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20 October, 2006  

Good morning

Important news for anyone considering joining our July 2007 Russian River cruise.  The entire ship is now almost completely sold out and I am holding the last two unsold cabins on the ship (a D and a B category cabin).  There are also a couple of suites available for lovers of the very good life.

If you'd like to come on this cruise - a cruise which greatly exceeded our expectations when Travel Insider readers and I did it this year - now would be a very good time to let me know.  Cruise information and joining form are here.

I finally gave in and bought an Apple iPod a couple of weeks ago.  I have owned several MP3 type players before and have reviewed them here, but for the longest time I resisted joining the 90% of the market who buy iPods rather than competing brands.

However, to mark both the fifth anniversary of the launch of the iPod and also the fifth anniversary of the founding of this website and newsletter (October 2001) I finally gave in and bought one.  At first I was pleased to have a new gadget to write about for a weekly feature column, but the more I researched the topic, the more I realized that the vast array of issues and information surrounding the iPod product range deserved much more than a single article.  To give you an idea of the underlying complexities, a single paragraph in one of the articles required a day of solid research.

I'll probably be writing four different articles, plus at least one more on the new Microsoft Zune competitor to the iPod when it comes out next month, and to get this major new series started, here is :

This Week's Feature Column :  The Apple iPod :  Ever thought of getting an iPod?  This first article explains the differences between the four different types of iPods and their five different generations, helps you choose the one best for you, and even offers advice if you're looking at buying a used one.

Dinosaur Watching :  Third quarter earnings are starting to be announced, with some mixed fortunes and surprises.  Continental Airlines announced a wonderful result - net profit of $237 million, although this included a one time gain from selling their share of Copa Airlines.  Without the one-offs, Continental would have posted a $146 million profit - still a splendid result for an airline that hasn't (recently!) been in bankruptcy and which made $61 million profit in the third quarter last year.

American Airlines posted a profit of $15 million, which is a lovely turn around from last year's Q3 loss of $153 million.  This marks the first time in nearly six years that AA has had two consecutive profitable quarters.

But a surprise announcement from Southwest Airlines.  Their third quarter earnings dropped to $48 million, compared to $210 million in the same quarter last year.

More surprising still was the excuse Southwest offered for this poor performance.  CEO Gary Kelly said 'Our third quarter revenues were significantly impacted by the London terrorist threat in August, the increased security procedures put into effect by the Transportation Security Administration (TSA) as a consequence thereof, and an overall softening in demand for air travel.'

One can only guess how it is that a domestic US carrier was so severely affected by events in London, while airlines that actually fly to London (eg AA and CO) seem to have not been affected at all.

And the 'overall softening in demand for air travel' is a bizarre statement for Kelly to make when one looks into their quarterly financials and notes apparently very firm demand for air travel indeed.  Southwest's total operating revenues increased 17.7% compared to the same quarter the previous year, and actual flown (revenue) passenger miles (RPMs) increased 8.6%, with load factors also rising and an 8.8% increase in actual yield per RPM flown.

Apparently, for Southwest Airlines, 'softening demand' means an increase in passengers, an increase in load factors, an increase in average fare, and an increase in gross revenue.

Surely CEO Kelly isn't misunderstanding the most basic fundamentals of the company he is supposed to be managing?

In other Southwest news, the airline will start selling $50 and $100 gift cards at Wal-Mart, Kroger, Safeway and Albertsons stores.  The cards will be in 47,000 retail stores by the end of this year.

US Airways won't be announcing its results until next Thursday, but its flight attendants are already planning to picket seven airports on 31 October to protest what they describe as 'stagnant wages, sluggish contract negotiations and management's nothing-for-workers negotiating stance.'

This is in response to comments by the airline's management - who themselves received millions of dollars in stock bonuses this just past summer - that a merged flight attendant contract will contain no cost increases.  The US Airways flight attendants have variously given back money and/or have seen no positive increases since 2002 and now the airline is turning profitable again, the flight attendants are expecting to share in the wealth.

This is further proof of the cyclical nature of the airline industry, with airline employees cycling between giving back (perhaps too much) in bad times and then, when the lower costs cause the airlines to become profitable again, seeking a return to their former more generous contracts.  And, if they succeed, this adds to the airlines returning to chronic losses again, which means more cost cutting until the airlines return to profit and so the cycle continues.

One of the consistent trends seems to be the increase in passenger loads on all flights, with some carriers averaging flights that are more than 80% full.  These are load levels that a mere five years ago would have been unthinkably high.

And what happens when load levels go up?  Unless the airlines carefully adjust their overbooking strategies, so too do problems with oversold flights and passengers being unable to fly on the flights they've booked and paid for.

This article reports a 40% rise in involuntary denied boardings between Q2 of 2005 and Q2 of 2006.  The article also makes the valid point that the maximum $400 in compensation has not been adjusted since 1978 - inflationary adjustments would make this $1200 in today's money.

So at present, if an airline is faced with a chance to sell a high priced last minute ticket to a traveler, with the only downside being possibly having to pay a maximum of $400 to another passenger, the temptation is clearly present to take the high fare ticket and pay the (much lower) compensation.

Bravo to Virgin Atlantic, Qantas, Singapore Airlines and KLM.  All four airlines have reduced their fuel surcharges, due to the falling price of jet fuel.  Most other airlines continue to greedily collect as much as they can from us.

I mentioned Alitalia's woes last week.  This week comes news that the board has instructed its CEO to find a 'partner' for the loss making airline.  Few airlines are rushing to ally themselves with this chronic money-loser, although Italy's Deputy Prime Minister has vaguely suggested the airline find an Asian airline to partner with.

Meanwhile the country's Prime Minister, Romano Prodi, has promised a new strategy for Alitalia by the end of January.  Mr Prodi's expertise at developing airline strategies is as yet unclear and unproven.

And for an example of why Alitalia is such an awful airline at present, one need look no further than this story.

Still, Alitalia could have even more problems.  At least it doesn't have the European Union demanding it repay the €1 billion the Italian government gave it last year.  The EU is, however, demanding that Olympic Airlines repay €161 million in aid received from the Greek government.

The EU is also going to be levying fines, initially of €10,512 a day for each day the money is not repaid, backdated to 12 May 2005 when the Commission determined the money paid by Greece to its airline was illegal.  This daily fine could increase to €53,611 a day in the future.

But Olympic Airlines shouldn't be too worried by this.  The EU isn't fining the airline.  It is fining the Greek government.

Why we hate the airlines (part one) :  Reader Fred writes

I was scheduled to fly Alaska Airlines AS720 from Seattle to Phoenix on 18 October at 7.20pm.  Shortly before boarding was to start, we were told there would be a short delay while they fixed some minor problem(s).

The short delay lengthened.  At 9pm they gave up on the plane and brought a different one to the gate which we duly boarded.

Nothing further happened, then at 10pm Alaska said there were some problems with this second plane.  They said we could get off the plane if we wished, and handed out $6 meal vouchers.  Most of us got off, but by the time we got to any food service outlet we discovered they had closed.

But wait, there's more.  At 10.30pm they told us they couldn't fix the second plane, so we had to go back on board that plane, take our belongings off, and go to a third plane.  The third time was a charm, and I ended up arriving four and a half hours late into Phoenix.

What is so seriously wrong that Alaska has two inoperable planes in a row?  And a $6 meal voucher, good for use that day only, given to us so late that the restaurants were shut, is hardly an adequate response for a 4.5 hour delay.

Why we hate the airlines (part two) :  Reader Darin writes

I'm writing this while stuck at HNL after the quakes.

My flight on Air Canada was scheduled Sunday at 23:50 local to Sydney.  As you know Hawaii suffered a series of earthquakes and a ground hold was placed on inbound flights.  HNL only suffered a power outage - there was no structural damage and the ground hold was lifted before the AC flight was scheduled to depart from Vancouver.

You'd think at worst there might have been a slight delay in my flight.  No such luck.  The flight was canceled outright with passengers rebooked up to FIVE days later.  I'm scheduled on the Wed flight which gets me into SYD a day after I'm supposed to meet my corporate aircrew before they move on.  Needless to say I won't make it.  My job is on the line.

I waitlisted for tonight's Monday flight but it was oversold, Tuesday's is too.  Amazingly, although overbooked pax were offered hotel vouchers, NONE of the pax from the canceled flight have been offered ANY compensation - not even a refund if we can find other flights.  No attempt or offer has been made to rebook on 'partner' airlines (eg Air New Zealand) either.

AMEX was no help saying non-refundable means just that and that I'm S-O-L.  Orbitz too is turning their back despite their automated calling service kept telling me Sunday that the flight was departing on time!

Why is this legal form of rape allowed?

Why we hate the airlines (part three) :  I'm just now back from collecting a friend off a late Delta flight into Seattle.  It took 41 minutes for her luggage to arrive.  Such delays have become so commonplace that none of us even think about it even more, but when it is midnight, and the flight 30 minutes late arriving to start with, one becomes more sensitive to such issues.  What would you do if you had to wait 40 minutes to buy gas, or to checkout of your local supermarket?

Why do airlines feel they can mistreat their customers - and why do we mutely accept such appalling treatment?

Apropos Air Canada, they've announced a new type of air pass.  Their 'Unlimited Pass' offers unlimited air travel for either three or six months, with different pass prices depending on how far afield you wish to have unlimited flight privileges and how readily you want to be able to find available seats on flights.

Prices per month of unlimited travel range from C$2000 - C$6500, so you'd have to be a very frequent flier to get your money's worth.

And talking about very frequent fliers, Air Canada is revising its Aeroplan frequent flier program.  Member and miles will now expire - your membership will be terminated if there is no account activity for one year, and your miles will be lost if they haven't been redeemed in seven years.

Last week I wrote about my continued inability to do a really simple thing - book and buy a ticket on the British Airways website.  I marveled at the disfunctionality of an airline that has allowed a known problem on its website prevent it from selling airline tickets to a sizeable proportion of its prospective customers for nearly nine months.

But reader Jeff came across an even more ridiculous problem with British Airways.  He couldn't buy a ticket from the airline by calling them up and booking/buying it directly with BA's own telephone sales people.

He says

I tried to buy a ticket directly from BA over the phone once with an American Express card and they wouldn’t take it.  They said all credit cards have 16 digits.  I told them American Express cards only have 15 digits and they refused to even try it.  I should have asked for a supervisor, but just took my business elsewhere.

While BA apparently shows no interest in selling airline tickets, it is obsessing about being politically correct with its workforce.  It allows Muslin and Sikh staff to wear hijabs, turbans and traditional iron bangles, but won't allow an English lady employee to wear a small cross around her neck.

Why does British Airways allow Muslims and Sikhs to display the accoutrements of their religion, but not allow its own British staff to display tiny Christian crosses?

Exciting news for Boeing and/or Airbus.  BA has commenced discussions with the two companies about a huge order for large long-haul type airplanes, to replace its aging 747s and 767s.  The first part of the order would involve replacing 20 747s and 14 767s, with more orders to follow.  This could see BA potentially ordering either the A380 or the 747-8 (to replace the 747s) and the A350 or the 787 (to replace the 767s).

We've all been waiting expectantly for the next piece of bad news from Airbus.  Here are two.

First,  Airbus had earlier claimed it would break even on its A380 super jumbo project after selling 270 of the planes.  With 159 planes ordered so far, it was pleased to be already close to achieving the break-even.

But the losses on these first 159 planes caused by delivery delays, increasing costs, unfavorable Dollar/Euro exchange rates, and billions of dollars in compensation to airlines for late delivery of promised planes means that the break even sales figure has now been revised upward by more than 50%.  Airbus says it now needs to sell 420 planes to break even.  This is a disappointment, but because Airbus projects total sales over the model life of 751 planes, the project still has the potential to return good profits to Airbus.

At the same time, Airbus revealed it is now estimating the cost of the delays to the A380 program at €6.3 billion (US$8 billion).

And, for a second piece of bad news, this article further underscores the ugly reality that Airbus is not answerable to free market forces seeking profit optimization, but to vested political interests seeking entirely different agendas (such as moving jobs and investment into their respective regions, no matter whether such moves make good business sense or not), with profit being an entirely irrelevant issue.

Two weeks ago I suggested readers consider buying some Boeing stock.  This was due to the colossal problems unfolding at Airbus.  Last week I had to reveal that - notwithstanding continued bombshells at Airbus, the Airbus stock actually rose almost 2% over the week, while Boeing stock dropped about 1.5%.

To my continued chagrin, Boeing continued to do poorly this week, recording another almost 1.5% drop in value.  Although Airbus underperformed Boeing this week, the fact remains that for two weeks in a row, my confidence in Boeing has been contradicted by its market price.  This further confirms my conclusion last week - never take a stock tip from me!

The beast that refuses to die?  Air New Zealand and Qantas are again attempting to in some way or another join forces.  After having had a merger refused by both Australia and New Zealand as being anti-competitive back in 2003, the two airlines are now seeking permission to code-share on their flights between New Zealand and Australia.

The two airlines, between them, control 80% of the flights between the two countries, and their current intense competition has kept prices low for the traveling public.

I've regularly held that code-share arrangements harm the flying public while benefiting the airlines.  The airlines concede that their requested code-share arrangement would save many millions of dollars, and would enable them to cut back on the number of flights they operate.  The result?  It sure isn't anything good for travelers, indeed a study by Wellington Airport suggests there would be a 19% rise in airfares from Wellington.

It is hard to see how the public would be well served by having the current intense competition eliminated and replaced by cosy 'cooperation' between the competitors.  With the two airlines controlling 80% of the market (with the other 20% split into many small shares by other airlines - for example, Emirates Airlines with a mere 4%) their ability to control the market seems close to absolute, as has been demonstrated with their ability and willingness to stamp out earlier low cost startup competitors.

Let's hope either or both countries will wise up to this.

This week's useless but interesting bit of information : US Department of Transportation data shows the average airfare paid by Philadelphia travelers on all carriers plummeted 40% between 2001 and 2005, mostly because of the additional flights and lower prices brought by Southwest, AirTran and other smaller airlines.

Southwest has grown in a mere 2.5 years to be the airport's second-largest airline.  Source - this article.

Here's an amazing tip from Mark - you can get free international calls to many countries by simply calling a US gateway number in Iowa, then dialing the country code and number after it is automatically answered.  The service is operated by FuturePhone.com and you simply call their number (712)858-8888.

I've made a couple of calls myself, so it really works, and I have no idea (yet!) what the catch may be, so enjoy it while it lasts.

This Week's Security Horror Story :  The new Port Security Bill passed by Congress promises to make it more difficult for terrorists to smuggle nasty things through our ports.  But - literally at the last minute - Congress eliminated provisions that would have banned convicted murderers, explosives traffickers, and drug smugglers from working in our ports.  Miami's Deputy Port Director - where one in five longshoremen are convicted felons - saw no problem with allowing such members of society to work in his port and said 'From our standpoint, what benefit would it do to kick [them] out on the street.  We see none.'

We are fortunate to have such men of vision protecting our port safety.  More details here.

A similar issue may exist at Toronto's Pearson International Airport, where organized crime groups and potential terrorists continue to operate freely, according to a senator who heads a post-9/11 probe on national security.  He says virtually nothing has been done to improve security in Canada's airports and seaports.  Details here.

Good news for motorists in Britain.  The new speed cameras that measure average speed over some miles of freeway have a software limitation.  They can only track and time your vehicle if you stay in the same lane.

How private is your web searching?  If you've ever entered a search term into Google or other web search engines, you might want to think carefully before you do so again.

Lastly this week, I wrote about my problems with non-American staff in Travelocity's call center last week.  Reader Max thinks he understands why it is I had problems, and suggests you view this very funny movie clip to understand what was happening on the other end of my phone call.

Until next week, please enjoy safe travels

              David M Rowell aka The Travel Insider

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