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Friday, 6 November, 2009

Good morning

My weekly happy-making celebration first :  another nine readers became Travel Insider supporters last week, including two more extravagantly generous 'Platinum Elite' members - Peter K, and Mario R.

We now have 877 current supporters for 2009.  So close to what was initially unthinkable - 1,000....

This continued outpouring of positivism is encouraging me to come up with some new things for all readers, and the supporters are helping me develop an exciting new concept that I'll tell you more about in the weeks to come.  Supporters also received yet another exclusive special offer this week.

If you'd like to join this elite coterie of readers, simply click here to become a supporter yourself.  Maybe we can find 123 more readers to bring us to 1000 reader/supporters for the year?

Of course, everyone else is also much appreciated as a reader too, and long time Travel Insider supporter, Magellan's, wants to ensure that no-one feels left out, and so they're offering a 'Beat the Christmas Rush' discount - for two weeks only, you get a 10% discount off everything they sell in their enormously varied and comprehensive online store.

Magellan's has built up an enviable reputation in the industry for being very careful and selective in the products they sell, and for backing everything you buy from them up with their own personal 100% satisfaction guarantee.  So why not have a wander through the 'aisles' of their website and see if you can find anything that might be good for yourself, or for friends/family this upcoming Christmas.  When ordering, please use the discount code GANTRN to get the 10% discount.

Talking about discounts, here's a heads-up :  This weekend marks the kick-off of a special one week instore promotion at Walmart - a pre-Thanksgiving sale, with some crazy discounts.  These include mouth watering deals on Sharp 1080p HDTVs (costing $498, $698 and $898), a 46" plasma HDTV from Panasonic for $788, a Windows 7 equipped HP notebook computer for $298 (wow - I'm going to have to take a look at that one myself), a Sony Blu-ray player for $148 and an Xbox 360 Arcade Console for $199.

Continuing the Christmas shopping theme (aaagh - we're talking about Christmas already?) I've put together a 2009 version of my annual (well, not quite every year) list of interesting and unusual gifts and gadgets to consider buying for yourself or friends/family this Christmas.  Basing the list on products I've reviewed in the last year, they'll hopefully help you win kudos for coming up with interesting gifts this year.

This Week's Feature Column :  2009 Christmas Gift Giving Guide : Sometimes quirky and sometimes curious, here are my suggestions for high value and low priced gifts to make travel more pleasant.  There's sure to be something on this list for all the 'hard to buy for' people on your Christmas list.

Dinosaur watching :  Ryanair, the airline everyone loves to hate - but apparently still flies on, anyway - has just announced a massive 80% increase in their half year profit, rising to €387 million, on revenues of €1.8 billion.  That is a stunning 21.5% net profit, a level of profit that is unimaginable in the US.

Not bad when you consider that the airline's average fare was €37 - okay, so there are plenty of surcharges and extra costs to be added to the fare itself, but even so, it is an extraordinarily positive result, and contrasts with British Airways being in what they call a struggle for their own financial survival.  Details here.

It seems that in Europe the low cost carriers are having even more of an impact on the European dinosaurs - airlines that have generally enjoyed a much more protected life than have our own US dinosaurs (subsequent to deregulation in 1979).  An interesting statistic in this article compares the staffing costs at Air France (31% of sales), Iberia (23%) and Lufthansa (21%) with the staffing cost at easyJet - a mere 14%.  It is no wonder some of Europe's flag carriers are having difficult times, which the lower cost carriers are eating their lunches.

Another great financial result was announced by Emirates, with a $205 million net profit for the first half of its financial year, up massively from $77 million for the same period last year.  Total revenue was $5.4 billion, so their net profit was a much more realistic (but still wonderful) 3.8% (compared to the extraordinary 21.5% net profit at Ryanair.

So - two very different airlines - one proves you can make huge amounts of money by treating your passengers unusually badly, and the other proves you can make great profits by treating your passengers unusually well.

What to conclude from these totally opposite situations?

Something we haven't heard a lot of recently is talk about more airline mergers.  But just when the silence was becoming deafening, the topic comes up again, with Continental's President and soon to be CEO Jeff Smisek being quoted as saying that if the merged DL/NW airline becomes too tough a competitor, he'll run to United and restart the merger talks that Continental called off last year.

How sad it is when these massively paid airline executives can not think of any way to compete against each other, except to merge into fewer and fewer airlines.  Is that the finest expression of American business practice and competition?

Besides which, if you look at airline profits, you'll see very little correlation between airline size and airline profit.  The 'bigger is better' mantra, mindlessly echoed by airline executives and industry analysts, is a very weakly supported claim, and probably has more truth in the unstated part of the concept 'less competition is better'.

One airline's desire to merge with another is seldom anything to do with creating an economy of scale per se, but rather it is all to do with eliminating a competitor and being able to enjoy a less competitive marketplace that allows for greater inefficiencies and more profit, all at the cost of their passengers (and often at the cost of their staff as well).

United and Continental have already gone much of the way to a merger by becoming alliance partners.  But apparently Continental is proving to be a naughty 'kiss and tell' lover - here's a fascinating article that should be on your 'must read' list if you are a UA frequent flier.

It tells how Continental published a chart showing award seat availability on other Star Alliance airlines, and in the process revealed the obfuscations that United has often used.  Apparently United doesn't like to allow its Mileage Plus members to redeem too many awards on its partner carriers, because there may be an actual cost to United when that happens.  But instead of being up-front about this, it seems that United has instead chosen to be economical with the truth and has told its frequent fliers 'I'm sorry, but there are no award seats on that flight with that carrier' - blaming the other airline, when in truth there were award seats but United was too stingy to allow them to be claimed.

Shame on United, and well done Continental for exposing United's perfidy.

Talking about United, here's a stunning story about how United refused to allow a passenger to fly first class because a gate agent deemed his attire to be too informal for its first class cabin.

It is true that many airlines still have a dress code policy, but this only applies to their own staff and other industry insiders who are traveling on free tickets, not to paying customers.  Indeed, there's an industry joke that you can always spot the airline employees who are traveling first class for free - they are the people wearing the suits.

It is very true that the more experienced fare paying passengers these days dress down rather than dress up, choosing comfort rather than wishing to make a 'fashion statement'.

United's Customer Service department has not responded either to a letter of complaint by the passenger or to three calls by a local television station following up on the event.  The passenger booted out of first class is a frequent flying VP for Best Buy.  Care to guess if Best Buy will be changing its preferred airline as a result of this?  One certainly hopes so.

I'd mentioned last week that airfares had dropped in the second quarter down to levels not seen since 1998.  But there's no need to feel sorry for the airlines.  This article points out that the industry enjoyed a 29% drop in costs during the second quarter of the year.

Airline lobbying group ATA's Chief Economist proudly said 'Carriers are demonstrating tremendous cost discipline' - perhaps what he actually meant to say was 'carriers are benefitting from windfall drops in the price of fuel and other costs that have dropped per passenger due to squeezing more passengers onto each flight than we'd formerly thought possible'.  And in a grim warning as to what the future may hold, he also said 'Airlines remain intensely focused on reducing expenses and identifying additional sources of revenue'.  I guess he means to say 'We're looking at removing another lettuce leaf from the salads and finding still more things to charge you for that were formerly free'.

All of which kinda makes you want to give up flying, doesn't it.  And if that is what you're thinking - good news.  Carlson Wagonlit Travel is very sensibly redefining its business and now will not only happily sell you any travel you want, but will help you not travel, too.

They have a new arrangement with Tata Communications and Cisco TelePresence Suites worldwide, allowing their clients to create virtual meetings in specially equipped teleconference rooms, complete with HD video and audio and life-size images of other conference participants.

Talking about not wanting to fly, there are now some very regrettable knee-jerk responses to the curious story of the NW pilots who overflew their destination a couple of weeks ago.  You'll recall their excuse is currently that they were busy working on their laptops.  So some of our political leaders now want to create new legislation that will ban laptops and all other forms of electronic devices from the cockpits.  Details here.

Whether you believe the pilots' story about being distracted by their laptops or not (and I definitely don't believe the story) responding with a ban on all electronic devices is a terrible mistake.  Rather than distracting pilots, such devices can actually entertain them and help them to stay awake.  Which would you prefer - a pilot struggling to stay awake with absolutely nothing to occupy his mind and body at all, or a pilot happily watching a movie, reading an eBook, playing a computer game, or in some other way keeping himself active, awake and alert?

When you're driving and feeling drowsy, do you turn the radio off?  Or do you turn it up?  Our lawmakers think the best thing to stay awake is to remove any source of stimulation.

Several readers wrote in angrily accusing me of bias in my comments about Boeing opening a second production line in SC last week.  In particular, they glommed on to one part of the puzzle and then shaped it to fit their own bias (hey, if they're accusing me of bias, can't I do the same?) - Boeing's often-times fractious relationship with its unions in the Seattle area.  Staff in SC will not be unionized (at least, not yet.....) and are apparently happy to work for eg $14/hr instead of eg $28/hr for comparable work in the Seattle area (again, at least for the present, who knows how long that will last into the future).

So - wow?  Half price labor in SC.  Is that a 'deal clincher' that would make any sensible company rush to SC?  Ignoring the fact that SC isn't yet jam-packed with companies who have closed down their operations in more expensive states, let's consider the importance of an apparently lower labor cost to Boeing.

First, only 19% of Boeing's employees are currently members of the International Association of Machinists and Aerospace Workers (IAM) - these are the main people who are affected by the plant location.  Another 13% are members of the Society of Professional Engineering Employees in Aerospace (SPEEA) - I don't think they are so much production line workers, and there are 2% of employees who are members of the United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) - I don't think they are involved in the 787 assembly either.

Next, in 2008 Boeing generated a total of $60.9 billion in revenues, and in 2007, $66.4 billion.  Total salaries and wages for the two years were $15.6 and $14.9 billion (25.6% and 22.4% respectively).

Let's do an immediate rough calculation from these first two points.  Total wage costs come to about 24% of total income.  IAM workers are 19% of the total workforce, and can be reasonably expected to earn less than the average wage earned by engineers, executives, etc.  So let's say that their costs are 16% of total wages.  If we halve the cost of IAM employees, this represents a saving of $1.25 billion in 2008 and $1.2 billion in 2007.  For sure, a billion dollars is a lot of money, but it is not quite 2% of the total revenue earned by Boeing.  So, first go-round suggests that halving the IAM labor costs represent a 2% overall saving/benefit.

But even this minimal 2% saving is an overstatement, because it assumes we are halving the cost of all IAM employees.  Only a very few of them will be replaced by half priced labor in SC.  The actual savings will be enormously lower than this.

We know that the 787 is unique in Boeing history, inasmuch as it is almost completely built elsewhere, by other unrelated companies.  Most Boeing planes have some componentry outsourced, but the 787 has just about everything outsourced.  All the Boeing production line employees do is almost literally bolt the bits together, and snap the connectors into place.  The Boeing labor content in a 787 is massively less than the labor content in any of its other planes (from memory, I think there is about ten times fewer Boeing man hours to assemble a 787 than to assemble eg a 777).  Most of the labor costs are incurred by the sub-contractors, and these costs are unaffected by Boeing's new production line in SC.

So the actual labor savings created by this SC production line become relatively trivial.

Another point.  Does Boeing really need to go to the lowest labor cost state in order to compete with Airbus - especially now with a soaring Euro and a falling dollar (which makes Boeing planes cheaper and Airbus planes more expensive)?  No, it doesn't.  France and Germany - where Airbus planes are built - are hardly 'right to work' low cost states.

I'm not saying Boeing is obliged to pay more than it should for labor, but I am saying that Boeing can't hide behind the need to compete with low cost alternate plane suppliers, because - at least for now - there aren't any.  Airbus' labor costs are almost certainly higher than Boeing's.

Now for a more fuzzy concept.  Companies surely have some degree of responsibility to - within fair limits - 'sharing the wealth', not just with their ever-more-highly-paid senior executives and their shareholders, but also with their employees and their communities.  If it is all about getting the absolutely lowest costs, every company will move its operations to China or some other third world country, and then, all of a sudden, the US will have next to no economy at all, which means that these same companies, while being able to produce things at much less cost, will suddenly find there's no market left in the US to buy the goods they've produced offshore.

In addition, all companies get 'free' benefits from the society they operate in.  That society educates the people who become the company's employees, and provides a stable positive social structure to encourage the employees to be similarly stable and positive at work.

These are highly nuanced concepts (to steal a phrase from a former unsuccessful Presidential candidate), and I'm not saying they are deal maker/breaker issues.  But I am saying there is more than merely finding the lowest cost workforce to be considered by companies.

Talking about social responsibility, it is certainly true that Boeing has suffered greatly from its poor relations with its unions.  But, just like in a marriage, a breakdown in a relationship is seldom exclusively the fault of only one party.  Yes, Boeing's unions might be seen as greedy and obstructive, but when and how did this happen?  Boeing's relationship with its unions has evolved over decades, and Boeing has allowed the greed to develop (should there indeed be greed present) and has mismanaged expectations consistently in the past.

How can any company expect its unions to be content when the union members see an increasingly out of touch senior management paying itself more and more, with the differential between shop floor staff and executive pay rates increasing and increasing, and at the same time, seeing the company as a whole being profitable - is it no wonder that the union members feel that they are being unfairly excluded from the 'wealth creation' that the company is enjoying?

Boeing's management must accept some share of the blame for the fractious union relationships it currently has, and one has to wonder how it is that this same management will create a perfect problem-free work environment in SC when it has so abjectly failed in WA.

None of the preceding analysis has considered the harder to quantify inefficiencies of creating a second production line some 3000 miles distant from the first production line, and the same distance away from where all the engineering resource is located (and let's not forget the strange decision to move the headquarters to Chicago - surely not a low cost location).

One more comment about this.  Remember General Motors and their bold brave project - their new Saturn brand of cars?  Hailed as a way to revolutionize the way cars were built in the US, GM turned its back on high cost unions in Detroit and opened a new manufacturing plant in low cost Tennessee, and followed what it believed to be 'best practices' modeled on what the successful Japanese auto manufacturers were doing.  Look at what has happened to GM and in particular, what has happened to Saturn.

GM is on life support and is a beneficiary of the Federal Government, which now owns 60% of the company.  As for Saturn - what was once claimed to be the future of GM and the way it designed and built and sold and supported cars?  It is being completely closed.  GM doesn't want it, and neither does anyone else.  The total Saturn concept has been a failure, notwithstanding its location in a low cost state.

Sometimes the problems in a company go way beyond their labor costs, and surely Saturn is the clearest example of this.

Boeing too has problems that transcend the cost of labor to assemble its kitset 787s, and by creating a new production line in SC, Boeing is attacking a minor symptom rather than the major underlying cause of its malaise.

To give specific example to underscore this; opinions differ widely, but I've seem some analysts estimate that Boeing has currently incurred about $5 billion in extra costs due to the delays in its 787 program.  With many of us not believing the current official Boeing timeline for the 787's entry into commercial service, and instead fearing there are still further delays yet to be announced, this cost could continue to escalate who knows how much further.  These many billions in costs are orders of magnitude greater than any labor savings that could be incurred in the new production line in SC.

So, my suggestion to Boeing is :  Go ahead and open production lines wherever you like, because it really won't make much difference to anything.  But, please, close down your Chicago headquarters, and reopen a new headquarters, perhaps also in SC or perhaps in a third world country.  Don't just now pay your production line workers half the previous rate.  Staff your executive offices too with people at pay rates half those you're currently paying.  Your biggest costs and your biggest problems are nothing to do with the people on your production floor.  They're related to the overpaid underperforming people in your management structure.

Here's an interesting story - Warren Buffett - 'The Sage of Omaha' - is making possibly his biggest ever acquisition, spending $26 billion to buy the BNSF freight railroad.  His very powerful vote of confidence in the future of rail freight, however, should be seen as bad news rather than good news for passenger rail.

One of the terrible things that happened when Amtrak was formed to take over passenger rail services is that it lost any ownership of any track (apart from its Northeast corridor), and relies on finding available schedule time on the freight railroads to run its services.

With rail freight volumes increasing, it is getting harder to fit passenger services onto the same routes.  And, of course, freight focused railroads will never have any great interest in improving their track and signaling to allow for more comfortable smooth rides and faster services for passenger trains - indeed, the faster passenger trains, the harder it is to fit them in the gaps between freight trains.

Think of it like a freeway.  If you're on a three lane freeway with light traffic, it is easy for you to weave in and out of the lanes, taking advantage of gaps in traffic and to speed past the other cars.  But if there is dense traffic, you're stuck in your lane, going at the same speed as everyone else.  With fewer 'gaps' between freight trains, there is less opportunity to add faster Amtrak services - always assuming, of course, not only that Amtrak could operate any faster services, but also that it was wanting to add extra passenger services.

America's passenger rail future necessarily lies in the realm of creating new high speed track separate from existing low speed freight routes.

As an aside, this article is interesting inasmuch as it indicates a surprisingly high cost to merely renovate a train carriage - just over C$1.5 million.  Wow.  You don't get much for a million dollars these days, do you.

Reader John writes in with an interesting experience :

I recently booked a room near LaGuardia Airport at the "Lexington Marco LaGuardia Hotel", a hotel that I had never used before. The facility is very nice and the customer service staff exceptionally gracious. I was picked up by their courtesy van and delivered safely to the hotel a bit before noon.

At check-in, I was told that check-in time was 3:00 PM. I was aware of the policy and it has been my experience that if there was a room available, I would be allowed to check in. The same was true here but with a little twist.

The clerk informed me that I had two choices. I could check my belongings and return for a room after 3:00 PM or, for an additional $20.00, I could take one of the rooms that were actually available at the moment. The room was clearly made up so there was no special service that needed to be done. Nevertheless, someone in this organization, saw it as a revenue producing opportunity to extract money for something that was previously simply a courtesy that had no incremental cost to the business.

What's next? Care to speculate?

That's a terrible shift in hotel policy, and is very different from an airline now charging for meals or bags.  With the airline, it incurs a cost to fly your bag or feed you, and it has decided to take out that cost and charge for it separately.  But a hotel incurs no extra cost no matter when it allows guests to check in to their rooms, once they have been prepared.

This is a nasty new concept, and if hotels are now considering this, what will be next?  We all love to joke and speculate about pay toilets on planes, maybe we'll find pay toilets in our hotel rooms?  Electricity meters you have to put coins in?  An extra fee for every towel and sheet changed.  The 'extra revenue opportunities' are limitless, aren't they.

One of the more controversial practices in many countries around the world is charging a higher price for foreigners than locals to visit various attractions.  This is particularly prevalent in poorer countries, and it often arouses the ire of foreigners if they should find out that they're paying maybe ten times the local price.  Museum admissions might be $1 or less for the locals and $10 for foreigners.

But did you know that such practices occur in the US, too?  For example, in Florida, many of the attractions there will charge in-state residents a flat fee for a year of unlimited visits, with the price of a year of visits sometimes being the same as the cost of a single day pass for out of state visitors.  For example, SeaWorld Orlando has just raised its one day ticket to $78.95, but a full year 'Fun Card' for local residents is only $69.95 if prepurchased online or $74.95 at the gate.

I can actually understand and sympathize with countries who allow their residents a lower admission to attractions, particularly if those attractions are supported by the locals' taxes.  But it is hard to see the fairness in the policies at SeaWorld (and not only there) - and remember next time you're stuck in one of those interminably long lines waiting for a ride, perhaps part of the reason the line is so long is because a large number of the riders in front of you got into the park for free.

Here's a very important and useful tip from reader Suzanne.  Although she writes about her iPhone, most modern phones have the same telltale indicators on them :

I bought my iPhone last fall.  It totally stopped working about 6 months later.  When I took it in to get it diagnosed, they stuck a little magnifying glass gizmo in it.  There is a layer of some sort of substance that had turned pink, which meant that the phone had been wet at some point in my owning it, and as such, was not covered by warranty. I had to spend anther $200 to get a new phone.

For the life of me, I could not think of ANY way that I had gotten that phone in any kind of water.  About a month ago, I figured it out.  I used to always put the phone on my bath counter when I get ready for work.  In taking a shower (especially in winter) the bath room fogs up w/ condensation, which I now realized was seeping into my phone, day in and day out.  It took awhile, but finally that condensation accumulated enough to trigger the warning indicator.

I don't know if the condensation also caused my phone's problem or not, but I do know I am not the only person who takes the phone into the bathroom when they shower.  Please warn people not to do this, because they might be unknowingly voiding their phone's warranty.

This Week's Security Horror Story :  A couple in the Phoenix area apparently managed to steal a thousand (or possibly even more) suitcases from arriving baggage carousels at Phoenix Airport, taking them one or two at a time over an unknown period.  Details here.

The moral of this story is to get to the baggage carousel before your bags do, and to position yourself closer to where the bags first appear on the carousel rather than somewhere on the other side such that your bags are, for some time, obscured from you.

You should also choose not to buy generic black colored bags the next time you're buying suitcases.  It is easy for one black bag to look much like another across a crowded baggage claim area, and close on half of all bags are black.  Get any other color bag and you'll make it enormously easier to spot your bag.

And whether your bags are black or not, consider adding conspicuous tags to them to make your bags more visible to you and to everyone else.  It seems a likely assumption that a luggage thief will always seek to take a very plain ordinary generic bag - anything you do to make your bag stand out will decrease your risk of having the thief take your bag.  My bags are always prominently marked by these excellent bag tags.  Yours should be, too.

Of course, not all luggage thefts involve the total loss of your bag and its entire contents.  Sometimes something may be pilfered from inside the bag by an airport employee during the time the bag is out of your sight and in the airline/airport/TSA care.  Did you know that you have a limited amount of time from when you collect your bag at the end of your journey until when you are required to lodge claims for stolen items with the airline?

Here's an interesting article that includes a table of how long you have to report losses.  It varies by airline.

Here is a very thoughtful article about making the TSA more accountable, written by a recently retired Assistant Chief of Police in MD.  Many of the reader comments that follow the article are very sensible too.  Well worth reading.

I'll be in Britain next week, having flown over on BA's intriguing new flight to London City Airport this coming Sunday, so the timing of next week's newsletter may be a bit uncertain.

Until then, please enjoy safe travels

David M Rowell aka The Travel Insider

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