Friday 25 April, 2003

Good morning, and very best wishes for this Anzac Day - a solemn day of remembrance for me and all other New Zealanders and Australians around the world.

Wednesday/Thursday saw me breaking one of my cardinal rules of travel, and this newsletter is hopefully not too severe a casualty of such malfeasance.  I flew Seattle to London on Wednesday night, and then immediately upon arrival at Heathrow, hired a rental car and drove 300 miles to St Ives on the south western tip of England.  A very long and tiring day indeed.  Normally I recommend that you should never collect a rental car and drive a substantial distance immediately after a long international flight.

I flew BA World Traveler Plus (their equivalent of Virgin's Premium Economy) to London, which was not nearly as nice an experience as my last flight from London, which saw me enjoying the pampered luxury of Virgin's much admired Premium Economy class.  This realization dawned on me during the 38 minutes I waited in line to check in (Virgin offer a special priority line for their Premium Economy class) and again as I waited still further to be last on the plane (BA amazingly chooses to board their Premium Economy passengers last, Virgin board theirs first).  And, alas, upon finally getting on board, there was no friendly welcome from a smiling flight attendant, offering a glass of champagne.  Instead, the BA crew ignored their Premium Economy passengers entirely.

 Remembering back to that lovely experience prompted me to complete my series of reviews on the competing Virgin and BA services.  There are now four reviews on the site, one each for BA's Premium Economy and Business Class cabins and one each for the similar Virgin Atlantic products.

This Week's Column :  A Truly Upper Class Experience :  Airlines charge thousands of dollars more for international business and first class travel, but many seem to have difficulty in providing a level of service to match their high fares.  Happily, and based on my recent flight experience with them, Virgin Atlantic Airways give their 'Upper Class' passengers a splendid experience in all respects.  Read more about how good they are, in so many ways, in this week's feature column.

Although Virgin's Upper Class is great, it is admittedly not as wonderful as BA's Concorde service (but imagine what would happen if Virgin takes over the Concorde flights!).  Good news for those of you wanting to take a Concorde flight - as predicted last week, BA have announced another Concorde sale, with fares ranging in price from $4000-$7000, depending on how you fly the other half of the roundtrip.

And while BA have proudly announced their Concorde fares, it seems that, in the UK, they have not so proudly not announced the introduction of a new 10 ($16) surcharge on all non-internet bookings.  Although it has been common for some time that most airlines will advertise a price and then offer an 'internet booking discount' off that price, this is a nasty turn where the advertised price now attracts a surcharge if one chooses to book over the phone with the airline directly.

Last week's column was about travel pouches to hold your tickets and ID in.  I described several $10-$20 pouches.  Thanks go to reader Peter who pointed out a 95c travel pouch on sale at Southwest Airlines' online store.  An amazing price for something almost as good as the $10-$20 items!

Even more amazing is that Southwest have just reported that they earned a $24 million profit in the first quarter of this year.  Yes, at the same time that the dinosaur airlines have bullied Congress into giving them billions of dollars of free cash, Southwest demonstrates that airlines can be profitable if they are well managed.  Southwest's revenue increased 7.5% compared to the same quarter in 2002, and, incredibly, their 'yield' - the average value of ticket they are selling - has also increased compared to last year.

Last year Southwest made $21 million in profit for the first quarter, and so for 2003 (including all the Iraqi war related problems in March) Southwest actually increased its profit by 14% compared to last year!

This totally contradicts the dinosaur airlines and their claim that the entire airline industry is in critical shape.  The entire airline industry is demonstrably not in critical shape.  Sure, the dinosaurs are truly living out their last moments - Delta lost $466 million in the first quarter, Northwest lost $396 million, Continental lost $221 million, and American lost an incredible $1 billion, but the airline industry as a whole still has plenty of upside profit potential.

Deathwatch Part 1 - United :  UA is testing the concept of selling meals on its flights.  $7 will buy you a breakfast and $10 will buy you a lunch or dinner.  This is an oblique way of increasing your fare by $7-10 per segment (ie by charging for a meal that once was free), and although Bill Dove, UA's director of worldwide catering describes the meals will be of 'restaurant quality', he doesn't tell us which particular 'restaurant' he had in mind when making the comparison!

Financially, bankrupt UA seems to be treading water successfully, and it appears it will be able to meet its target ratios for May so as to keep its financing in place.  This is actually  more of an achievement than it seems, because its targets were set before the Iraqi war was expected, and so being able to continue to meet its goals, even with the effect of the Iraqi war (and SARS, too!) is a positive achievement.

But United has incurred an unexpected additional $3.2 million cost.  UA agreed to pay the government and a whistle-blowing former employee this sum to settle allegations that it provided substandard maintenance work on military transport planes for the Air Force.

Although United denies all allegations, it also agreed to pay $3.2 million, which makes it a rather weak sounding denial!

Deathwatch Part 2 - American :  Some airlines deserve to be bankrupted and liquidated.  Consider this.  Most of every day, a roundtrip flight between Chicago and Miami - both AA hubs - will cost you about $600 in coach class.  But at certain times of day, AA only charges $270 roundtrip.

What is so magic about these particular flights?  Those are the times when Southwest also offers low priced flights on the route.  While fair open competition is a good thing, and of course AA should be allowed to match competitors' fares, doesn't it seem hypocritical to try and claim that a fair fare between these cities is $600, except for the times of day when Southwest has scheduled services?  AA's costs are the same at all times of day.  If it can afford to fly passengers for $270 at some times of day, why can't it afford to do this at all times of day?

This is one of the parts of the dinosaur fare-pricing model that has earned them the enmity and lost them the trust of their passengers.  Come on, AA - what is the proper price - $270 or $600?  Make up your mind, and then stick to it, throughout the day!

At the time of writing this there has not yet been a resolution of AA's union negotiations and related problems.  Seemingly immediately after the last union vote was counted last week, AA filed with the SEC details about both a special protected pension fund for senior managers and also retention bonuses given to its senior managers.

Although AA claims it needs to pay these massive bonuses to stop its best senior managers from abandoning it, this claim sounds ridiculous to me.  Just how many high-powered high-paying jobs are there for middle aged and older senior airline executives, who show on their resume the proud distinction of helping their last company to lose billions of dollars to the point of bankruptcy?  Would you want to hire such a guy?  I very much doubt if Southwest would want to hire the executive that plays games with the fares between Chicago and Miami!  And, last I looked, none of the other dinosaurs were aggressively hiring more managers, either!

It is hard to comprehend the validity of the need to pay these people retention bonuses.

The unions quite rightly were outraged to learn that at the same time they were being asked to give back salary entitlements, the senior management were quietly feathering their own nests.  AA CEO Don Carty weakly protested that he had told the unions some details of these schemes, a claim that the unions hotly denied.  He then made a public apology for exercising bad judgment.  The retention bonuses have been cancelled, but the special protected pension fund remains.

And then it started to get really interesting.  It now appears that he may not have accurately informed his fellow board members about what was happening, either.  At the time of writing this, former CEO Bob Crandall has indicated that he would be available to return to AA to replace his successor, and rumors from well informed sources are flying about the board potentially firing Carty.  American spokesman Bruce Hicks said on Tuesday night that he would not "respond to the speculation that is floating around right now, some of which is quite ludicrous."

Meanwhile, all three unions are talking about rescinding or revoting on their agreements with AA, and the airline seems to be in a worse mess than ever before.  Scenting blood, the pilots' union has now called for Carty's resignation, and then one director publicly joined in.  And the rumors of a Chapter 11 filing have reappeared as well.  Stay tuned for further details, because the final chapter in this saga has yet to be writ!

Stop Press :  Don Carty resigned, late on Thursday.  With the union agreements still unresolved, speculation is mounting about a possible bankruptcy filing, possibly as soon as today.

And, in the middle of all of this, American admitted to losing more than $1 billion in the first quarter, with slightly lower revenues as well.  With losses of $1 billion a quarter (an annual rate of $4 billion) it is hard to see how an annual reduction of $1.8 billion in staff costs will be sufficient to enable the airline to return to profitability.

Deathwatch Part 3 - Delta :  The airlines seem to take a perverse pride in their perilous financial positions at present.  In an extraordinary interview with the Atlanta Business Chronicle, Delta's EVP and Chief Marketing Officer Vicki Escarra said that they are operating 'not day to day, but hour to hour,' to keep the company out of bankruptcy,  'In 30 years in the airline business, I've never seen anything like this,' she told the Chronicle.  'And it's not going to come back anytime soon.  We've taken hits in the past, but this is worse.'

Why does she tell us this?  Does this inspire confidence in you that Delta would be a good airline to fly in the future?  How do you feel about building up a balance in a Delta frequent flier account, knowing that they are, hour by hour, struggling to avoid bankruptcy?

One remarkable attribute of the dinosaurs is the way they slavishly copy each other in almost every respect.  It now seems like Delta is feeling left out of the 'severe financial trouble' stakes and wants to quickly catch up - perhaps to justify its share of the government cash.  It reminds me of the Monty Python sketch when several old men reminisce about how hard life was in their youth, with each of them offering a series of increasingly exaggerated statements about how improbably difficult it was.  The dinosaurs as a Monty Python sketch?  Perhaps so!

And now for a complete change of attitude.  According to their chairman, Swiss International Air Lines does not have a liquidity problem and its chief executive is doing a good job.  There's only one slight problem that he overlooks - last year, Swiss lost almost a billion Swiss francs!  That is doing a good job?  Maybe by dinosaur standards, but I doubt that Southwest Airlines, or JetBlue, or AirTran would be very pleased with such a result.

Incidentally, AirTran also reported their first quarter results this week.  A $2 million profit - not a huge amount, but definitely better than a $1 billion loss at AA!  Last year they lost $3 million in the first quarter, so (and just like Southwest and JetBlue) they too are doing better this year than last year.  Passengers carried were at a new record high for the company, and operating costs declined - even after allowing for increased fuel costs!

Other airlines also reported their first quarter results.  Alaska Airlines reported a $56 million loss, but this was an improvement on their $85 million loss last year.  Passenger revenues grew close to 20% in the first quarter of 2003.

America West reported a $62 million loss, compared to a $274 million loss the previous year.

With Iraq security related fears receding, many people are again thinking about some international travel this summer.  Last December I reviewed the Gemutlichkeit Travel Newsletter - an excellent monthly publication crammed full of sensible advice for potential travelers to Germany, Austria and Switzerland.  Gemutlichkeit have just this week launched their new website, and to celebrate, publisher Bob Bestor is offering all Travel Insider Newsletter readers a free trial access to the incredible amount of information on his site.

The new site already includes a generous helping of free information, and then has a 'members only' section with a wonderful searchable database of back issues of his newsletter and other helpful information.  If you're thinking of travel to this part of the world, quickly go to his website and you can log in to the member only area, for free, any time up until Sunday midnight.  Use the ID of 'free' and the password '48hours' (without the quote marks).  You'll save yourself the normal $24 access fee and get full access to everything.  Of course, if you like what you see, you should consider then signing up for ongoing access and the monthly newsletters.

Wi-Fi Good News :  I've earlier predicted that Wi-fi costs would reduce, and am now being proven correct for the second time within three months.  Leading Wi-fi connectivity provider T-Mobile has announced a new plan - unlimited Wi-Fi access, anywhere in the country, for only $19.99 a month!  At this price point, Wi-Fi becomes very attractive indeed.  There's only one catch - you have to have T-Mobile cellphone service, too.  But that isn't a great drawback - full details here.  My T-Mobile 'mole' proudly tells me that he was in a Starbucks this week that had eight people all using the Wi-Fi service - it is amazing how quickly it is catching on.

Good news for train lovers in the northeast.  Amtrak is cutting its fares 22% on its Boston-New York services.  This will bring the cost of a one-way peak travel ticket down to $99, compared to about $200 on an airline shuttle.  Of course, the Amtrak journey takes 3 1/2 hours, but when you add the extra time to check in, perhaps collect baggage, and travel to and from airports to the 45 minutes of actual flight, the total travel time isn't much longer, and the comfort (and/or ability to work productively) is much greater.  Currently approximately 37% of all people traveling between these cities take Amtrak, and the railroad hopes to gain more market share with its lower fares.

I've been worrying for several weeks now about the impact of SARS on cruise lines.  On Tuesday one of the cruise lines banned passengers from the Toronto area, a first taste for Canada of the near-pariah status already being experienced by Hong Kong and China.  Our knowledge of SARS continues to make this infection more troubling with every passing day, while our ability to easily cure and prevent it remains as elusive as ever.

I was surprised and disappointed to note that it was 'business as usual' in Heathrow - there was no sign of any SARS screening at all.  With SARS now being described as worse than AIDS and a prediction of one billion cases within 60 weeks if drastic measures aren't taken, we need to become pro-active rather than reactive if we are to control this new international 'plague'.

This Week's Security Horror Story :  49 year old Ian Sharrock flew from Manchester to Spain and back last week.  He showed his passport, of course, before being allowed to board the plane in Britain, and then again to pass through Immigration in Spain.  Then he showed it again on his return travels.  In total, he had to show his passport at least six times that he can remember.

It was only when he completed his travels that he revealed that he had mistakenly taken his teenage son's passport instead of his own.  His son has a different name, and of course a different date of birth and appearance, but none of the security checks detected this!  An airline spokesman described this as a 'rare oversight'.

Another drunken airline pilot.  An American Eagle pilot was taken out of his cockpit and breathtested, with the result recording a 0.12 percent level - three times higher than the legal maximum.  Hopefully, we wasn't one of the 44 pilots that graduated this week from the first firearms training course, and who can now carry .40 caliber pistols onboard with them.

Lastly this week, there's surely something wrong when an airline can't even give their tickets away.  Irish discount carrier Ryanair held a special Easter sale, giving away one million free seats.  Only 500,000 of the seats were taken.

Until next week, 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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