Friday 14 November, 2003

Good morning.  Are we already within a couple of weeks of Thanksgiving?  Time is passing ever more quickly.

My new 'toy' - the Palm Tungsten T3 I reviewed last week - is starting to grow on me.  Yes, there's been a steep and extended learning curve that I did not expect, but after having persevered - and, most importantly, upgraded my T-Mobile mobile phone service to give me full unlimited GPRS - and after adding some extra software and accessories, I'm starting to like it.

I'll write a part two of the T3 review in a few weeks, discussing how to customize a PDA for maximum effectiveness.

And, talking about part twos, this week's feature article follows on from my excitement at discovering practical workable VoIP phone service a couple of months ago.  I've now reviewed a competing product that is even lower priced than the Vonage product reviewed before (which has also dropped its price meantime).  How long before all long distance phone service is free?

This Week's Column :  Unlimited Phone Service for $20/month :  Sounds too good to be true?  Not with Packet 8's VoIP phone service.  Read my positive evaluation for more information on this great deal.

Dinosaur WatchingUnited wins some deserved praise for helping support US soldiers coming home on leave from Iraq.  As you probably know, soldiers are not being transported all the way to their home towns for their brief leaves, but just to Baltimore, Atlanta or Dallas.  United is donating 10 million frequent flier miles that can be used for award travel, and says it will match, mile for mile, donations from its Mileage Plus members, up to 5 million more miles.

10 million miles sounds like a lot, doesn't it.  Alas, when you do the math, it reduces down to a mere 250 - 400 free domestic tickets.  The impact of even 400 free tickets on an airline that operates about 3300 flights every day, and with perhaps 50,000 empty seats a day, is of course immeasurably small.

On the other hand, here's a truly heartwarming story about individual people giving up their seats on planes for returning soldiers.  Whatever we all might think about the Iraqi situation, it is very good that we're not blaming the soldiers for actions we might not personally support.

I wrote last week about the truly stupid actions on United's part to launch their new discount airline, to be called 'Ted'.  Why Ted?  Because (and UA had to explain this) 'ted' is the last part of the name 'United'.  I guess it makes sense to someone, but I sure hope the guy that it makes sense to isn't piloting the next plane I'm on!

But, the story gets even stupider.  You'll remember that US Airways and United tried to merge a couple of years ago, and eventually had to settle merely for code-sharing.  On Wednesday, US Airways CEO David Siegel said that his airline is also considering the establishment of a low fare airline, and it has been given a working name of 'Bill'.

Trust me - you don't want to know why US Airways chose the name Bill.  But, there you are, continuing to read, so here's the reason :  Siegel explained 'Bill, is expected as an extension of our alliance with United Airlines--Ted and Bill's excellent low-cost alliance'.  This is apparently referring to the 1989 comedy movie 'Bill and Ted's Excellent Adventure' that featured two idiotic teenagers and their bumbling misadventures.  The more cynical of us might think that perhaps this is indeed an appropriate role model for these two airlines.

Not everyone is chasing the fool's gold of creating low cost carriers.  I'm told that AA is actually not at all interested in such an undertaking at present, and Continental's President and COO Larry Kellner went on the record to say that CO will also not be creating a low cost carrier.  CO had earlier experimented with Continental Lite, an operation that only lasted for two years in the mid 1990s.

And the best low cost carrier story of the week?  Even funnier than 'Bill & Ted' is this website that talks about a possible new startup called Lue.  Definitely worth clicking over to read.

The amazing vanishing airline stock?  Well, what is most amazing is how long it has taken Air Canada's share price to evaporate.  It should have surprised no-one when AC said over the weekend that it plans to exit its present bankruptcy protection with a new equity structure that will give only a 0.01% stake to present shareholders.  0.01% is one ten thousandth of the original number.  So, logic would suggest that the share price prior to its bankruptcy would now drop down to about one ten thousandth of their earlier price.  The shares had been trading at about $2-3 shortly before bankruptcy, and so should now be worth perhaps a thirtieth of a cent each.  Even allow for some good news, and it is hard to see the shares being worth a single cent each.

After this announcement was made over the weekend, the share price actually increased on Monday (to about $1.20)!  There must be some incredible optimists that own AC stock.  However, on Tuesday, a sell off started, with the price dropping to about $1.05 at the close, and Wednesday, on sharply increased volume, the price dropped to 84c.  But on Thursday, with volume ten times normal, after first dropping as low as 56c, the price firmed in the second half of the day and closed at 68c.

Aerospace analyst Cameron Doerksen in Montreal said on Wednesday 'I think the realization is going to start to kick in that, at the end of day, the value of the shares is really zero'.  Amen to that.  This might be a great share to short.

Although it is generally agreed that the airline industry has 'bottomed out' and that the future is likely to show improved results, reversing that downward momentum can take time.  BA has just reported a massive 80% drop in pretax profit for the six months April - September 03 compared to same time last year (310 million down to 60 million).

 Earlier this month, Sir Richard Branson tried to heap further pressure on BA when his Virgin Atlantic airline stated an objective of taking 100m of transatlantic sales from BA over the next year.

Closer to home, Delta projected its fourth quarter loss would be about 50% larger than earlier forecast, due to pension plan costs caused by a large increase in pilot retirements.  Its earlier forecost of a $225-275 million loss has been revised up to a $365-415 million loss.

But all is not gloom and doom.  High flier JetBlue continues to show that adding services, not cutting them back, is the secret of its extraordinary success.  Its latest customer service addition is free Wi-Fi access in its JFK terminal.  Free Wi-Fi access removes a lot of the pain from an otherwise wasted period of time waiting at the airport for one's flight.  Well done, JetBlue.

And Frontier Airlines had good news this week, too.  Hot on the heels of winning more gate access at Denver, it has now earned FAA approval to be designated as a US flag carrier.  This makes it easier for the airline to add international routes (eg to Mexico) to its schedule.

Frontier says it took six months to gain this status, and they needed to show proof of compliance with an additional 87 Federal Aviation Regulations as part of the process.

It has also been a good week for Boeing (for a change).  It picked up a nice order for 30 737s from the Chinese Government, and also had its controversial 100 tanker order from the US Airforce finally approved.

Boeing is talking more confidently about its new 7E7 plane, and they are now firming its design specification.  There will be a 200 passenger model (it could hold up to 300 passengers if in an all coach cabin) and a larger 250 passenger model.  The plane would probably replace both the now discontinued 757 and the aging 767 as well.  From a passenger point of view, the cabin is slightly roomier, with larger windows and wider aisles, and Boeing says that the plane will be designed to provide a more humid atmosphere, making it less physically stressful on long flights.

Boeing still lacks a launch customer for the 7E7, and has yet to receive its Board's approval to proceed with the plane's development.  And a large component of its claimed competitive advantage - greater fuel efficiency - is represented by using new latest technology jet engines, not by any proprietary Boeing airframe magic.  Airbus has already said that it will simply use the same engines on its existing planes to obtain similar fuel savings!

Talking about plane operating costs, here is an interesting table that shows how the typical US airline spends its money.  A quick glance at the table shows that costs have actually been surprisingly stable over the last 21 years, with many costs having actually reduced, including food and beverage, maintenance (!) and fuel.  The biggest increase in actual costs is in labor (210%) but haven't most of us at least doubled our incomes in the last 21 years?

Air Transport Association Quarterly Airline Cost Index

Airline Cost Index
Second Quarter 2003

(Source:
 DOT Form 41)
Index
(1982=100)
% Change
Yr/Yr

(Same Qtr)
% Change
Qtr/Qtr

(Annualized)
Cost
per ASM
(Cents)
Share of
Op. Rev.
(Percent)
Share of
Op. Exp.
(Percent)
LABOR per FTE 210.4 6.9 8.2 4.07 38.1 37.1
FUEL per gallon 80.7 18.4 (42.8) 1.39 13.0 12.6
AIRCRAFT OWNERSHIP per operating seat 316.5 7.9 63.4 1.10 10.3 10.0
NON-AIRCRAFT OWNERSHIP per enplanement 229.8 6.2 (21.0) 0.60 5.6 5.5
PROFESSIONAL SERVICES per ASM 306.3 9.4 24.0 0.97 9.0 8.8
FOOD & BEVERAGE per RPM 76.4 (15.1) (20.8) 0.23 2.1 2.1
LANDING FEES per capacity ton landed 214.0 10.9 (4.0) 0.25 2.3 2.3
MAINTENANCE MATERIAL per revenue aircraft hour 92.2 (29.6) (60.2) 0.17 1.6 1.5
AIRCRAFT INSURANCE as % of hull net book value 61.2 (34.8) (64.6) 0.02 0.2 0.2
NON-AIRCRAFT INSURANCE per RPM 591.1 (16.4) 5.5 0.12 1.1 1.1
PASSENGER COMMISSIONS per RPM 28.2 (27.4) (15.9) 0.18 1.7 1.7
COMMUNICATION per enplanement 119.0 (6.1) (43.2) 0.15 1.4 1.4
ADVERTISING & PROMOTION per RPM 42.2 (11.7) 33.9 0.10 0.9 0.9
UTILITIES & OFFICE SUPPLIES per FTE 123.8 (0.0) (31.4) 0.10 0.9 0.9
OTHER OP. EXPENSES implicit GDP deflator 169.3 1.5 1.0 1.53 14.3 13.9
INTEREST* as % of outstanding debt 51.6 (5.8) (24.8) 0.38 nmf nmf
COMPOSITE* 191.3 2.7 18.9 10.97 102.6 100.0
*Although interest is a non-operating expense, it is factored into the composite cost index because of the important role of debt in the provision of air service. It is not included in the composite cost per ASM or share of operating revenue/expense.

This Week's Security Horror Story :  A 64 year old respectable looking gentleman from Italy was selected for intensive secondary security screening while leaving JFK airport last week.  Who was this possible terrorist?  Romano Prodi, President of the European Union!

Let's understand one thing about being selected for intensive secondary security screening at an airport.  Every time the TSA focuses its attention on a non-terrorist, it takes away resource that could otherwise be better applied to more probable terrorists, or simply used to help normal people get through the security lines faster.  And, no matter how much any of us might dislike some of the EU's attitudes to the US at present, selecting their President for secondary screening makes no more sense than selecting someone like, for example, Al Gore.  Oh - sorry, Al Gore has also been selected for secondary screening in the past as well.  As has Bob Dole, and many other notable politicians.

Justice might be blind, but we shouldn't expect our security screeners to be similarly blind.

Another misdirected security effort occurred a massive twelve years ago and has only now been finally settled through the legal system, with a woman being awarded $350,000 as compensation for an unnecessary strip search and x-ray when she came back into the US and went through US Customs.  Details here.

When it comes to no nonsense straight talkers, Australians are definitely among the best.  And so it is no surprise to read what Qantas' Group General Manager for Security and Investigation Services told an Australian government committee on security.  He said that airlines could not give complete safety assurances, despite significantly upgraded security measures, and said the only way Qantas [or any other airline, of course] could give an absolute guarantee of safety would be to ground its entire fleet!

Why can't we understand and accept this fact in the US, and stop the occasionally ridiculous and impossible attempts for 100.000% security, and settle instead for 99.999%?  That last 0.001% is what is costing us all the billions of dollars and massive personal inconveniences, and, worst of all, we're definitely not succeeding in securing it.

But when we look at 'managing risk', that can be a slippery slope.  Here's a fascinating article about maintenance standards and problems at Disneyland.  My favorite quote - the McKinsey expert who asked why lap safety bars on a ride were inspected daily when records showed that they never fail.  The answer - they never fail because they are inspected daily.  And the scariest quote - allegedly from the Park President - 'We have to ride these rides to failure to save money.'

More drunk pilots.  Three BA crew members were arrested at Oslo Airport on Tuesday due to allegedly being under the influence of alcohol, causing the flight to be cancelled.  Passengers made their way to London on a later SAS flight.

Maybe drink had something to do with a curious incident on a CO flight earlier this week.  A woman was arrested after she allegedly tried to open the front door and leave the plane.  While it is easy to understand her impatience to get off the plane, it is harder to understand why she did this prior to the plane landing!  Houston police took her into custody for a mental evaluation once the plane did land.

Private enterprise is starting to creep back into airline security screening.  Airlines are hiring private security guards at La Guardia to take over from TSA employees between 11:30 pm and 4:00 am.  During this time no flights depart, and so the guards are merely controlling access in and out of the secured area rather than screening passengers.  A TSA spokesman said 'It's a way we can avoid increased costs due to overtime'.

Lastly this week, as many readers know, I travel regularly to Russia.  But, all of a sudden, Moscow seems like a much less friendly place, as this article reveals.  The city authorities are proposing a ban on all kissing in public places.  A local newspaper added that 'particularly blatant cases could even lead to a spell of temporary detention in jail'.

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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