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Friday 25 January, 2008  

Good morning

Global warming?  At the same time much of the country is having unusually cold spells, we're being assured by Mr Gore that global warming is even worse than he thought it was.  This thought was cold comfort to me as I attempted to open my frozen shut car door in the 7 degree cold and snow on Monday morning, however.

Naturally, on such occasions, one thinks about getting away and treating oneself to a bit of travel.  And eight of you have already thought sufficiently about this as to choose to come on the June China Cruise and Tour that was announced last week.

This is enough people to guarantee the operation of this tour, but it would be very nice to have a few more join us.  So, please, do go and review the details of this special opportunity to see much (most!) of China, comfortably and conveniently, and with a small group of fellow Travel Insiders.

A couple of readers asked for more details of the New Zealand tour in October so they could choose between going to either China or New Zealand, and so I've completed the details on this tour, which is almost exactly a repeat of the very successful tour to NZ in 2005 (so successful, in fact, that several of the 2005 tour participants have already expressed interest in repeating the tour again this year).  So :

This Week's Feature Column :  New Zealand Grand Spectacular Tour :  This October/November tour of both the North and South Islands of New Zealand can be taken in part or in whole, and covers both the 'must see' and the potentially overlooked but equally wonderful parts of my home country of New Zealand.

Dinosaur watching :  I wrote at length about airline bankruptcies and the possibility of airline mergers last week, and unsurprisingly, the rumor mill continues to work overtime, albeit uncritically, on this important topic this week too.

Some more comments this week - firstly, some people speculate that Delta isn't really interested in United at all, and that their claimed interest in either United or Northwest is merely a public smokescreen to make their activities less clear at present, and to strengthen their bargaining position with NW - in other words, to sort of bully them into merging, for fear of what the alternative would be.

And United, meanwhile, doesn't like playing number two to Northwest in Delta's affections.  The rumors would have us believe that they are also looking at a possible merger with Continental.

I mentioned last week about how some airlines felt compelled to say something on the topic, even when they had nothing to say.  A good example of a statement that doesn't advance the sum total of human knowledge by much is this one from Continental - you'll recall I'd singled out CO as an airline that would feel very lonely, suddenly at the bottom of the league table, if Delta and Northwest were to merge.

And all of this fails to consider what US Airways may do.  It has already shown itself to be keen to merge with Delta.  If NW and DL merge, and UA and CO merge, where does that leave US?  As per the table of market shares last week, we'd have

   UA/CO  19.4%
   DL/NW  17.7%
   AA  14.9%
   US  8.3%

That would leave US a very distant fourth among the major airlines, not a position they'd be comfortable with.

As bad as mergers will be for us as passengers, it is certainly interesting to watch the airlines as they go through this process.  And - important qualification - all this assumes that the DoT and DoJ would go along with these mergers, which is (hopefully!) a big assumption to make.

Talking about US Airways, they are the most recent product of an airline merger, and are the result of America West buying out US Air while US Air was in bankruptcy, a buy out completed back in September 2005.  How well has US Airways performed since their merger?

Yesterday US Airways announced their Q4 result for 2007 - a larger than expected $79 million loss, and while they predictably blame this on higher fuel costs, it is interesting to note that their gross revenue dropped a tad from $2.79 billion to $2.78 billion, at a time when fares were generally rising - this is because they carried 3.2% fewer passengers and are shrinking their operations.  Seeking the easy scapegoat of higher fuel costs, while convenient and in line with conventional wisdom, would not seem to tell the entire story about this disappointing result.

Their share price went higher for the first year or so after they merged, but then trended down again, dropping below its opening price in November 07, and continuing to fall sharply, and is now almost 40% below its price when the airline first listed.  By comparison, the composite airline index, although also down over the same period, is down by 'only' about 20%.  To be fair, for much of the time since relisting, US had been outperforming the airline index, but the current reality sees it with a below industry average return.

And, no matter when you bought stock in US Airways, if you're still holding it today, you've lost money on your investment, and you'd have lost less money by instead buying a basket of airline stocks.  If you'd had the wisdom to ignore the airline stocks entirely, and simply bought into an index linked fund, be it NASDAQ, S&P500 or Dow Jones, you'd be ahead (even after the recent poor performance in the markets).

US Airways' labor unions are also far from happy.  As was widely predicted by all but the airline's management, merging the two companies different employee groups into one has been difficult, and on Wednesday this week, all the employee unions united (a very rare event in airline labor relations) to form a common coalition to demand that management complete the merger that began nearly three years ago, and in a manner that is fair (or, ahem, advantageous) to the employees.

So tell me about the clear benefits that flowed through to passengers, shareholders, and employees from this merger?  Passengers are faced with fewer flight choices and have been the victim of some spectacular operational screwups during the merger process.  Shareholders have lost more money on their investment than if they'd bought most other stock choices open to them, either within the airline industry or in general.  And employees are feeling hard-done by and fractious.

Hardly a poster child for further airline mergers, surely?

Some of the industry pundits are predicting some of the sticking points that would arise in a merger between any two of the airlines.  But these problems are not the obvious operational ones, such as how to combine dissimilar fleets and different work practices, instead they are issues such as what name a merged airline should have, and where its headquarters would be, with an unspoken subtext also being the respective positions of current senior executives of the merging airlines.

And it isn't only the airline executives (and employees!) who are nervously wondering about how to optimize the outcome of a merger.  So too are the cities that currently host airline headquarters and hubs; particularly so because many times these cities have pressed major financial incentives into the airlines pockets to encourage them to keep their major presences in such cities.  For example, Northwest would give up $215 million in financial incentives at MSP between now and 2020 if it moves its headquarters out of Minnesota.

Not quite a merger, but Lufthansa has now completed its purchase of 19% of JetBlue, having gained the approval of US authorities to proceed.  A puzzling joint statement from both airlines says 'With the completed sale the two airline will begin exploring innovative commercial arrangements designed to benefit both airlines and their customers'.

Do you have any idea what this might mean?  I don't, and suspect the two airlines don't, either.

Hopefully, however, these innovative commercial arrangements won't follow the innovative commercial arrangement introduced by LH in Germany.  They are about to start charging a massive €30 ($43.50) per roundtrip on bookings that are made through an airline reservation system.  If a travel agent does it, the charge is 'only' €4.90 plus VAT ($7.10 + VAT) per coupon (ie per flight).  The charges apply on flights departing Germany and Austria beginning July 1 with similar surcharges to come in Switzerland and Liechtenstein on October 1.

Lufthansa says that these charges were put in place to reduce their distribution costs.  But, in the finest airline tradition, will you be surprised to learn that the airline has apparently not only zeroed out entirely their distribution cost, but is actually making a profit on the charge?  GDS provider Amadeus says the €4.90 plus VAT fee is higher than the average booking fee LH in turn pays.

Only an airline would be as self-centered as to seek a zero distribution cost in the first place.  Almost without exception, every other industry recognizes that the distribution process has both a cost and a benefit attached with it.  Not so the airlines.

I should clarify some information poorly passed on a couple of weeks back.  In explaining the new carry-on policies at British airports, an article I quoted from fell afoul of how different airlines are describing their new carry on policies.  For example (and in particular), Virgin Atlantic are allowing one carryon per person in their coach class cabin, PLUS a second personal item (such as, eg, a computer).  On the other hand, the description of BA allowing two items per person includes the personal item, so in fact the two airline policies are identical.

And because Virgin allows their Upper Class passengers two items plus the extra item, whereas BA does not, the VS policy is actually more generous rather than less generous for these privileged fliers.

When was the last time you were inconvenienced by a cancelled airline flight?  Chances are that the worst you had to put up with was an overnight delay, and hopefully it was much shorter than that.  Whatever the outcome, you were probably disappointed.

But imagine how Amtrak customers booked to travel between Los Angeles and Seattle are feeling.  The railroad announced an eight day complete cancellation of service (due to track problems), with the possibility of the cancellation being extended further.  And, as for people booked on trains?  According to this article, they're just plain out of luck.  Amtrak is offering no alternatives.

Is it just me, or are code share flights becoming more and more widespread.  I've been on flights that carry flight numbers from four different airlines.

One of the more extreme examples of codesharing is on the route between the US and Fiji.  Once upon a time, there were three and perhaps, for a while, four different airlines, all offering competing flights to Fiji.  But - and not withstanding generally increased passenger numbers to Fiji - on Wednesday this week, while the number of airlines offering flights to Fiji remained at three, the number of airlines operating planes dropped down to one.

This is particularly interesting, because not only are rival airlines Qantas and Air New Zealand now sharing space on a plane owned by Air Pacific (which, in turn, has a minority ownership in it by Qantas), but so too are the two airline alliances that QF (Oneworld) and NZ (Star) belong to also sharing on the same plane.  Can you imagine the inflight announcement - 'Welcome to Air Pacific flight 811 from Los Angeles to Nadi.  And welcome also to passengers on Qantas flight 3838, and to members of the Oneworld Alliance (read out list of ten airlines); and welcome also to passengers on Air New Zealand flight 4011 and to members of the Star Alliance (read out list of twenty airlines).

Try telling me that having all three carriers sharing the one plane boosts competition on the route?  Of course it doesn't.

One interesting thing about this flight.  The Air Pacific 747-400 has no first class seats, a mere 28 business class seats, and a massive 452 coach class seats, making for a total of 480 seats on the plane.  As an interesting comparison, the Singapore Airlines A380s have 'only' 471 seats on them.  And when Qantas gets its A380s, it plans to have a mere 450 seats in them.

All of which makes a bit of a mockery of the naysayers predictions of doom and gloom, when they were claiming that the 'huge number' of passengers on an A380 would overload airports' ability to handle large numbers of passengers at once.  Indeed, some 747s (in an all coach class configuration) already have passenger capacities of up to 524 seats in total.

Talking about planes, the numbers have now been announced by both Airbus and Boeing for their 2007 year, and depending on the number you choose, either company could consider itself the winner, but Boeing probably is more deserving, overall of that title.

Boeing received more new plane orders, worth more money, than did Airbus (1413 worth $171 billion at list price, compared to 1341 worth $157 billion at list price).  Airbus delivered more planes, which is the key measure (due to the imprecise and insubstantial nature of orders, sometimes as far as ten years prior to the promised delivery of the planes ordered) - 453 to Boeing's 441, but Boeing's planes tended to be bigger and more expensive, being worth (at list price) $50 billion compared to $42 billion.

I've updated my page of statistics on Boeing and Airbus annual sales and deliveries.

Meanwhile, Boeing is getting a taste of the ignominy suffered by Airbus with its A380 delays, and has had to admit to still more delays in its 787 program - now at ten months, with the continuing possibility of more delays yet to come.

One has to admire the response to this news from ILFC, Boeing's largest customer for the 787.  Their COO said 'Even if it (the plane) is a year or a year-and-a-half late, if it is right and it performs to expectations, in five years nobody will care. Take whatever time you need, but get it right'.

Not so delayed - yet - is a plane of a very different type - Virgin Galactic's spaceship, which - seemingly improbably for such a revolutionary craft that has yet to make it off the design table and into the real world - is scheduled to start test flights this year and commercial service next year.  At this rate, it may be in the air before the 787.

Talking about updating, I've also updated the popular page on the London Underground Fare Guide.  This page - like many others on the site - was originally written for my own benefit, because I was never exactly sure what the lowest cost way to buy tickets to travel around London was.  With a single journey costing $8 and upwards if you pay cash, but unlimited travel for a day costing as little as $9.60, clearly this is valuable information that you need to quickly review before your next trip to London.

Is Las Vegas finally starting to reach its limit on growth?  Every year it seems that the city adds more mega-hotel/casinos, and every year there seem to be ambitious plans for still more developments into the future.  But here's news of one project, for a 3,000 room development on the Strip, which looks like it may be about to fold.

More likely, this is just another casualty of skittish lenders seeking unrealistic levels of security and certainty (similar to Maxjet's bankruptcy in December), but the bottom line for the developer and Vegas is the same, no matter what the reason - scratch 3000 new rooms from the projection for 2009.

But, on the other hand, this article talks about an unprecedented boom in Vegas development, including the just opened 3,066 suite Palazzo hotel, a sister property to the Venetian and adjacent to it.  Between the two hotels, there are 7,093 rooms and suites, making for the largest hotel complex in the world.

Here's an interesting website - globalfreeloaders.com - offering to put you in touch with people offering free accommodation around the world.  It has few listings at present, but is perhaps worth a look if you're wanting ultra-budget travel and a chance to mix with locals.

UFOs are a topic that many people have surprisingly closed minds about.  But even the most closed minded of people surely must smell at least a faint whiff of cover-up and obfuscation in this story about a rash of UFO sightings in TX and the changing story from the Air Force.

This Week's Security Horror Story :  A man went through security at Reagan National Airport in DC this past weekend, and only after going through security and getting to his gate, did he realize he was carrying a handgun with him.  The security screeners had not detected it as he went through security.

So he did a very silly thing.  He went back to security, 'fessed up, and handed his gun over.

Why was that a silly thing to do?  Because, as this article recounts, the TSA promptly called the police, who wrote him up with a summons, charging him with possessing or transporting a firearm into an airline terminal.  He is due to appear in Court on 2 April.

That's a great reward for his honesty, isn't it.

And what does the TSA say about failing to detect the gun?  It says it has a 'very high' success rate in detecting guns.  As I vaguely recall, that unspecified rate is something like about 80% - in other words, one in every five terrorists attempting to take a gun onto a plane can expect to do so undetected.  Or, to put it another way, the 19 hijackers that took part in the 9/11 attacks on four planes could - today, with all the new wonderful security measures in place - expect to probably have four of their number make it through security with firearms.

Here's something else the TSA failed to detect - a live cat in a suitcase.  A man travelling from Fort Lauderdale to Dallas had his suitcase picked off the baggage carousel by someone else by mistake.  When that person arrived home and opened the suitcase out sprung Gracie Mae, a 10 month old tabby who had stowed away.

Talking about security and detection, Americans are finding it more difficult to get into Canada, especially if they have ever had a charge filed against them for drunk driving, assault or even shoplifting.  Canadian border guards have been getting better access to US criminal records since 9/11 and are turning people back, even for non violent offenses.  The Canadian Consultant General's Office says almost all convictions can bar you from entry.

A spokesperson for the Canadian Border Services says the number of Americans turned away is small.  In 2006, fewer than 6,000 people were turned away out of a total of about 29 million.  Which is cold comfort if you're one of the 6,000.

Important tip :  If you have something embarrassing in your past, you may be able to resolve the issue by applying for 'rehabilitation' if the offense (and sentence completion) was more than five years ago.  Details here.

Important tip #2 :  If you're an, ahem, attractive single young lady with a potential problem while crossing the border, there may be another strategy that you could employ.

This week's larger than life Dubai extravaganza development :  A Dubai developer has announced plans for a new project to replicate the French city of Lyon in the desert.

The idea was conceived by the head an investment capital firm, when he visited Lyon to see about establishing a French-language university in Dubai.  He wants to extend the university project into a huge district named Lyon-Dubai city, featuring  public squares, restaurants, outdoor cafes and museums.

Lastly this week, you're doubtless aware of the British Airways 777 that crashed just short of Heathrow a week back.  The crash came about when its engines failed to respond to a power up request - they continued to operate weakly at a 'fast idle' speed, giving the plane just enough power to scrape by the boundary fence and land inside the airport grounds rather than in the residential areas nearby, and investigations are continuing as to what went wrong.

There have been a large number of joke images circulating about this crash, perhaps due to the sense of relief at the crash being one in which all passengers and crew safely walked away from.  Here's one of them.

Until next week, please enjoy safe travels

David M Rowell aka The Travel Insider

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