|
[Web
version of this newsletter] [Newsletter
Archives] [Website Home Page]
[Please Donate Here]
Anzac Day, Friday 25 April, 2008
Good morning
And happy Anzac Day to my fellow
Antipodeans. Of course, your Friday was yesterday, but I think
you'll agree that such a seminal event in our countries' histories
deserves a double celebration, even now, 93 years after our brave lads
landed at Anzac Cove, Gallipoli.
For the 98% of other readers, Anzac Day
commemorates both the specific memory of a disastrous campaign fought in
large number by members of the Australian and New Zealand Army Corps
(hence the acronym) in Gallipoli, part of Turkey during WW1 in 1915, and also the broader
memory of our fallen dead in battles all around the world. It is
an interesting phenomenon that the Anzac Day celebrations, and
pilgrimages to the Gallipoli battlegrounds, are steadily growing in
popularity in both countries, even though the last servicemen who fought
during the campaign are no longer with us. Although war and
soldiering is no longer as respected as it once was, there is something
epochal in our Anzac history that unites us and gives us national pride
and identity. The travel
company I founded in 1990 and sold in 2000 was named Anzac Travel, not
to commercially exploit the name (which is largely unrecognized in the
US anyway) but rather to honor the memory.
There are some interesting snippets
about the Anzac story on this website, maintained by a friend of
mine in Australia. And if you'd like some rather moody cinematic
entertainment on the topic, Peter Weir's 1981 movie, Gallipoli, would be a good
choice. The movie stars Mel Gibson, and had as one of its
producers a Mr Rupert Murdoch.
As an aside, drawing together both the
Turkish/Anzac thread and the seasonal resurgence of tulips, did you know
that Turkey was the original home of tulips, and has the tulip as its
national flower. Istanbul hosts a nine day tulip festival each
year and has massively planted tulips throughout the city during the
last three years.
But if you don't want to go to Turkey to see
tulips, they are also of course available in Holland, with some of the
tulip focused river cruises being an increasingly popular way of
visiting the fields and markets. Which, ahem, reminds me -
Wednesday next week, 30 April, is the last day to put Amadeus' 2009
river cruises on deposit and qualify for an extra 5% 'early booking
discount', in addition to the 5% Travel Insider discount and
possibly $100 AARP and Past Passenger discounts you might get as well.
More details here.
And if you don't want to leave the US,
Washington State's Tulip
Festival is another option open to you.
Another Bluetooth headset review this week.
After stridently complaining last week that no Bluetooth headset gives
close to acceptable sound quality, guess what? I found one that
does, indeed the sound quality is, if anything, better than talking
directly through the phone. Amazing. So, what's not to like
about this headset - well, unfortunately, it does have issues, but even
so, it is probably the best headset I've yet encountered. So :
This
Week's Feature Column : The Cardo S-800 Bluetooth Headset
: This headset is so good you'll certainly not want to lose it.
Unfortunately, it has a nasty tendency to fall out of your ear when you
least expect it, and also to discreetly pop out of its carry cradle,
too. But wrap it securely around your head with some 2" duct tape,
and you'll have the perfect headset.
Okay, so the 2" duct tape was a bit of a
cheap shot. The unit does actually come with an alternative
ear-mounting system (hmmm, that sounds rather odd, doesn't it), which
works well. And I do like it. But after reviewing so many of
these units (not all of which ever make it to print) it sometimes gets a
little hard to take it all solemnly and seriously. Anyway, let's
now get out our long sad serious faces, for here is :
Dinosaur watching : It was a
bad week to be a dinosaur this week, because you had to 'fess up to
the marketplace with your first quarter losses. I mentioned
Southwest's increased profit last week, but this week sees some less
positive results.
American Airlines reported a $328 million
loss. US Airways lost $236 million. United Airlines dropped
$537 million. Continental dropped a mere $80 million.
Smaller airlines were not spared, either. Alaska lost $36 million.
AirTran lost $35 million. And JetBlue lost $8 million.
So, what airlines have I overlooked?
Oh yes, Delta and Northwest. They too didn't exactly make a
stellar profit. Northwest had a bit of a bad quarter, losing $4.1
billion. But that looks positively profitable compared to Delta.
It managed to lose $6.4 billion.
No, there's no mistake here. But there
are some accounting 'complexities' - in terms of actual trading losses,
Delta lost a mere $274 million and Northwest lost $191 million.
The extra losses relate to the reduced market valuation of the two
airlines - 'non cash goodwill impairment charges', but are surely
spectacular, no matter what they are called. If (when) merged,
this would be a $10 billion loss in a single quarter.
Some of us might be wondering what the
over-inflated valuation was of the two airlines prior to it now being
written down. And we might also puzzle how companies with total
market valuations of less than these losses can sustain the losses and
still be solvent. It all smells a bit fishy, but with the string
of auditors and compliance regulations surrounding public companies
these days, it is undoubtedly legal, even if not intuitive, and
basically relates to fictional 'book value' goodwill amounts being
incorporated into the value of the two carriers when they emerged from
bankruptcy last year. These fancifully optimistic numbers are now
being shown to be the nonsense they always were, and the lack of
adjustment in real market values shows that few people ever believed
them.
What are the airlines doing in response
to their losses? Well, the first thing they're doing is
blaming everyone except themselves. It is our fault for not paying
enough for tickets, it is other airlines' faults for flying too many
flights and depressing the prices that tickets can be sold for, and it
is everyone's fault for allowing oil costs to go so high, and so on.
The second thing they're doing is
continuing to shrink domestic services, with many of the major
airlines now looking to shrink by 10% or even more during this year.
This poses an interesting question - with nearly full planes, a 10%
reduction in available flights and seats means not everyone will be able
to fly where they want and when they want.
What happens to these people? Either
they don't fly at all (eg in the case of businessmen, this means they
fly less times each year), or they drive. Or, a new non-dinosaur
airline comes along and offers them the service they need.
The airlines hope that by reducing the
number of flights and seats, they'll force the price of tickets up.
But this assumes we'll continue to buy tickets, even if the prices
massively increase, and - especially in these soft economic times -
there's little reason to expect this will be the case. And, as
I've said before, airlines, with their large fixed costs, become even
more difficult to operate profitably when they cut back on flights.
Are the dinosaurs indulging in a death spiral of fewer flights,
higher fares, fewer passengers, and therefore still fewer flights,
still higher fares, and still fewer passengers, and so on?
Possibly.
The next part of this spiral is higher
fares. And so, here's what seems to be a regular weekly
announcement. United has increased its fares yet again, on
Thursday, with increases ranging between $4 - $70 roundtrip for most of
the routes it flies. By the end of the day, American and Delta had
already matched United's increases, and assuming the other majors match
in the next day or so, we'll have the ninth fare increase of the year.
More in the background, United has also been
increasing some of its other fees - the change fee on a domestic
ticket goes from $100 to $150, and many of their lower fares have
been adjusted to now require Saturday night stays.
If you think $150 is a massive cost to
change your travel dates on a ticket, wait till you try to do it on an
international ticket. United will now charge you $250 for a change
on an international ticket.
Needless to say, United says it needs to
increase ticket change fees because of high fuel costs.
Now I can sort of understand why United
needs to increase its base fares, particularly in light of their $537
million loss for the last quarter, but would someone please tell me how
the price of jet fuel impacts on the administrative cost of changing a
computer entry from one flight to another?
Jet fuel costs have become the airlines'
'Get Out of Jail Free' card which they're playing for all it is worth
(as are as many other parts of the travel industry in general as
possible). Not only is United justifying its rapacious change
fee increases on higher jet fuel costs, but Delta is using it as
an excuse for closing its Crown Rooms in Denver, Honolulu, Kansas
City, London (Gatwick), Phoenix, Seattle and San Juan, and one of the
lounges in Boston and Cincinnati.
Although Delta refers to these as secondary
locations, they sure seem primary if one of these airports is your home
town airport and you are a regular Delta flier. And I'm bamboozled
as to how closing a lounge saves on jet fuel costs? I'd
understood the Crown Rooms were operated as a separate profit center
within Delta, so don't see how flight operational issues should impact
on this on-the-ground service at all.
But it is another step in Delta's own
death spiral - frequent Delta fliers and Crown Room members in the
above cities will now be tempted to switch to another airline, and these
people are typically business travelers who pay the higher more
profitable fares.
This is one more example of how the
airlines' current problems are indicative of a lot more wrong headedness
than just those issues related to high fuel costs. Sure, fuel
costs are way up, but let's put this in perspective. For example,
Delta, with an exactly 50% growth in fuel costs compared to the same
quarter last year, had its overall costs per available seat mile
increase by only 16.3% - 1.63 cents per mile.
Now that is a very interesting number, and
gives us a new way to look at how much the airlines need to increase
fares to recover increased fuel costs. Let's be generous, give
them a bit of profit, and say they need to get an extra 2c per mile
compared to what they were getting a year back. How much is that?
On a 1000 mile roundtrip, it is $20 extra on the fare. On a 5000
mile coast to coast roundtrip, it is $100, and so on.
But, with the new United increase of
yesterday, how much more than this have fares gone up during the nine
increases so far this year (see table here
for the impact of the first six increases, the latest three have added
up to another $100 to these figures, so some fares have increased by
over $200 this year alone), let alone the countless more last year
as well?
On the face of it, something is not
adding up. The airlines are increasing fares by way more than
the increase in their costs, but the cost increases are not flowing
through to their bottom lines. Why not? Could it be that
we're experiencing the 'elasticity of demand' - when fares go up, people
change their travel habits to fly less, or to fly less expensively?
This may be the case, and hints at the uncertain sense of airlines
trying to use fare increases and operational downsizing as their way out
of trouble.
One last comment about airlines increasing
their prices. Airlines have to go to great lengths to maintain a
facade that suggests they change their pricing independently of each
other, in an open and competitive marketplace. So called
'signaling' - sending unofficial messages between airlines, perhaps in
the form of tentative small fare increases in limited markets, or via
'back room communication' - is a very naughty thing.
But Delta's CEO seems to have come across an
interesting new way to 'signal' to his competitors. He makes a
public statement saying the industry needs to raise its fares by 15% -
20% in order to return to profitability. Almost immediately
thereafter, United obediently raises its fares, within half a day, Delta
followed, as did American, and presumably after a theatrical show of
reluctant uncertainty, the other major carriers will also join this
latest round of increases. Is an airline CEO saying 'we need to
raise our prices 15% - 20%' some form of signaling? Apparently
not.
Back to fuel increases - not only are
bizarre cost increases occurring on items and services that have nothing
to do with fuel, but the way direct fuel surcharges are calculated
clearly shows they often have nothing to do with recovering the cost of
extra fuel in any sort of directly linked manner.
For example, think of a cruise ship.
Does carrying some passengers consume more fuel than others? Do
passengers stop consuming fuel on an extended cruise? Apparently
so. For example, the latest fuel surcharge increases by RCCL see
an $8 per person, per day applying to passengers, but only up to a
maximum of 14 days - after that, there's no extra surcharge. And
if you're a third or fourth person in a statement, you'll be charged
only $3 a day (and again for up to 14 days).
These aren't fuel surcharges. They
are simple price increases.
Oh - if you come across any other
ridiculous and/or rapacious ways in which jet fuel is being blamed
for other cut backs and fee increases, do let me know.
One thing is for sure. If an airline
can successfully find a way to tap into the growing unfilled demand for
affordable convenient air travel, they could be on to a good thing.
But there's no evidence of this elusive goal being achieved by any of
the carriers, not even what seems to be the only profitable carrier of
any size for Q1, Southwest. And let's not overlook that even the
great Southwest has a troubled future, leavened only by its current
short term competitive advantage based on its greater level of fuel
hedging.
And talking of Southwest, what of its
share price? It closed on Thursday at $12.70, up slightly from
last week's $12.61 - no small accomplishment in a week of shatteringly
bad news for the airline industry as a whole. Since I first
commented on the share price (13 March when it was at $11.70), we have
seen Southwest appreciate by 7.8% but the overall airline index
(including an allowance for Southwest's increase) has plunged 16%.
And talking about plunging stock values,
let's not forget Alitalia. Alitalia's future was made into
an election issue in the recent Italian election, with successful
incoming prime minister Silvio Berlusconi objecting to its proposed
buyout by Air France/KLM, saying he wanted to keep it Italian.
So what has he done about that? First
of all, he is illegally loaning the airline $475 million, even though
the EU says the Italian government can't do this.
Secondly, he has coined a slogan 'I love
Italy. I fly Alitalia'. Doubtless this will make a great
deal of difference to the airline.
Thirdly, in his effort to keep the airline
Italian, he has held talks with investors interested in buying into
Alitalia. Apparently the fact that these investors are Russian
(ie Aeroflot) in no way threatens the Italian-ness of Alitalia.
And, fourthly, he has indicated a
willingness to negotiate a new deal with Air France/KLM. Hey -
weren't they the bad guys prior to the election?
The exact nature of his 'keeping Alitalia
Italian' pledge remains unclear to all concerned.
Here's an interesting twist. Staff at
American Airlines pilots union (it is getting late - I've stared at this
phrase for several minutes and can't decide where to put the
apostrophe(s)!) have picketed the union itself. While the pilots
have been busy picketing the airline, it seems that their union has
allowed its own staff to go 300 days without a contract. Hmmm.
Here's some starting news. In a
tentative reversal of its earlier findings, Britain's Competition
Commission is now saying that allowing the private company BAA (no
relation to BA) to own seven of the country's largest airports in fact 'may
not be serving well the interests of either airlines or passengers'.
BAA owns Heathrow, Gatwick and Stansted in
the London area, giving it close to a lock on providing airport services
in the London area. And with Edinburgh, Glasgow and Aberdeen
airports, it dominates Scotland, too.
With Britain's airport services tangibly
deteriorating over the years that BAA have controlled them, these
cautious comments by the Competition Commission may seem 'a day late and
a dollar short', but hopefully they mark the start of a new era of
realism and accountability, and if Heathrow was to be split off and
sold, perhaps the competitive pressures might act where regulatory
oversight has clearly failed and encourage both BAA (with the other two
airports) and the new Heathrow owner to get their acts together.
The new Heathrow Terminal 5 disaster has to
be understood as being a joint failing by both BA and BAA, but while BA
is suffering commercially as a result, those same passengers who have
switched their business from BA to another airline are still flying
through Heathrow (or Gatwick or Stansted) and thereby not applying
any commercial pressure on BAA at all. It is well past time
for this to change.
As readers know, the newsletter is often
bedeviled with problems getting through some readers' trigger happy spam
filters, and sadly some of the biggest mail services have the worst
approach to such issues. Reader Bill wrote in with an interesting
story about problems with his AT&T email :
We are currently
in France and have been corresponding with our French contacts by email,
sending the emails successfully, but not being able to receive a reply
to ANY of the emails. When I contacted the recipients, they told me that
their responses were blocked and returned to them.
After a lot of
difficulty reaching the appropriate person in AT&T, I was told that
within the last month or so, they added new security enhancements to
their email programs, in an effort to filter out spam. AT&T says
that many
domains outside the United States do not have the necessary software
filters to sort out regular mail from the spam and until AT&T is
satisfied that these filters are in place, emails coming from these
domains will be completely blocked, across the board. Getting a
domain unblocked is an onerous and cumbersome procedure.
The domains that could not send me
emails included Orange.fr and Wanadoo.fr, both of which are operated by the
national telephone company, France Telecom, and which are probably used by
a large percentage of all French users.
I don't know how extensive AT&T's
"blacklist" is, but it would seem to pose a huge problem for travelers
and stay-at-home people alike.
Zero tolerance for spam, such as AT&T is
displaying, equates to zero sense. Shame on one of our largest
telecommunication giants for displaying such an asinine approach to spam
control.
This Week's Security Horror Story :
If you've ever had your fingerprints taken, you may know that getting a
good set of fingerprints is a surprisingly complicated and difficult
challenge. I've had my fingerprints taken many times - every step
along the tortuous path to US citizenship seemed to require another set
of fingerprints to be taken (no, I don't know why - it isn't as though
they change!), and frequently, the official fingerprints taken by the
local Police Dept were rejected by the Immigration Service and had to be
redone.
It is a bizarre contradiction that CSI type
people can take a partial smudged fingerprint off a murder weapon and
use it to convict a killer, but the US government can't accept an
official set of fingerprints taken by the Police Department in a fully
optimized environment.
And the point of this? Well, Homeland
Security is now wanting to know all about not just people entering the
country, but also people leaving the country, too, and so has decided to
fingerprint not only visitors arriving into the US but also those same
people when they leave again (yes, the same question about 'so have
their fingerprints changed during their two week visit?' applies here
too).
Of course, taking fingerprints of departing
passengers is a lot of extra work and hassle. So much so, in fact,
that Homeland Security doesn't want to do the work itself.
Instead, it is asking the airlines to do the work for them.
Does anyone care to guess at how much extra
time it will take to check in for an international flight if half the
passengers are going to have to be fingerprinted?
Another reader writes in with his recent TSA
experiences.
Last month I simply forgot to separate
my toothpaste and hair gel when packing for a trip. I realized
when unpacking in my hotel room that my bag had not been 'screened
properly' as these items were packed deeply in my carry-on suitcase
which had been placed through the x-ray machine. So I decided
to try an experiment and not separate these items on my return trip
home. Again, the bag went through without the items being
detected.
I have since been on two more trips
requiring me and my bag to pass through security four different
times in three different airports around the country all with the
same result of my toothpaste not setting off any alarms.
A recent seat mate of mine admitted
doing the same. Gather from this what you will.
Do you feel safer now?
Until next week,
please enjoy safe travels |