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21 October, 2005 

Good morning

Third quarter results are being announced, and there are some surprise winners and losers in terms of airlines and their results.  More on that below.

Thanks to the people who wrote in with their experiences traveling with an Evac-U8.  I've been having fun surprising people the last few days by coming up from behind wearing one of these smoke hoods - I must try and save one and wear it when answering the door on Halloween!  Of course, that isn't the main reason for buying one of these units, and if you'd like to know more about if you should buy one, please read :

This Week's Feature Column :  The Evac-U8 Emergency Smoke Hood :  Three quarters of people who die in fires do so not from heat but from smoke and poisonous gases.  Whether it is in a plane, building, ship, or elsewhere, the Evac-U8 smoke hood gives you 15+ minutes of precious pure air - a lifesaving chance to escape the fire.  I pull one of these units to pieces (literally) and report on my findings.

Actually, when I say I should wear one of these at Halloween, that is not possible, because on Sunday I head to New Zealand for almost three weeks.  This means the next three issues of the newsletter may be short and at slightly different times of day.  Please bear with me, and I'll try and occasionally tear myself away from sightseeing fun with the group of readers traveling with me on our NZ Tour and write newsletters instead.

Next week I plan to write about satellite radio.  If you are a user of satellite radio, I'd be interested to learn of your experiences - do you consistently get good coverage or do you sometimes experience annoying dead areas with no service? Please be sure to tell me, with your comments, if you are using XM Radio or Sirius.  If there was a reason why you chose one over the other, I'd like to know that too.  Because Sirius and XM use different types of satellite service, I'm keen to get a feeling if one service has better coverage than the other or notPlease send your comments to me here.

Dinosaur watching :  The new bankruptcy laws came into effect on Monday, and only one other airline filed Chapter 11 prior to the advent of the new legislation.  This was Mesaba Airlines, a regional carrier primarily contracted with Northwest.

In their filing, they blamed their bankruptcy on the flow-through effect of Northwest's own bankruptcy filing.  And, bankruptcy or no, they also said they plan to continue with plans to form a regional airline offering service between the islands of Hawaii.

Strange goings on at JetBlue.  Their profit margins - once sky high - are being squeezed down to very low levels.  On Thursday they announced their third quarter results, with a profit of a mere $2.7 million, compared to $8.1 million last year.  This drop in profit is all the more disappointing because gross revenues rose 40% over last year's third quarter, load factors increased from an already high 84.9% up to 86.6%, and per passenger revenue increased strongly.  Operating revenue per available seat mile was up 9.1% from 2004, and their average fare was $114, up 11% from last year.

Ticket prices are up, revenues are up, passenger numbers and load factors are up, and yet profit drops to one third the level of last year.  Ouch!

And if you think that is bad, JetBlue said it is outlooking a significant loss in the fourth quarter, breaking their run of consistently profitable quarters since going public in 2002.  The fourth quarter loss will more than offset the first three quarters' profits, giving JetBlue a loss for the entire year.

Their share price dropped 7.5% on Thursday.

And now for JetBlue's puzzling announcement.  They are making a three for two stock split and accelerating the vesting of stock options given to their employees.  Why are they doing this?

Here's an interesting chart comparing the share price movement of JetBlue (JBLU) with American Airlines (AMR), Southwest (LUV), a composite airline stock index (_XAL) and Continental Airlines (CAL).  With all stock prices starting out at a common point two years ago, JetBlue has consistently under-performed the other stocks, and its share price has lost 60% of its value in the two years.


Usually a company splits its stock when its price has moved 'too high'.  Stock splitting is at best a marginally rational action, and is even harder to understand when the share price is dropping rather than rising and at its lowest level in two years.

As for accelerating the share vesting, on the face of it, this would seem both an embarrassing statement of lack of confidence in the future performance of their share values and an act of venal selfishness taken right from the play-book of the dinosaurs, with people desperate to cash in their options while they still have remaining value.

It is difficult to say how much accelerating the vesting program may cost the airline, but they're taking a $9 million charge in the fourth quarter to account for this.  So, after making a mere $2.1 million profit in the third quarter, with its share price in the dumps, and outlooking a loss for both the fourth quarter and the entire year, they're planning on making a totally un-needed - and unjustified - gift of $9 million to their staff.

Size is an essential component of success in building an airline.  Each extra flight and each extra route adds benefits throughout the network, and each extra flight, if utilizing a plane that would otherwise have sat idle, can be marginally costed very much below the fixed costs while still contributing to overall airline profitability.

And so it is surprising to hear JetBlue's CEO, David Neeleman, say they'll be cutting down on capacity in the fourth quarter.  He said they've had problems getting fare increases to stick and have already started cutting some flights to destinations such as Long Beach and Fort Lauderdale.

Capacity isn't the only thing being cut at JetBlue.  Standard & Poors cut their corporate credit rating for JetBlue on Thursday, down to 'B-plus', solidly in the junk level category.  And Calyon Securities cut their rating on the stock to reduce from neutral.

Not all third quarter results are doom and gloom, however, with rays of sunshine appearing in unlikely places.  Continental announced a profit of $61 million, compared to a $16 million loss last year, which it said was due to strong demand, enabling it to keep both loads and airfares high, and to keep ahead of their increased fuel costs.  The profit is all the more impressive when you allow for an estimated $25 million cost that resulted from closing its largest hub (Houston) for 36 hours during Hurricane Rita.  Well done Continental.

Another winner is Alaska Airlines, with an increased profit of $90.2 million, compared to $74 million in 2004.

And American Airlines, while posting a loss of $153 million, can still proudly point to its loss being less than the $214 million it lost in the third quarter last year, all the more so because (like Continental) it has stayed out of bankruptcy and continues to honor its pension plan obligations, making $310 million in payments this year.

American has also come up with a new way to make money - selling day passes to its Admiral Club lounges, for $50 each.  What exactly do you get for your $50?  Some comfy chairs, some nibbles, coffee and sodas, but nothing much else, as best I could determine when I was in their Los Angeles lounge back in July.  No free drinks, and no free Wi-fi.

Would you pay $50 to sit in a slightly more comfy chair for an hour or so while waiting for your flight?  I sure wouldn't.  Annual membership costs $450, or if you have more Aadvantage miles than sense, you can spend 70,000 of them to get a membership 'for free'.

Miles are generally valued at about 2c each, meaning you're spending $1400 worth of miles to get a $450 membership.  Or, put it another way, you're spending almost as many miles as you would need for an international roundtrip business/first class free ticket.

Needless to say, Southwest Airlines was also profitable, posting an impressive $227 million profit for the quarter, almost double last year's $119 million.  Southwest is more fuel-hedged than any other airline so its small fare increases go straight to the bottom line rather than to an oil company, enabling it to do better and better while other airlines are struggling to keep ahead of their increasing fuel costs.

Recognizing the importance of continued growth, they plan to take delivery of 33 aircraft in total this year and another 33 next year.  And in a shot across the bow of United and Frontier, they've announced their next new destination - Denver.  Southwest had offered service to Denver for three years up until 1986, and now plans to return in early 2006.  Exact details will be announced later, but Southwest doesn't like to start service in a city with less than about eight flights a day, so expect an appreciable presence right from the start of their service.

United's dominance at Denver - already shaky - will be challenged still further with the arrival of Southwest.

Talking about American and Southwest, their battle of words over the Wright Amendment and its limitations on Love Field service has spilled over into the internet and Wikipedia, the online encyclopedia made up of largely uncensored reader contributions.  The site lets users create, change and even erase articles on any topic, regardless of their expertise, and usually with surprisingly good results.

Last week, someone using a computer with an Internet address assigned to AA edited Wikipedia to describe Southwest as a 'notoriously litigious company constantly seeking to change laws to gain an advantage'.  The site also said Southwest is known for its PR machine and litigious nature but this statement didn't last long.  Tim Wagner, a spokesman  for American, said the airline did not initiate or condone the statements and in turn chose to take offense at a different Wikipedia entry calling American's dominance at DFW a 'chokehold'.

And talking about the internet, here's a really clever new service from last minute package discounter, Site59.  You can now arrange for two (or more) people traveling from two different departure points to rendezvous somewhere.  We all have friends, relatives, or colleagues who we might want to meet somewhere for time together, and until now, trying to coordinate travel plans, budgets, and everything else has always been complicated and time consuming.  Site59 has come up with a clever way of making that easy.  Their system mixes and matches the best flights so you arrive and depart your destination as close together as possible, and offers you alternatives based on your preferences.

The system is easy to follow and understand, and the prices surprisingly low (at least for the couple of test itineraries I played with).  The website even suggests how the total package price should be allocated, but regrettably insists that one person pays for everything and everyone.

It seems a long time since Airbus has taken a new order for their superjumbo A380.  Currently their order book shows 149 firm orders and 10 options, from 16 different clients.  After some delays, Singapore Airlines will be the first airline to operate the new plane, in late 2006.

Airbus has come up with an interesting excuse for why they're not selling more A380s at present.  They are not selling because they are too popular.  Airbus Sales Chief John Leahy boasted he could easily sell another 30 planes, but unfortunately, this is not possible because they don't have sufficient production capacity.

This is curiously contradicted by another of their planes.  It seems they can't deliver newly ordered A380s until possibly 2011, and we're expected to believe that no airline would be willing to wait that long to acquire such a unique plane.  But their new A350 won't enter commercial service until maybe some time in 2010, and for sure, their order book for the A350 is already stretching deliveries out beyond 2011.  Why and how does Airbus expect airlines to order A350s (instead of the very similar 787) with similar or longer delays to those offered by the unique A380?

Maybe the real reason is their designers and program managers are simply too scared to see this revolutionary new plane in service, for fear of subsequently being prosecuted by the French authorities for manslaughter, should/when/if one of these planes eventually have a fatal accident.

The French witch-hunt to find someone to blame, prosecute, and presumably then march to the guillotine, over their embarrassing Concorde crash shows no signs of abating.  I commented before on their threatened prosecution of a 76 yr old former Airbus executive who retired six years before the crash.  This man, M. Henri Perrier, remains under threat of prosecution, and so too do arrest warrants remain open for various Continental staff members who almost certainly have no plans to travel to France any time soon.

Now the examining magistrate (a sort of combination of prosecutor and judge - ouch!) has advised Jacques Herubel, a former Aerospatiale engineer, that he is being investigated for involuntary manslaughter.  Apparently Aerospatiale is thought to be at fault for not taking preventative action prior to the accident to reduce the risk of tire separation and damage from tire fragments.

Maybe the company indeed is at fault, but such decisions are seldom exclusively made by one single person, but rather reflect the vague consensus of an imprecisely framed group of people, all acting within a similarly ill-defined corporate culture in terms of risk aversion and willingness to spend tangible money on intangible safety measures.  Trying to pin the blame on a single mid or senior level manager is unfair.

However, in good news for Airbus, they have been awarded a contract to build components for Boeing's 787.  Yes, Boeing has so emasculated its manufacturing capabilities that it now ends up effectively contracting with its competitor to help build its planes.  As far as we know, while Airbus is now supplying parts of several different Boeing planes, Boeing is not manufacturing anything for Airbus. Details here.

China has announced the world's highest railway line is due to start operation next spring.  The service operates between Lhasa and Gormo.

Most of the line is above 13,000 ft and parts go as high as 16,500 ft, and 350 miles of the line are built on ice.  The carriages are sealed and pressurized, similar to planes - you might recall that planes typically pressurize their cabins to about an 8,000 ft altitude equivalent.

I commented last week in my review on the Toshiba Gigabeat MP3 player how amazing it is that a single (small) product can have such a massive impact on a large company's operations - in that case I was referring to Apple and their iPod range of MP3 players.

A similar example can be seen with Motorola and their stylish V3 Razr phone, which I reviewed here.  They've now sold over 12 million of these, with half their sales occurring in the last quarter alone.  As a result, handset sales are up 66% compared to third quarter of 2004, and earnings are up 52%, to $597 million.  Motorola's market share for cell phone handsets increased from 14% last year to 19% this year.

Perhaps part of the reason for the V3's growing success is that it is now offered by both by T-mobile and Cingular, and Amazon will give it away free when you sign up for new service.

Here's a helpful tip from Gemutlichkeit's free Europe Travel Alert newsletter.  Don't accept charges that the establishment converts to US dollars 'for your convenience'.  There's a hidden 4% - 5% surcharge built in to this convenience.  Publisher Bob Bestor says to refuse to accept such charges and insist on local currency charges instead.  Never one to mince words, he calls it a transparent con - read his expose here.

Flu Focus :  Bird flu is no longer something remote and 'over there'.  It may already be in North America This article recounts how birds shipped from Canada to Australia tested positive for bird flu antibodies.  The Australian news item looks at this from the point of view of implications for Australia, but fails to consider the implications for us in North America.  Is bird flu already in Canada?  If so, it is a matter of days before it crosses into the US.

If bird flu is not already in North America, it is in Greece and possibly Croatia, and in Russia, now east of the Ural Mountain divide, and not far south from Moscow.  Here's an interesting map showing migratory bird patterns in Europe.

Bad news for those of us relying on our stocks of Tamiflu to save the day.

And here's a big surprise finding that will doubtless come as a shock to all of us except reader Chuck, who wrote in on Thursday

David, I came in to Chicago from Hong Kong yesterday on a UA 747 with every seat occupied.  About an hour out of Chicago they asked if there was a physician on board.  The EMT's met the plane and removed a passenger who was having breathing problems.

The government's health service then had to make a decision if the plane's passengers should be quarantined.  After about half an hour it was decided we could deplane. I am sure some connections were missed by some of the passengers.

I must admit to being a bit curious as to what they would have done with us if the medical personnel had made the decision to quarantine us.  As you have pointed out, the world is waiting for a disaster from bird flu.

Lastly, the World Tourism Organization is also concerned about the possible impact of bird flu.  But their concern is different to that of most rational people.  They are concerned that bird flu may reduce levels of travel.  WTO Secretary-General Francesco Frangialli said this week ''We must ensure that people are not deterred from traveling without good reason.  Unnecessary scaremongering can cause a sharp drop in tourism that squeezes the economies, especially those of developing nations and the incomes of millions of workers in this industry.'

He offered helpful advice for government health organizations and the media :  'With the media, we ask them to monitor developments on avian flu very carefully and refrain from any reporting that creates unnecessary panic.  Governments should issue travel advisories to citizens only as a last resort, and remove or modify them as soon as the situation improves.'

This Week's Security Horror Story :  Our government is doing all it can to make it difficult for ordinary people to legally visit the United States, under the guise of protecting us from terrorists.  But what happens when a non-Mexican sneaks across our southern border illegally, and is subsequently caught?  80% of the few such people unlucky enough to be caught are released immediately, due to lack of holding facilities.  More details here.

Perhaps recognizing that with so many illegals easily gaining entry to our country, the tiny Jamestown-Scotland ferry service in Virginia has implemented advanced security screening measures for people choosing to take the ten minute crossing.  The conceit or idiocy that surrounds the notion that this tiny ferry service is a priority terror target is stunning.

Meanwhile, security concerns caused a device in an Iowan home to be misidentified as a bomb.  It was, of course, something completely different, and not harmful to humans.

Looking for a vacation on a budget?  Thanks to reader Mark for suggesting this distinctive location in Idaho.  $5 a night, or $25 if you can bear to stay for an entire month, gets you a memorable accommodation experience.

Taking advantage of one of the fall and winter airfare specials to London?  If nightlife is your thing, perhaps this is an interesting nightclub to visit.

Until next week, please enjoy safe travels.

              David M Rowell aka The Travel Insider

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