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Friday 11 July, 2008  

Good morning

It is lovely to be home once more after three weeks in China.  This week's newsletter is in large part a mini-travelogue of impressions and thoughts I have after my time away.  A normal newsletter will of course follow next week.

Our Beta Test tour of China was an interesting experience, but perhaps more grueling than we had expected, with two of the dominant memories being high temperatures and humidity that sapped our energy, and hundreds (actually, in total, thousands) of steps that needed to be climbed.

On the positive side, we certainly did experience a massive kaleidoscope of different sights, sounds, places, and people.  My own favorite was probably Guilin, an area of extraordinary natural beauty and less ravaged by pollution than much of the rest of China, and a good final note to end our time in China.

And the overwhelming impression, after visiting a huge diversity of different places, from the largest metropolitan area in the country - a metroplex of 32 million people that you may have never even heard of, Chongqing - to small towns along back country roads, is the impossible to comprehend growth that is occurring in all parts of China.  For example, our cruise down the Yangtze river was continually punctuated by brand new bridges being constructed across the river - every one of which was being lavishly constructed, with probably six or more lanes and an expensive showy rather than utilitarian design.  Every town and city we saw had masses of cranes on the horizon with new office and apartment buildings sprouting wherever we turned.  And living standards - while less visible - are massively improving.  For example, one of our guides told us of how she and her family were moved from their former apartment to a new apartment as part of a resettlement project in the Three Gorges area, and one measure of the comparative luxury of the new apartment they moved to is that the family went from an apartment with no indoor toilet at all to one with two indoor toilets.

China, today, is a curious land of contrasts, with Mercedes Benz automobiles swishing by on super highways while just a few feet from the road you can see farmers in paddy fields tending to rice by hand, and on the sides of the super highways there are people on powered tricycles motoring along at 15 - 20 mph with a small load of produce on the back of the trike.  Some apartments and houses are of western standard and close to western price, but a short distance away from these will be housing areas that we'd view with distaste and horror and consider to be terribly slum-like.  Which is the real China?  The answer seems to be that both are part of the real China, and that the under-developed aspects represent the potential and the evolution into the developed China.

China's growth seems to know no bounds or limits, and the country as a whole is moving from a net recipient of international investment to now being a net donor of investment in other countries - just today on the radio I was hearing details of the multi-billion dollar projects China has revealed in 35 different African countries at present (mainly on the basis of 'we'll develop infrastructure for you in return for access to your natural resources').  Somewhere in the next ten to twenty years, it is predicted that China will have the world's largest economy.

It already has the world's largest population, and one of the world's largest landmasses.  Move over, USA - the new world leader is rapidly coming up from behind and getting ready to overtake us - China.  Its growth and the certainty of its future dominance seems inevitable and unstoppable, and when you consider that China will have the resource and ability to become not only the world's largest economy but also the world's dominant military power, it seems that the geo-political axis of the world as we know it at present is about to undergo a dramatic shift.

But, after spending almost five weeks in China over the course of two visits this year, I can't pretend to really understand the country and its people at all, and to have very little or no comprehension about what its real world plans may be.  While I presume to have an understanding of Russia, I can't claim any such understanding of what it is that motivates and drives China.  It truly is a mystery - to me and to most of the rest of us too.  But it is a mystery which we'll all need to solve before too long, because of the way it is vaulting to pre-eminence on the world stage.

China is of course still some strange sort of amalgam of communist controlled dictatorship and free enterprise.  I was reminded of this in two interesting ways.  Firstly, China now censors parts but not all of The Travel Insider website - don't ask me what I've said or done to upset the Chinese government, but apparently some of my articles are not to be viewed by Chinese people.

Secondly, one of the tour guides was giving some commentary and she included the line 'and in 1947, the communists under Mao Tse Tung liberated China'.  This begged the question which I boldly asked her - 'Who did Mao liberate the Chinese from?'.

Her answer - 'He freed the Chinese from the former Chinese democratic government'.  I assumed a look of intelligent uncertainty and asked 'So the communist dictatorship freed the Chinese people from the former democracy?', whereupon the guide started to realize the nonsense of what she'd just said, and hastily added 'Oh yes, and from the Japanese, too'.  We both chose to politely end the discussion at that point and to overlook the fact that the end of the war with Japan, courtesy of the US and Hiroshima/Nagasaki, happened back in 1945.

There was another puzzling inconsistency that I could never get a good explanation for.  Many of the new super-highways that have been built are toll-roads, with the costs to drive on them being fairly steep and in line with what we'd pay on a turnpike or on a toll-road in Europe.  This seemed strange to me and at odds with the country's communist philosophy.  A guide was proudly telling us that the cost to go through the locks at the Three Gorges Dam project was free because the dam and its locks were built by China for the Chinese people, so I asked her 'but aren't the new expressways also built by China for the Chinese people - why do people have to pay money to drive on them?' but she wasn't able to answer this question.

I also got varying answers about the extent of free healthcare in China.  It seems that, rather similar to Russia, people can choose between almost free/heavily subsidized but lower quality government healthcare, or they can pay extra for private healthcare of a higher quality.

The censorship thing has two dimensions - a control on external news and information flows into China, and also a control on what is published and said about China, internally and, to a lesser extend, externally too.  You have to take anything you read about China with a grain of salt.

Here's an interesting example - this article talks about a new law in China that prohibits stores from giving away plastic bags as of 1 June, and this article from the Chinese People's Daily Online proudly claims that reductions in plastic bag distribution of 80% - 90% are now being experienced.  But, during the almost three weeks I was in China, and in the course of buying all manner of things at a wide range of stores, ranging from major department stores to street-side market stalls, I never noticed anyone refuse to give me a plastic bag to put my purchases in, and neither did anyone charge me for a bag either.  The article reporting the massive success of this new law is completely at odds with my observed reality of what is happening.

There's a fascinating article on the BBC website about China's growth here (and the earlier two parts in the series provide a terribly depressing contrast between the dynamicism of China and the torpor of much of the US - something I couldn't help but notice myself; every time I saw a new bridge going over the Yangtze, I was reminded of Washington State's inability to replace/extend a desperately needed bridge across Lake Washington in Seattle - a problem that has been growing for a decade or more, and for which no solution is expected for at least another decade).

After the Chinese tour, I went and spent a couple of days in Hong Kong.  This was the first time I'd visited Hong Kong since its 'independence' in 1997 - although the term 'independence' is an Orwellian term that doesn't accurately describe its transition from British rule to Chinese rule.  Most people who have visited Hong Kong since then have told me that nothing has changed since 1997, and for sure, my favorite bar on Nathan Rd is still exactly as I remember it, more than ten years earlier.

But I think people who believe nothing has changed in Hong Kong are somewhat simplifying things.  My tailor (such a grand way of describing a person who once made a suit for me before and who did so again on this visit!) tells me that many tailors have gone out of business and that his own business is down at least 50% since 1997.  While he agrees the city still gets lots of tourists, he says the mix of tourists is changing, and there are now fewer westerners visiting and more Chinese (who are less motivated to buy suits from him at comparatively high prices for them rather than comparatively low prices for westerners).  He says that with plenty more direct flights to China, fewer people need to transit through Hong Kong.

I also caught an interesting glimpse of how the locals might feel about now being part of China again.  To understand the story that follows, you need to understand that the Chinese people in Hong Kong speak Cantonese - a language that is as different from the language that Chinese people in China speak (Mandarin) as is, eg, English different to Russian.  Needless to say, if one refers to someone speaking 'Chinese', the chances are the person means Mandarin, for the simple fact that perhaps 1.3 billion people speak Mandarin, while there are probably no more than 50 million speakers of Cantonese.

I was on a harbor cruise and the guide was telling us a bit about Hong Kong.  He included this comment 'We speak Chinese here, and many of us speak English too.  These days, some of us are also learning Mandarin.'  I found it very telling that he referred to his language as 'Chinese' and the language of mainland China as Mandarin.

I also noticed in one of the major chain stores that they disdained accepting Chinese currency other than at a 1:1 exchange rate (the actual rate being about 1:1.13) whereas they'd happily accept dollars and Euros at fair exchange rates.  You'll not get anyone to admit this, but I think there are mixed feelings among the Hong Kong people about returning back to Chinese rule.

One thing that hasn't changed in Hong Kong - there are no bargains to be had there, and haven't been for several decades.  Most electronic items can be purchased less expensively at Costco, Walmart, or Circuit City, and you are more certain that you're getting the product you're paying for if you buy locally.  Food prices were much higher in Hong Kong than in mainland China, too - meals are a relative bargain in China (you can have a very good meal for $10) but are priced more inline with US prices in Hong Kong (I was recommended to go to one restaurant by the hotel concierge; he described the food prices as 'moderate' but when I saw $50 for a steak, I disputed the concept of moderate!).

Hong Kong somehow manages to straddle a curious line between east and west, with elements of both juxtaposed alongside each other.  I'll be doing a feature article on it in the next few weeks in which I'll try and answer the question 'why go to Hong Kong' - a question that has never had a clear answer in my mind.

One last thing about touring - our always very popular Christmas Markets cruise is filling, and one thing I can absolutely promise you - there's no danger of it being too hot and too humid, unlike our Chinese tour just now completed!  Although, to be far, the weather for the last several Christmas cruises has not been inhospitably cold or rainy, either, so you should have no real weather problems to be concerned about in either extreme.

There is now only one junior suite remaining on the ship, only one of the best value C cabins, and only two of the lowest price E cabins.  There are still A, B and D cabins - my favorite cabin category being the A cabin, but if you're looking for a C, E, or junior suite, please hurry to confirm your interest.

There have been lots of changes to airline checked luggage policies over the last few months, with airlines first starting to charge for a second checked bag, and then some airlines starting to charge for a first checked bag as well, as well as some increases in charges for excess weight and size and other less publicized changes too.  It seems the dust is now settling and the airlines have generally reached a stable point, for now, having matched or countered each other as they wish, so I've updated my three pages on domestic airline policies on checked bags and carry on bags, and international airline policies on carry on bags.

It has been interesting to see how the airlines have changed their policies.  From one extreme - Hawaiian who have not made any changes at all in four years or more - to the other extreme, with some airlines changing everything, and with some puzzling changes - for example, Alaska Airlines, changing their bag size limit from under 63" to now being a maximum of 62".  And JetBlue, who have reduced the maximum weight of bag they'll accept from 100lbs down to 99lbs.

There were also some interesting - or, perhaps I should say, astonishing - changes the other way, most notably British Airways, who have not only increased the size of allowable carry-on items, but also increased the weight from a former miserly 13lbs up to a massive 51lbs per carry-on bag.  Wow.

It is also interesting to see how some airlines now flat-out refuse to accept heavy or big bags - for example, Northwest will not now accept bags over 70lbs (formerly it was 100lbs) no matter how much money you might offer them to take your bag.  Another policy change with some airlines (such as US Airways) is reducing the maximum size of a bag - they would formerly accept bags with a combined dimensional size (length plus width plus height) of 115", and now it is reduced down to 80".  Anything larger has to be sent air freight.

It is also interesting to see some airlines now defining the size of the 'personal item' - typically airlines allow one carry-on plus one 'personal item' to be carried on to the plane, and the undefined size of the personal item has been a loophole for many passengers to exploit.  Some airlines are now limiting the size of this personal item - for example, Air Canada limits it to 17" x 13" x 6" (compare this to the standard limit for a carry-on bag of 22" x 14" x 9").

Overall, it is surprising how much divergence there is in baggage policies, and if you're planning a trip with big/heavy/many bags, the difference in bag charges might more than compensate for any difference in air fares.  When planning your travels, you now really need to consider the cost of your bags as well as the cost of the fare by itself.

There has also been a clarification of what was formerly a vague situation - fees are generally cumulative.  So you might end up paying three times - for an extra bag, for it being over 50lbs, and being over 62" cumulative size.  Which leads to :

This Week's Feature Column :  The $300 checked bag : With changes to airline luggage policies every which way, you can now find yourself paying up to $300 to check a bag; even worse, sometimes you'll find the airlines now refuse to carry a bag entirely for being too big or too heavy. Here are three pages of information showing the widely varying airline policies on carry-on and checked bags.

Dinosaur watching :  So what's been happening in the several weeks I was away?  More of the same, alas.  There were two more airfare increases - one on 26 June that was initiated by Southwest and matched/exceeded by all the other carriers, and one on 2 July, initiated by United, and again matched by the other major carriers.  Surely the airlines are getting closer to the point where they can now start to be profitable, high fuel costs notwithstanding?

Talking about high fuel costs, I received a fascinating email from an Alaska Airlines pilot (who prefers to be un-named).  Apparently as an interesting way to pass the time on his flights, he figures out the actual real fuel used on the flight and matches it with the passengers carried to get a passenger miles per gallon figure.  Here's his email :

Iím a B737 pilot for Alaska Airlines, and have recently been computing our actual fuel mileage using our actual fuel burn, (pounds to gallons) converting nautical to statute miles, and multiplying by actual number of passengers.  Iíll also go a slightly different direction and compute the number of gallons used per passenger, multiply by current fuel prices and determine the fuel cost per passenger. Interesting!

Our mpg ranges from .45-.55, depending on headwinds or tailwinds, fuel tankering (which also reduces cruise altitude, increasing fuel burn) etc.  With a full load of 172 pax on a B737-900 about the best we could do would be 95 mpg/pax, but actual values Iíve seen range from 65-80 mpg/pax, across the range of 737-400/700/800/900.

Regarding fuel tankering :  Our Fuel Management people determine fuel costs at different airports and the cost of tankering that fuel to the destination.  If the math works out in our favor, and we are not operationally limited due to takeoff or landing weights, we will tanker fuel.  The fuel costs do not reflect fuel hedges.  Alaska has ~50% of our fuel hedged at $76/bbl for the remainder of 2008.

And still talking about high fuel costs, the airlines have now worked out who else to blame for their problems (other than themselves).  They are now telling us that the reason oil is so expensive is due to speculators somehow bidding up the price of oil.

In a letter to passengers, the CEOs of all the major US airlines ask us to support legislation to control oil speculation.  They claim that

twenty years ago, 21% of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66% of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs. Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and inforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

Well, that sure sounds serious, doesn't it.  But is it true?  Probably not - at least, not the conclusions they draw.

If oil trading/speculating is - as this letter suggests - almost a guaranteed way to profit, then why don't the airlines (and why don't we) all do it?  If it is so simple as they say, how come they're not so rich?  And why should the airline be at the end of the chain - why not buy the oil at the top of the speculation chain, rather than at the bottom?

The answers to these questions - or, at least, the questions themselves - indicate that the situation is much more complex than the airlines would have us believe.  Not everyone makes money when speculating in oil, and not every trade has both buyer and seller profiting.  Or, to explain it in the form of another question - if the buyer is sure he will make a profit when buying oil from a seller, why is the seller selling it at a less than fully realized profit?  Why doesn't the seller keep the oil and sell it for a higher price to whoever the buyer is planning on selling it to?

One more question.  If the US restricts or bans oil speculation, what happens to the US oil supplies?  The US can't control speculation elsewhere in the world.  So, at every step along the oil supply chain, sellers will find themselves with the choice of who they sell to - a speculator somewhere in the world, or a US oil company, and if the speculator is offering them more money than the US oil company, who do you think they'll sell their oil to?  And, similarly, if the only source of oil that a US company can obtain is from an international speculator, what will they do?  Pay the going rate, or let their refinery run out of crude?

Not quite a merger, but notable nonetheless is the announcement that Southwest and Canadian carrier WestJet will partner to offer code-share flights between the US and Canada.  Southwest's idiosyncratic way of doing business has always made it seem the least likely airline to partner with other carriers, and its earlier arrangement with ATA (mainly for flights to Hawaii) didn't prevent ATA's demise earlier this year.  But apparently Southwest continues to adopt more of the mantle of the mainstream carriers, and their CEO, Gary Kelly, refers to a 'perfect fit' with WestJet.

But don't expect new codeshare flights anytime soon.  The two airlines hope to announce more details by late next year.  Why so slow?

Incidentally, Southwest's current market capitalization is about $2.4 billion more than that of the nine other largest US carriers combined.

As part of my China trip, I flew four internal flights within China on Chinese regional carriers.  All four flights were positive experiences, and all four featured advertising on the headrest napkins, which I thought to be an interesting thing not commonly seen in the west, and was amused that in some respects, China is already a more developed marketplace than even the US.

This article talks about such things that are coming to western airlines, too.

Britain's Guardian newspaper reports that Heathrow's terminal 5 is still losing more than 900 bags a day.  The trade union says the baggage handling system still needs improvement and travelers on connecting flights have a 1 in 12 chance of being separated from their checked luggage.  These figures are higher than all the other terminals combined.

Transfer bags from T4 have to be manually transferred to T5 because there is no mechanical system for loading the bags.  Airport owner BAA says there is a baggage link under construction between the two terminals.  It takes some 18 minutes by bus to go between the two terminals so add time to unload, move and load bags and some people are suggesting you need a minimum of two hours for connections, and more is better.

If your flight is late and your connection time reduces, your chances of getting your bag at your destination are slim at best.

As the airlines continue to increase their fares and cutback on their services, there is one quiet beneficiary.  Amtrak.  Although Amtrak's ridership continues to grow, it has a huge amount of catching up to do, and major resource constraints in its ability to do so.

Ignoring commuter rail services, and considering only intercity ridership, last year Amtrak carried 25 million people and this year it might reach 27 million people (an 8% increase).  But the airlines, combined, carry about 680 million people a year; if Amtrak were an airline, it would be the eighth largest, behind Continental and US Airways, but larger than Airtran and JetBlue.  Here's an interesting article with some facts and figures about Amtrak's current size and constraints.

Talking about Amtrak and airlines, it is unlikely that any US carriers will be emulating the concept that Air France/KLM is considering.  Air France/KLM confirmed last Friday that it was looking at offering high-speed rail travel as an alternative to air services between some cities in Europe.

The airline is in discussion with Veolia, a French utility that runs several rail connections but is not yet active in high-speed travel. The two companies are looking into a partnership to create a new high-speed rail player in Europe. The move could mark the beginning of a decline in short-haul air travel on routes such as Paris-Frankfurt that have good rail service. Veolia Transport, part of French water utility Veolia, could run trains under the Air France KLM brand from their hub at Charles de Gaulle to destinations across Europe.

But don't expect to find your next European 'flight' is on a train any time soon.  The airline has already been exploring the possibility of such a service for the past four years.

Talking about France, guess who the world's worst tourists are considered to be?

Still talking about tourists, here's a depressing article about the US's shrinking share of global tourism.  We're a country with an enormous capacity for inbound international tourism; we've got a huge range of tourism attractions, and with our low dollar, we're a low cost destination for much of the developed world.  We've brilliant infrastructure to support increased inbound tourism, and we're a relatively safe, friendly and honest destination.  We should be getting more and more tourists.

But, while the people here are friendly once visitors get into the country, getting in to the country is a terribly harrowing experience.  The insulting, expensive and inconvenient procedures that most people elsewhere in the world have to subject themselves to so as to get a visa to visit the US just discourage too many people from coming here, when so many other countries provide simple or visa-free travel opportunities and a friendly welcome upon arrival rather than rude questioning by a hostile armed border guard in the US.

We really have to rethink so much of how we perceive our country in order to see us as other countries see us.  Here's just one other small example - we pride ourselves on American justice being fair, impartial, and high quality, while we sneeringly deride 'banana republics' and the ridiculous notions of justice and jurisprudence in such countries.  Try telling that to the lady victimized by a judge in Houston, in a situation that is so wrong as to defy comprehension.

The value to our country of inbound tourism is enormous.  It is a major employer, and it brings in foreign exchange, helping us with our trade imbalance.  Much of tourism is 'sustainable' and uses renewable resources, and we don't need major capital investments or developments.  We just need a friendly welcoming smile.  How difficult should that be?

Here's an interesting article about a new form of clinical delusion - 'climate change delusion'.  It also has some fascinating statistics in it that compares Australia's contributions to 'climate change' with those of China.  If you don't want to read the complete article, the quick summary is that Australia's plans to cut its greenhouse gases by 20% will be balanced by a mere 28 days of increased emissions by China.  As I said above, the growth of everything in China is beyond anyone's comprehension.

This Week's Security Horror Story :  The US Inspector General for the State Department has issued a report criticizing the US State Department passport records system saying it is wide open to abuse and unauthorized access that cannot be detected or prevented.

The system contains personal data and information, including Social Security numbers, dates and places of birth and passport numbers on more than 127 million US citizens.  The IG said there was a lack of security control as more than 100 celebrities' files had been looked at by workers in the department, who were not punished.  The records of 1500 high-profile Americans whose names were selected from Forbes and Sports Illustrated magazine lists and Google's most-searched names were examined.  The records of 855 of those names had been accessed a total of 4,418 times, strongly suggesting attempts at unauthorized access.

Some 20,500 people have access to the system and 800 of those are outside the State Department working in other agencies.

We all know how common it is to leave a cell phone behind in a taxi.  But how about leaving a laptop behind at the airport?  According to this article, 2000 laptops are lost at airports every week.

Which perhaps makes the plan by the TSA to approve various custom-designed laptop carry bags as acceptable to go through the X-ray machine without needing to take the laptop out of the bag a great idea.

Here's an interesting story and security camera video on what seems to be excessive use of force by the TSA and local airport police.

While it is true that the people who pay the big bucks to fly first class don't get to their destination any sooner than the people in the back of the plane, it is also true that they expect to be allowed off the plane first once the plane has finally pulled up at the gate.  And, if they find this not happening (which is surprisingly common - sometimes an airplane opens a door behind business class, which can lead to business class passengers getting off before the first class passengers in the very front) the first class passengers can get somewhat annoyed.

But to do what this gentleman did is a relatively uncommon response.

With the increasing unpleasantness of air travel, and increasing cost, maybe this guy has a good idea for an alternate form of air transportation?

Lastly this week, Ryanair's CEO, Michael O'Leary, is known as a somewhat foul-mouthed man and a straight talker who doesn't hesitate to abandon any pretense of political correctness in his criticisms of competitors, government bureaucracy, and anything else that attracts his ire.

Here's a Youtube video of O'Leary giving a press conference in Germany.  Not suitable for younger readers.

Until next week, please enjoy safe travels

David M Rowell aka The Travel Insider

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