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Friday 16 November, 2007  

Good morning

With less than three weeks before this year's Christmas Cruise, when 40 Travel Insider readers (including one person repeating the cruise for their second year in a row) will join me in enjoying this lovely annual experience, my thoughts are of course full of cruising things.  Your thoughts should be too - river cruising really is the best new thing in travel experiences to come our way in the last several decades.

We've currently got two very special cruises for your consideration - a South of France cruise in May, and a cruise from Amsterdam through Germany to Trier in March.  This second one is unique, because we're offering it with no single supplement (or, if you are traveling with a companion, we'll give you half off your companion's fare).

Hopefully you might choose to enjoy either (or perhaps both) of these two lovely cruises.

If you're traveling out of the country, whether it be for one of these cruises or any other reason, you're probably wondering what is the best way to keep in touch with home and office.  Chances are your US cell phone won't work internationally, and even if it does, using the international calling offered by your local wireless service provider is usually not the best way to make and receive phone calls.  For example, which would you prefer - to pay $1/minute for every incoming call, or to get them all for free?

I'd written on this topic barely ten months ago, but so much has changed in just ten months the article and supplementary tables needed a major rewrite, and the number of phone options open to you have increased from seven to ten.  And so :

This Week's Feature Column :  International phone options :  What's the best way to keep in touch when traveling outside the US?  I compare ten different ways of doing this, and hopefully help you to choose the option best for you.

Talking about phones, we achieved a small technological breakthrough this week and can now unlock Apple's new iPhone.

Dinosaur watching :  Airline mergers, again.  Perhaps.  Or perhaps not.  In a bit of public negotiation, a New York hedge fund that owns 2.4% of Delta and 4.6% of United sent a letter to Delta's management this week, asking DL to merge with (buy out in a stock swap) United Airlines.

Apparently, some of the hedge fund's consultants have identified $585 million in potential annual savings if the airlines were to merge.  The same consultants also perceived savings of as much as $1.5 billion a year in a DL/NW merger, but added costs of $171 million a year if a DL/CO merger were to occur.  Their preference for a DL/UA merger is based on how the two airlines' route structures would fit together.

There's been little talk about mergers recently, although things have been bubbling along in an inconclusive way, just below the radar of public view.  You may recall the last big merger discussion was when US Airways attempted unsuccessfully to buy DL, and the ongoing rumor has been of a DL/Northwest liaison.  Other speculation has revolved around most of the other possible combinations of the major dinosaur players, plus more novel unions such as DL buying JetBlue, for example.

Why the sudden interest in merging at a time when most of the airlines are starting to make healthy profits?  The new 'excuse du jour' is 'high fuel costs threaten our future'.

Even though airlines make massive profits out of fuel surcharges, and even though there have been eight fare increases in less than three months, airlines and the pundits who slavishly repeat airline press releases are now worrying that future fuel increases may drive the industry into another downturn.

What the airline industry carefully ignores is that fuel increases are a rising tide that lifts all boats.  In roughly similar proportions, an increase in oil costs per barrel makes all forms of transportation more expensive.  Competing airlines all feel the same pressure.  And for those people choosing to drive their car, fuel increases are even more obvious than they are when merged in all the other parts of an airline ticket price.

Of course, using the bogey of fuel increases as an excuse to do whatever they wish is just that.  A bogey and an excuse, and justification for ramming home mergers that would otherwise likely be refused by both the Departments of Transportation and Justice.  You can just hear the arguments now -  'We need to make the airline industry less competitive and more monopolistic because if we don't, increasing oil costs will bankrupt us all and there'll be no airlines left'.

This is a nonsense claim.  And, as the eight fare increases in 80 days shows, the marketplace is now being dominated not by passenger demand and sensitivity to price increases, but by the airlines.  In what is variously Marketing and Economics 101, when you're selling all the product you can provide, you do either or both of two things - you increase the price and/or increase the supply.  Flights are currently full, with load factors higher than ever before.  The airlines have chosen to artificially hold back the supply of extra flights - in years past, they'd be scrambling to get anything that could fly into the air to respond to the huge market demand, but at present they're sitting on their hands and instead threatening to ground planes (again due to fuel prices).  But they have been steadily increasing fares, and can be realistically expected to continue doing that until either demand finally starts to taper off or the financial benefits of adding extra flights get impossible to resist and they start to add more capacity.

Add to that labor costs that are low and productivity that is at an all time high, and this is a golden age for the airlines.  No airline needs to merge with any other airline to survive.


The airlines are both rational and greedy, albeit not very compassionate.  It is rational to always improve one's profitability, and there's no doubt that merging two competing airlines would add still more profit potential to the resulting merged airline.  But even the dimmest government employee could probably understand there's no justification whatsoever for airlines to merge at present, so the airlines are instead pointing to a future threat, albeit a nonsense one, in the hope of getting favorable treatment that they otherwise shouldn't receive.

Why should we care if dinosaurs merge?  Won't it just encourage new players into the market to respond to the opportunities for new alternate airlines?  In theory, yes it would.  But, in reality, a new entrant will be confronting even stronger and more united opposition from fewer competitors than is already the case.  And, for whatever reason, very few new airlines ever make it to maturity and success.

When the huge monolithic dinosaurs respond to a new airline by matching or beating their fares, by offering major bonuses in their frequent flier program to play off their network strength that the new entrant can't hope to match, and when they parallel schedule flights alongside the new entrant's flights to bleed off passengers, and when they can hide the losses they incur from such practices in among their overall system revenue, it is very difficult for a new entrant with perhaps only $10 million - $100 million of capital to survive such tactics.

Not that these tactics are illegal, of course - even though you might think they should be.  But it sure is a reason not to make it easier for the dinosaurs to get even bigger, because their ability to block new entrants becomes even greater at the same time.

Just as an aside, what other industry do you know that raises its prices eight times in 80 days?  A few of you may remember back to the 'good old days' (not sure that they were good - this is the era prior to airline deregulation) when airlines would happily print their fares in their timetables, confident that the prices would last through the timetable.

Delta says it has no plans to merge with United.  Except that, oh, DL also says it has formed a special committee to review and analyze strategic options, including potential consolidation transactions, for the airline (code speak for merging).

Talking about new airlines, there's likely to be a new airline in the Canadian skies in fall of 2008.  Tentatively named 'NewAir', the airline hopes to fly from unserved and underserviced markets (not yet identified) in Canada and the US.  It applied for licences for both scheduled and non-scheduled service in the US and Canada last week, and hopes to get a second round of financing by the end of January 2008.

Here's an interesting article with plenty of nonsense statements in it, built around the premise of expensive oil and its impacts on airlines.

Why, if all airlines are faced with rising fuel costs, don't they simply increase the fares as needed to cover their extra fuel cost?  Instead they talk about discontinuing routes that would become uneconomical (if they kept fares the same).  Clearly the airlines are building up for something here, because their comments about cancelling service are not sensible.

Spot the contradictions in the article.  At the same time airline executives worry about cutting services, Delta says it plans to increase its international service by 15%.  And there's the prediction, by the chief economist of the airline industry's own lobbying group, that notwithstanding higher oil prices than anyone (except apparently me) forecast, the industry as a whole will make on the high end of his profit prediction back in January, before oil prices went crazy.

This, if nothing else, is surely the smoking gun that exposes the fallacy of oil prices impacting on profitability.  After a year of unexpected runaway oil prices, the airlines' own lobbying group now predicts that its profits for the year will come in at the high end of the prediction it made in January 2007.  So tell me how oil prices have hurt the airlines, again?

But for a disappointingly uncritical acceptance of the airlines' latest excuse du jour, you'll just love the juxtaposition between the airlines' lobbying group boasting this year their profit will be at the high end of a $4 - $5 billion profit range, and a comment in the New York Times this week that the airlines are 'balanced on a knife’s edge of profitability'.

That's a multi-billion dollar knife edge we'd all love to be balanced on.

Bad news for JetBlue.  Six months ago their CEO and founder, David Neeleman, was summarily booted out of the top job.  Then in April, their Chief Accounting Officer and Controller suddenly resigned.  And now their CFO has also suddenly resigned, effective immediately, to, ahem, 'pursue other professional interests'.

Turmoil at the senior level in the finance department of a struggling airline is never a very good sign.  Over the last month, most airline stocks have lost between 0% and 5% of their value, JetBlue has lost almost 20%.  Over the last three months, most airline stocks have gained between 10% and 25%, JetBlue has lost 15%.

Talking about airlines in financial difficulty, Alitalia may have to file for bankruptcy if government attempts to sell a controlling stake fail for a second time.

Alitalia's net loss rose to €626 million in 2006 ($939 million), up from 'only' €168 million ($252 million a year earlier after it booked a hefty write-down to cover the depreciation in value of its aging fleet. Alitalia has a stock market capitalization of €1.2 billion ($1.8 billion), the same as its net debt as of the end of September.

A tender organized by the Italian government was cancelled in July after all the potential bidders gradually pulled out, saying the sale terms didn't give them enough freedom to implement a restructuring strategy. After the auction collapsed, the government appointed a new chief executive at Alitalia, who was charged with finding a buyer for the ailing carrier.  Last month, Alitalia said it had six potential suitors, including leading European carriers Air France-KLM and Lufthansa.  Air One, Italy's second-biggest airline, is also a potential buyer.

Here's a really strange story - British Airways is apparently flying planes empty across the Atlantic between Heathrow and the US, because it (a) can't get cabin crew to staff them, and (b) needs to protect its precious slots at LHR which are awarded on a 'use them or lose them' basis (although the article also talks about a flight from Gatwick operating empty, too).

Talking about BA and Heathrow, some good news ahead.  It is believed the UK government are about to lift some of the current restrictions on carry-ons, allowing passengers to take two items of luggage on board, instead of the rigidly enforced single piece rule at present.

And Heathrow promises us improvements in its security screening.  Their strategy director announced this week 'In the next six months, we are rolling out a complete revamp of our security product with new standards : 95% of passengers cleared within five minutes, 99% within 15 minutes. We are going to put in the capacity that allows us to deal with the inevitability of what is going to happen in the modern world :  changes in the security process.'

That new capacity will include 22 extra security lanes and 1,400 additional guards at the airport.  Can't hurt and might help, but remember that the major part of delays at Heathrow are currently airline based, not security based.  A matching commitment from BA to reduce checkin lines and to lose fewer bags would be welcomed.

Talking about airline/airport delays, here's an excellent behind-the-scenes piece from Jeff Bailey in the NY Times.

Over 200 European Web sites selling airline tickets, including many run by leading airlines, mislead consumers and will be shut down if they fail to improve, the European Union's consumer chief said on Wednesday.  Amongst other shortcomings were such things as

  • The price of the ticket is first indicated without airport taxes and additional fees.

  • Offers promising tickets for free or at a low price, but such tickets are unavailable when the consumer wants to buy them.

  • Tick boxes for insurance or additional services are ticked "yes" by default, trapping the consumer into buying unwanted items or being included on spam mailing lists.

  • General terms of sales are not provided in the language version used by the consumer during the booking procedure — or not available at all in any language.

  • No information is given about the rights and procedures of cancellation, transferability and ability to change dates.

It all sounds very familiar, doesn't it, and reminds me of my Alice-in-Wonderland experience last week, booking a ticket through Orbitz.

I chose the flights and fare I wanted, clicked to book, and Orbitz came back to tell me that the seats were no longer available.  It displayed alternate flights/fares that were available, and top of the list was - surprise! - the exact flights and itinerary that weren't available 10 seconds earlier.  I immediately tried to book it, and Orbitz again told me it wasn't available.  We went around in circles this way several times before I gave up, and chose an entirely different airline (and website).

The EU found that over 50% of websites surveyed had issues.  More details here.

Good news for European train fans.  The Loetschberg Base Tunnel under the Swiss Alps will open December 10, speeding journeys between eg Zurich-Zermatt, Basel-Zermatt, Bern-Zermatt or Bern-Milan by 45 minutes within Switzerland and 75 minutes to Italy.  All Inter-City trains from Basel, Bern and Zurich to Brig and on to Italy will use the new tunnel, which has been open for freight trains since this summer.

And this week saw the start of the new faster Eurostar service between the newly refurbished St Pancras station in London (next to Kings Cross station) and Paris.  Travel time is now down to 2hrs 15 minutes, and with new longer platforms, trains are a quarter mile (1300 ft) long.

The last week has seen the Dubai Air Show, with a flurry of new airline orders being announced by both Airbus and Boeing.  With the year drawing to a close, what appeared to some, earlier in the year, to be an unassailable lead by Boeing over Airbus in the new order stakes now is a very close match with Airbus probably now ahead.

Actually, it is a race that will have two winners and no losers.  2007 promises to be the year in which more new planes were ordered than any previous year, ever.

During the show Emirates announced the single largest airplane order ever placed by an airline.  They place a mix of firm orders and options for 120 Airbus A350s, 11 A380s, and 12 Boeing 777s, with a list price of $35 billion.

The A350 has now received several significant endorsements - the ILFC order a couple of weeks ago and now this massive 120 plane order from Emirates.

In among the orders received from various airlines at an airshow that is growing in significance, and with over $86 billion of new business being recorded during the event was one notable omission.  No US airline ordered anything.

Among other orders was this one for the first ever 'flying palace' - a private A380 for a Saudi Arabian prince and billionaire.

Another order placed at the show was for a supersonic business jet.  Reno-based Aerion has yet to start work on a flying example of its Mach 1.6, eight-to-12-passenger aircraft but company spokesman Brian Barents told reporters that market demand dictated they start taking deposits. The aircraft are expected to cost $80 million and initial deposits are $250,000.  The Aerion was announced in 2002 and its missile-like design was unveiled in 2004. It is expected to have a range of about 4,500 miles.

Oh - the Saudi businessman who ordered the first of these business jets?  A Mr Tarek Bin Laden.  Yes, Osama's half brother.  Let's hope he doesn't lend what could also be the world's first private supersonic bomber to Osama....

From the sublime to the ridiculous.  Or, in this case, from the Aerion to a flying car.  Details here.

Here's an article that appealed to my love of trivia, and which has an oblique link to aviation as well.  The world is facing a shortage of Helium.

This is not only due to difficulties in getting supplies of the lighter than air gas, but also because, when released into the atmosphere, Helium just rises and rises all the way out of the atmosphere and into outer space, never to be recaptured.  There's no recycling possible of 'used' Helium.

This Week's Security Horror Story :  Got a spare $150?  Do a bit of simple internet research, then go to the corner store and buy the ingredients necessary to build a plane-disabling bomb which you can smuggle through US airport security.  This article tells how GAO investigators did exactly this, and with complete success, at 19 different airports earlier this year.

Rather than being horrified, the TSA is dismissive of the findings.  It boasts about having 19 layers of security (yeah, sure, right), and screening 2 million passengers a day, and other impressive statistics.  But none of their statistics are relevant.  Let me restate the point the TSA is trying to brush under the carpet :  GAO investigators managed to build bombs for under $150 each and smuggle them onto planes in 19 different airports around the country.

If they can do this, and if it only costs $150 to build a TSA-invisible plane destroying bomb, how difficult is it for a terrorist to do the same thing?  Where is the safety, security, and value we're getting from the tens of thousands of TSA personal and many billions of dollars invested in 'security'?

Pride cometh before a fall.  And so when I read TSA Head Kip Hawley boast 'I think our security is the best in the world' it terrifies me.  Our airport security is better than Israeli security?  Our airport security, which can't even detect a plane destroying bomb, is the best in the world?  We need a realist, not Pollyanna, running the TSA.

Here's another example of 'the best security in the world'.  There's not much to like in this article, with perhaps the least impressive part being the TSA 'still investigating' why it is they only do limited random checks on vehicles entering the secure side of O'Hare Airport.

Who cares about monitoring passengers and their carry-on, if terrorists can simply drive a truck into the airport grounds and do whatever they wish with the truck's contents?  And all the TSA can do is conduct a prolonged investigation into something that is obvious?

We may or may not have the best security in the world, but at least we don't have the most intrusive.  Looks like Britain is moving into first place there - look at the list of 53 data items they now wish to record about every visitor.

And that's not all.  As part of more over-reaction to the threat of terrorists, read about all these new intrusive security measures being considered in Britain.

Do you buy and sell on eBay? It never ceases to amaze me what you can find on eBay, including, apparently, a couple of former Washington State Ferries.

This article also delicately touches on the last time WA sold a ferry on eBay - a Florida entrepreneur bought it for $560,000 and then immediately sold it to a company here in WA for $750,000.  You have to wonder if the state couldn't have driven a better bargain, or found the local buyer itself and pocketed the extra $190,000, while saving the eBay fees.

The Darwin Awards are given out to people each year who through supreme acts of stupidity kill themselves, thereby improving the human gene pool as a whole.  Here's a gentleman who failed to qualify, but only just.

A new tourism trend?  Possibly yes.  An idea for a future Travel Insider tour?  Probably not.

And, sure to delight, an article about the man in South Korea known as Mr Toilet.

I expect to be publishing next Thursday night/Friday morning, and if you are one of the 2.3 million people flying each day over the Thanksgiving period (projected to be up 4% on last year) I hope your flights are safe and uneventful, and reasonably on time.  And that the welcome you'll get at the other end will make it all worth while.

The good news - President Bush is coming to our rescue, by opening up some military airspace over Thanksgiving to help flights get to their destinations on time.  The bad news - that isn't really a relevant constraint and won't materially help any of the problems that may occur.  But I guess it is the thought that counts.

And, talking about thoughts, do have a Happy Thanksgiving.  Until next week, please enjoy safe travels

              David M Rowell aka The Travel Insider

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