Friday 4 April, 2003

Good morning, and a special welcome to AOL members.  Many of you have not been getting your weekly newsletter, due to a challenge as to how AOL has been handling these emails (thinking they were spam, but not telling either me or you that they were deleting them).  That problem is hopefully now resolved.

Last week I wrote against the concept of giving the airlines another bailout.  Unsurprisingly, the airline lobby is more persuasive in Congress than I am, and it seems they'll be gifted as much as $3 billion.  Although the President does not support this, the funding will likely be attached to the $74 billion war funding bill, forcing him to accept it as part of the package deal.

Interestingly, the public in general seems to be overwhelmingly against more airline handouts.  A survey by Atlanta's Journal-Constitution found 82% opposed, and an airline themed website's survey found 91% opposed.  So much for democracy.

This week I offer an alternative solution to the crisis in our domestic airline industry.

This Week's Column :  Should We Allow Foreign Ownership of US Airlines? : At the same time that the domestic airlines are hoping for $3.2 billion in funding from Congress, foreign investors are restricted from buying into US domestic aviation.  Wouldn't foreign investment be better than another taxpayer bailout?  Read this week's column for the background on why domestic airlines are 'protected' against foreign competition, and what it means to us as travelers.

A classic example of the failure of such 'protection' laws was illustrated in Canada this week when the one remaining major Canadian carrier (Air Canada) declared bankruptcy.  Eight other airlines have failed in the last six years in Canada.  If what is almost the last airline, with a virtual monopoly, and in a country the size of Canada fails, surely the answer is less 'protection' rather than more!  The Canadian government's response is to refuse to review their own 25% limit on foreign ownership in Canadian airlines.

And airline competition in the US took a lurch downwards this week with the triple alliance between Continental, Delta and Northwest getting final regulatory approval.  The 'gang of three' issued this statement, which earns the accolade of 'Optimstic Overstatement of the Week'.  If you believe this, then, please, send cash to me soonest, I have some wonderful oceanfront property in Arizona for sale.

They said 'With the DOT's approval, the alliance will bring consumers lower fares, increased service levels and broader choices of destinations.'

Are we to believe that the main reason for seeking to gang up on us is so that they can give us lower fares?  Are airlines that are losing billions of dollars going to turn away from any possible opportunity to push fares as high as possible, whenever possible?  Have these three carriers suddenly become registered charities rather than for-profit corporations?

And, while we're giving awards, let's give this week's 'Those who can, do; those who can't, teach' award to Professor Gellman at Northwestern University.  He was quoted last week as saying 'the airlines need some relief from security related costs'.

Being as how there is not only considerable confusion (some would say deceit) on the topic of exactly how much the airlines ever have or presently are incurring in the form of security costs, and further being as how the airlines have been told by the government that their costs are frozen at 2000 levels (as discussed here), I was curious if Professor Gellman was perhaps the only person on the planet that actually knew what exact security costs the airlines are incurring. As part of an email, I asked him these two questions last Friday :

(a) What additional security costs have the airlines incurred compared to the 2000 baseline year? What are the actual security costs that the airlines are incurring (a question on which there seems to be considerable confusion)?

(b) Even accepting that they have incurred additional costs, why do the airlines deserve relief from what would seem to be an ordinary part of their business? Are you advocating that all businesses, everywhere, should be reimbursed for security related costs? Or just some? Or only airlines?

Would you be surprised to learn that he has not replied.

In general, the support for why we should give the airlines more money seems to be based on vague, unsubstantiated, and sometimes just plain wrong statements.  My conclusion at the end of this week's feature column is that we'd be better off to give the $3.2 billion to Sir Richard Branson and ask him to start up a 'real' airline with a reasonable chance of survival than to give it to the current stable of failing airlines, where it is likely to vanish without trace.

Deathwatch Part 1 - United :  Four airports on Monday agreed to give United Airlines a 15-day grace period before proceeding with eviction actions should the airline fail to make debt payments on about $1.7 billion in bonds.  UA says the payments represent unsecured debt which wouldn't be paid while it is in bankruptcy.  But representatives for the airports in Denver, Los Angeles, New York and San Francisco contend the payments must be made.  UA has about $16 million in payments due on April 1.  On March 1, UA missed a $3.2 million payment on bonds for improvements at Chicago's O'Hare and a $1 million payment on Miami-Dade bonds.

Yesterday (Thursday) saw United delisted from the New York Stock Exchange, due to its share price having dropped below $1 a share for a thirty day period.  United will now trade on the OTC Bulletin Board.

Deathwatch Part 2 - American :  American is the glamor child of the airline industry this week, with its stock price having soared as high as $4.50 - almost three times its level of last week!  An incredible last minute and very high stakes drama was played out on Monday, literally minutes before its otherwise Chapter 11 filing.  However, labor concessions encouraged the carrier not to file.

The $1.8 billion in labor savings AA has now secured may still not be enough to save it.  AA 'is still at risk for bankruptcy,' said James Corridore, a Standard & Poor's analyst. 'The industry environment is so poor right now that even with these labor cost reductions, they are going to be seeing large losses.'

AA CEO Don Carty agrees.  'Let there be no mistake, we're not out of the woods yet,' he told workers in a message on the company's Web site. 'There are still a few things we must accomplish in the near-term if we're going to avoid the fate of several of our competitors.'  Hmmm - what fate is that, I wonder, and which competitors?

Deathwatch Part 3 - Hawaiian Airlines :  In a very unusual move, Boeing Capital Corporate filed a motion with Hawaiian Airlines' bankruptcy judge asking that an independent bankruptcy trustee be appointed to replace the current management.  The motion contends that after receiving more than $30 million as their share of the government 'no questions asked' handout after 9/11, Hawaiian's management paid out more than $25 million via a tender offer in July 2002 as a "reward" to shareholders.  Members of Hawaiian's management and their affiliates received more than 69 percent of the payout, which occurred during a period of losses and a declining financial condition at the airline.  Boeing said their making such a request was something they'd never done before, but they feel it absolutely necessary, based on the actions of the airline's management.

This shows another reason why we shouldn't be giving the airlines more billions of dollars now.  Which of the airlines can honestly and accurately assure us that the $5 billion given to them eighteen months ago was wisely used?  And which of the airlines can assure us that an extra handout now will actually ensure their future survival, with no more need for further handouts?

Deathwatch Part 4 - US Airways :  Would anyone care to place bets on how long US Airways stays out of Chapter 11?  On Monday, they finally transitioned out of almost eight months in Chapter 11.  On Thursday, they announced that they posted a loss of $98 million in February.  They had earlier lost $99 million in January, and they are predicting a whole year loss for both this year and probably next year as well.  Which begs the question - how on earth can a bankrupt company, with massive losses both before, during, and now after Chapter 11, be allowed to 're-organize' and continue to lose more money?  Shouldn't it just have been completely liquidated and closed down?

US Airways upset Pittsburgh International Airport this week.  US has 77 of the 100 gates at Pittsburgh, and it announced on Monday - minutes before exiting Chapter 11 - that it needs less costly terms for its gate leases.  Its leases weren't set to expire for another 20 years.  Spokesman Chris Chiames said 'The impact of the war is deeper and broader than anyone anticipated, and the length of the war looks to be uncertain'.

The management of US Airways must be the only people in the entire country that are surprised at the impact of the Iraqi conflict on their business, and also the only ones that were expecting the war to have an exact length!

US is the controlling airline in Pittsburgh, and so the Airport Authority is very anxious about its future.  I wonder how the Authority would feel about welcoming in a new startup carrier owned by foreign investors, or if they too feel that the domestic carriers deserve 'protection'?  Unanswered is the question about who will, in turn, protect the hapless suppliers of the domestic carriers!

Deathwatch Part 5 - the entire airline industry (again) :  Continental CEO Gordon Bethune said that there is still too much capacity in the airline industry, and that at least one more airline needs to close down.  'Fifteen percent would be the right adjustment, that would be one airline' said Bethune.  He went on to say 'This is as bad as it's ever been.  I'm thinking about going into the shoe business.'  (Note to self :  Short sell stocks in the shoe industry.)

It might well be 'as bad as it's ever been', but that didn't stop Bethune from accepting a total remuneration package valued at $11,733,351 in 2002, $7,231,956 more than his remuneration for the previous year.

Now you might think that this looks like a massive increase.  Total package of $4.5 million in 2001, and $11.7 million in 2002.  But you'd be wrong.  The Associated Press released a story this week headlined 'Continental CEO gets smaller bonus'!  The bonus component of his total pay packet did indeed go down by $315,000, but isn't it misleading to headline a story this way when his total remuneration actually increased by a massive $7.2 million?

Not all is gloom and doom in the airline industry, however.  To listen to the way that the dinosaur carriers are trying to spin the news, you'd think that everything in the industry was crashing, but the reality is that the new breed of airlines are continuing to profitably grow.  In March Southwest had a 1.1% increase in passenger traffic, and said that results were negatively impacted - not by the war, but rather by the timing of Easter (in March last year, April this year).  Maybe this isn't the biggest year on year increase they've ever recorded, but it sure is better that the dinosaurs.

An international dinosaur (BA) on Thursday admitted to its own March results.  They suffered a massive 23.8% reduction in premium traffic, and a further 9.2% decrease in non-premium (ie discounted coach) traffic.  Ouch!  There is a reason why BA is hurting so badly.  As long time readers will know, BA's Customer Service is despicable.  Here's an example :

What happens if you've bought a ticket on a flight to Tel Aviv that the airline then cancels as part of their Iraqi war service changes? Well, the airline themselves (British Airways) issued a public statement advising that all tickets on such flights will be fully refundable, which is, of course, what everyone would expect. Simple and straightforward - yes? No!

One such affected traveler - BA elite level frequent flier Chaim Freiberg - tried to get a refund from BA for the JFK-TLV ticket on flights BA had canceled.  Notwithstanding BA's printed policy that refunds will be given to all such affected passengers, BA advised him that he would not get any refund at all!  Chaim made repeated calls to different people at BA, trying to find someone to understand and agree that if they cancel a flight, and if they say they'll give refunds to all passengers on the cancelled flight, well, that means that he should get his money back, for all reasons - fairness, BA policy, and quite possibly in general legal terms as well.

Eventually Chaim found a sympathetic person, and so Chaim sent in his ticket for the full refund he was promised and expected. On Saturday, he got a formal notice from BA's refund department advising that because his original ticket was non-refundable, he would not get a refund, even though it was BA that chose to cancel their own flights, and even though BA have stated in public that all people (with any type of ticket) on affected flights would be given refunds!

Those of us who currently hate most things French will be delighted to learn that Air France is having problems, too.  On Thursday it was forced to cancel 55% of its medium haul flights, but, alas, not due to massive cancellations from American travelers!  Instead, a strike by French air controllers has thrown all air traffic in and out of France into chaos, with other airlines also canceling services.  What a shame....

I first wrote about SARS two weeks ago.  At the time I wasn't sure if I was being alarmist or prescient.  Increasingly it looks more like I was being prescient, and notwithstanding the dubious suggestion by a fellow travel writer that passengers on flights could be protected merely by the airlines installing charcoal filters into their air systems (try telling that to a passenger when the person across the aisle from them is coughing all over the place!), the repeated images of 'space suited' medical workers decontaminating planes, and masked people everywhere, clearly shows that something much more serious is afoot.  It is now generally accepted that the disease seems to be passed on more readily than was first thought.  Even more troubling is that healthcare workers don't yet know exactly when a person is contagious - there is the worrying possibility they may spread their infection before they become visibly unwell themselves.

Many different countries are now advising everyone against travel to Hong Kong or mainland China (our own CDC also includes Vietnam and Singapore in its travel advisory of 29 March), and with the exact method of infection still unknown, and the exact cause of the disease also not yet identified, the total 'downside risks' of this new scourge have yet to be confirmed.  As I said two weeks ago, try to avoid travel on airplanes that may have been to the far east.

But, let's also put this into perspective.  There is another disease that jumped from ducks to farmers in the densely populated southern provinces of China, spreading via jet to the whole world within a year and killing half a million people. SARS? No ójust ordinary influenza.  As world health officials scramble to identify and contain the outbreak of Severe Acute Respiratory Syndrome, they are drawing constant parallels with flu, a much more familiar - and so far deadlier - foe.  SARS has killed an estimated 80 people and made 2,300 ill. In contrast, influenza kills anywhere between 250,000 and 500,000 people every year around the world. In the United States, with a vaccine and modern medical care widely available, flu kills at least 36,000 people a year.

This Week's Security Horror Story :  I first wrote about the danger to planes from SAMs in December last year (updated article here).  The good news is that the seriousness of this problem is becoming more widely acknowledged.  The bad news is that we're being reassured that our airports are being protected against such threats, when this absolutely is not the case.

This NY Times article suggests that the authorities would have us believe that giving local clam diggers mobile phones with which to report suspicious activities is all that is needed to protect us against a terrorist SAM attack that takes no more than 30 seconds from start to finish to stage.  And in New York, Port Authority spokesman Pasquale DiFulco proudly says 'We have certainly taken the necessary steps and precautions to address these issues'.  My contention is simply this - a SAM attack  is a threat which it is close to impossible to protect against, short of equipping planes with anti-missile technology.

One reader anonymously wrote in to describe the ridiculousness of the security measures in Tampa.  They said

Just thought that you may want to know that here in Tampa, we have another useless security measure in place. On the Airport Access Road, there is an exit for Tampa's main post office just a few feet before you get to a security check point. The check point is run by the Hillsborough County Aviation Authority's police force. Vehicles are being stopped at random and searched. To avoid getting searched, all one has to do is turn off at the post office exit, drive past the post office on a street parallel to the Access Road, and re-enter the Access Road on a ramp which is beyond the security check point. I guess that the airport managers think that terrorists are too dumb to figure this out.

Reader Rodney had an interesting comment about Air Marshals on planes.  He says :

As a 350,000 mile a year flyer, mostly on United (by the way, UA will not liquidate, I guarantee it) I upgrade all the time. I am also, usually, the first person on the plane. These Air Marshall's are already boarded when I get on, through the "backdoor" meaning up the stairs of the jetway.  Also, on an A-319 or B-737, they always sit in 2B and 2C on United ....ALWAYS..... it doesn't take a rocket scientist to figure out who they are and where they sit.

With that in mind, I am sometimes a little hesitant to sit in either of those two seats when I travel (I am on those UA planes at least 150 times a year) in case something does happen, because if it does, the people that do it, will be able to figure out the feds pattern, unless they change. I sat next to one (Air Marshall) Monday and we had a nice discussion....He was former DEA, and told me several stories....He knew I knew who he was when I asked him, "how many flights are you flying today".

So, bottom line is, if us seasoned travelers can figure out the habits (of these Air Marshalls) in a matter of a couple of months, what is to stop a terrorist from "scouting out the situation, and making adjustments to it?" The Feds need to make changes.....When I see them on my flights I can always pick them out every time. Granted, I used to work in the airline business and I am familiar with the "activity" in this area.

And reader Carolyn found herself unwillingly assisting in the training of new TSA screeners :

On Monday morning I was in line at the busiest security entrance at Detroit Metro.  I noticed a group of TSA agents gathered around each other at a closed security lane.  After watching them for about 15 minutes (the line was about 25 minutes long!), I realized that they were being trained by the man who was leading the group. After a few more minutes, they opened the security lane. Yeah!  A third lane to help move this "travel rush hour" traffic along, I thought.

Well, not exactly. These people needed to be trained, after all. So they stopped EVERY SINGLE PERSON who went through their line for extra searches!  I was the recipient of both a body search (for which I had to wait for a female attendant) AND a computer search.  When I complained about the additional time for these unnecessary searches, one of the trainees threatened to take even more time if I didn't shut up. Her exact words were "I can keep you here as long as I like, so don't try to rush me, lady." I guess she hadn't attended the customer service class yet.

I'm all for on-the-job training, but this particular plan seemed pretty insensitive to the Monday morning business travelers.

The interesting thing about Carolyn's experience is that at the same time they're hiring in Detroit, the TSA may be laying off as many as 3000 screeners in other airports.  This story tells how at one airport, 26 security screeners average one passenger every five hours!  It is estimated that screeners at a third of US airports check an average of only three passengers an hour.

However, the TSA has come up with a solution to their perennial problem of screeners falling asleep on the job.  Simple.  As this story tells, they have taken away the screeners' chairs!

Lastly, I get an awful lot of junk spam in my email, and sometimes I get a truly bizarre spam from someone describing themselves as a time traveler needing spare parts for their time travel machine.  With that as background, here's a strange story to mull over.

Until next week (or last week if you're a time traveler, perhaps), please enjoy safe travels.

David M Rowell aka The Travel Insider
ps :  Don't forget to visit Joe Brancatelli's site for his weekly updates, too.

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