptly took the pictures off her website.  Note she was not warned, just immediately suspended.  After a couple of weeks of suspension, DL then announced she was fired.  The pictures are now back online and the story is reverberating around the world.  Seems to me that 'Queen of Sky' would make a charming addition to just about any airline's cabin crew.

Lastly this week, a trip to Australia is a dream for most of us.  And so it is easy to understand how someone could be disappointed when their travel plans crumble, but it is not so easy to understand what this person did next.

I'll be in Genoa next week, but hope to be able to get a newsletter and article to you same as normal.

Until then, please enjoy safe travels

              David M Rowell aka The Travel Insider

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