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9 June, 2006  

Good morning

Our annual fundraising drive is now very close to the 500 contributor target.  485 readers have kindly contributed to this worthy cause - are there 15 more readers who might choose to bring us over the top?  Don't forget there are some nice benefits if you participate, and now one of the most popular benefits has improved for us all :

Generous Travel Insider supporter, Pro Travel Gear, is holding a Father's Day sale between now and Father's Day.  Everything on their website is 10% off.  And unlike most places that force you to choose between different discounts, they allow you to use both their Father's Day discount and also the up to 25% contributor discount on their top of the line Solitude Noise Cancelling headphones, increasing the pay back you get if you contribute still further.

Details of all the different contribution incentives can be found here.

One distressing element to receiving your contributions - two different people, using two different email services, politely asked if I'd got their contributions, because they were keen to get their benefits.  In both cases I had received and replied to them, but in both cases, their email filters decided to censor the email.  If you haven't heard from me, do let me know, because possibly my email to you has been intercepted too.

Misadjusted spam filters are killing the integrity of email.  We can no longer rely on emails we send being received, and more problematically, some shamefully incompetent email administrators mis-configure their spam filters so they don't send a non-delivery message to either sender or recipient when preventing messages from being received.

Are you going to Britain this summer?  With the pound up way high, even a short vacation can quickly become expensive, especially if you squeeze in a lot of sightseeing - and who goes to London just to stay in a hotel room and do nothing for a week?  Don't worry - help is at hand :

This Week's Feature Column :  The London Pass :  Offering free admission to 55 attractions and discounts at another 42, the London Pass could potentially save you big money on your sightseeing.  I analyze it and discover - to my surprise - that it indeed can bring about large savings in many cases.

Dinosaur watchingJoe Brancatelli is looking increasingly prescient when he lambasted United's future prospects as it came out of bankruptcy in February.

For a while the share market ignored Joe's sage advice, but if you look at this chart, showing movements in United's share price (the blue line) and contrasting it with the airline industry index as a whole (red line) and standard market indices (black and green lines), it is clear that now the initial post-Chapter 11 euphoria has faded, United is underperforming by all measures.


One of United's big problems is that its brief post-Chapter 11 cost advantage over fellow dinosaurs is being eroded every day.  The other dinosaurs - whether in bankruptcy like DL and NW - or not, like AA and CO - are doing all they can to trim their own costs and so United is finding itself more and more in a 'me too' environment.

There is also one cost United has severely misjudged.  Oil.  In its reorganization plan, UA predicted an average oil price (which of course is closely linked to the price of jet fuel) of $50 a barrel for five years after its February bankruptcy exit.  Oil has been grazing the $70/barrel mark recently, and hasn't been below $50/barrel for more than a year.

You might wonder how an airline could predict an average $50/barrel cost for oil stretching five years into the future in such a scenario.  You might also wonder what type of gullible investors accepted this laughable projection without demur.

Rumors continue to float about United seeking to merge with another dinosaur, and a Reuters article earlier this week quoted an unnamed industry source who said United has been considering merging with either Continental or Delta.

But would the government allow such a merger?  United failed to gain the necessary approval to merge with US Airways in 2001; and now there are fewer dinosaurs, it would seem equally unlikely United would be allowed to merge with an airline such as CO or DL, both being larger today than US was in 2001.

Now the most recent industrial showdown/nonevent has receded - Delta and its pilots; a new nonevent appears.  This time it is Northwest and its flight attendants.  The flight attendants rejected a NW proposal to accept pay cuts, to work longer hours, and take shorter vacations.  Hourly pay would have dropped by 21%, while the employee share of health insurance and other benefits would increase, resulting in the equivalent of losing 40% of their pay, according to the union's calculations.  Flight attendants would generally earn in the range of $18,000 - $43,000 a year.  80% of flight attendants voted to reject the contract.

Northwest is playing hardball on this, just as Delta played hardball with its pilots - and also just as Northwest played hardball last year with its mechanics.  It is also feeling some pressure because there's more at stake than just the pay to flight attendants - concessions it has won from other union groups don't commence until it has resolved deals with all its unions.

Northwest has asked its bankruptcy judge to reject the present contract and to impose new terms 'as soon as possible' and has also filed for a preliminary injunction to prevent a strike.

My pick :  The flight attendants don't have a chance in this fight.  Brutally unfair as NW's actions may be, there's too much at stake and the airline is going to steam-roller over its flight attendants, no matter what.  More details here.

Oil has dropped below $70/barrel again, but on Thursday Delta announced an extra $10 added to their fuel surcharge for trans-Atlantic flights due to the increased cost of oil.  Bizarrely, there's no increase in fuel surcharge if the flight originates in Canada or Mexico, while if the flight originates in Italy, the surcharge is 10 ($12.60).

In other DL news, the company said they will be closing two call centers in Montgomery and Miami by September 1.  This leaves the airline with seven US based call centers, which in this modern age of telecommunication is probably four or five too many.

Delta also plans to reduce operations outsourced to India because of 'a drop in call volume' - could that be a drop in call volume caused by callers hanging up when they hear an Indian accent answering the phone?  Delta will continue to work with call centers in Lithuania and Jamaica, however.  Lithuania?

And talking about oil prices, readers know I don't believe jet fuel prices have any significant impact on an airline's ability to be profitable, because in a rational marketplace, when a cost increases uniformly for all competitors, they simply increase their selling price to reflect their increased costs.

Indeed, in the airline industry, as I've many times commented, fuel surcharges have now become massive profit centers with the airlines happily charging many times more than the true extra cost of fuel to their passengers.

But rising oil costs continue to be an impossibly attractive scapegoat for the airlines, as we saw this week when an IATA economist saw fit to worry in print that $100/barrel for oil would 'seriously threaten airlines'.  He failed to point out that current fuel surcharges more than cover the airlines for their increased costs if oil does reach $100/barrel.

Fuel costs represent about one quarter of a typical airline's operating costs, and have approximately tripled since 2002.

Now for something completely different.  Yes, some airlines are now making good profits, in large part due to adding unfairly high fuel surcharges to their fares.  And other airlines are losing massive sums, notwithstanding fuel surcharges.  But there's one airline that routinely gives away a large share of its tickets for free, and which doesn't impose a single penny of fuel surcharges, and it has just announced a 12% increase in its profit for the twelve months ended 31 March.

How can this be?  And who can this be?

The 'who' is no surprise. Ryanair, reporting a 208 million profit (US$385 million), notwithstanding a 74% increase in their fuel costs.  However, even Ryanair isn't entirely unaffected by oil prices; because it said this current year's profit would depend a bit on the cost of oil, but even a worst case scenario sees them projecting a 5% profit.

It had an average roundtrip ticket price of 33.14 (US$61.30).  That is less than many airlines have as a fuel surcharge.

Could it be that fuel costs are not quite as important as IATA and the dinosaurs would have us believe?  Could it be that talented airline management actually has a bigger impact on an airline's success than the price of jet fuel?

Back to the other side of the story - on Monday IATA was projecting total worldwide airline losses of $3 billion in 2006, up from their March forecast of $2.2 billion.  The reason - rising oil prices, which they say are outstripping the benefits of higher ticket prices (they don't say anything about the benefits of fuel surcharges, though).

And whereas United is projecting oil to cost $50/barrel, IATA had been outlooking $57 in March and has now upped its projected cost to $66 billion.  Shouldn't United and IATA get their stories straight?

But showing that every cloud has a silver lining, IATA's chief economist said 'It's amazing that our forecast isn't worse than it is'.  And IATA's CEO claims that fuel surcharges only recover 20% of the higher cost of jetfuel, a statement which seems contradicted by airlines such as BA who, when announcing their profits, attribute them in part to their fuel surcharges.  Shouldn't BA and IATA get their stories straight?

Who'd want to invest in an airline with such dismal industry projections?  The big money now seems to be moving to investing in airports rather than the airlines that use them.  This week BAA - the UK company that operates seven airports including Heathrow, Gatwick and Stansted - was sold to new European owners for just over 10 billion ($18.5 billion) - 30% more than the combined value of BA, UA, and AA.

Some airlines are complaining that BAA is in a monopoly position and can dictate prices pretty much as it chooses to airlines.  Notwithstanding the difficulty any of us would have flying to/from London other than through a BAA airport, BAA of course strongly deny the charges.  Britain's Office of Fair Trading has said it 'might' investigate whether BAA's dominance as an airport operator was against the public interest.

Talking about airports, here's a strange story.  Detroit's Wayne County Airport Authority has become the first airport in the country to ban limousine drivers from waiting in the baggage claim area to meet their clients who have booked 'meet and greet' type transfers.  Instead they must remain with their vehicles.

This means drivers will no longer be able to meet or help their passengers, who'll have to take their luggage to the specific parking area for the limos.  As a result of the new policy about 40 members of the Great Lakes Limousine Association are suing the airport authority, charging them with sending an anti-traveler message to people who travel through the airport.   The authority also increased the fee charged per vehicle from $3.00 per trip to $10 per trip (four times the US average charge).

By a strange and no doubt unrelated coincidence, the airport has just signed a contract with a new luxury sedan concessionaire, Checker Sedan, allowing them the right to meet clients on terminal.  Details here.

Seems to me there's more than the smell of 'acting against the public interest' in what the Wayne County Airport Authority is up to.

Southwest is already growing its five month old presence in Denver, adding another 12 flights a day, to a new total of 32 flights a day.  This is still very small compared to United and Frontier, but it is impressive growth for an airline with not yet six months presence in the Denver market and the ripple effect onto United and Frontier fares as Southwest adds new cities from Denver magnifies the impact enormously.

As I remarked in March, Southwest has the capacity for about 40 flights a day with its present four gates, and chances are it could pick up more gates if (when) it wants them.

Here's a great idea I wish I'd thought of.  An enterprising lady, Kate Bell, runs a website www.BoardFirst.com - her service charges $5 to get you an A group boarding pass on any Southwest flight.  She says she currently issues about 100 boarding passes a day, an infinitesimal percentage of the 240,000 revenue passengers Southwest flies every day.  She does this singlehandedly from her kitchen table in Phoenix; other websites apparently offer similar services.

And now Southwest has reacted to these services.  Has it thanked them for enhancing one of the weakest parts of choosing to fly Southwest?  Oh no.  Southwest is instead suing BoardFirst in Dallas Federal Court, accusing the company of  computer fraud, unfair competition, trademark infringement and unjust enrichment.

And that's not all - Southwest wishes us to believe it is doing this to protect you, their poor unsuspecting passenger.  Spokeswoman Brandy King said Southwest wanted to prevent its customers from turning over credit-card and other personal information to a firm that is not connected to the airline.

BoardFirst is defending the suit.  I wish Kate Bell the very best of good fortune in this David vs Goliath action.  Show your support by using her service next time you fly Southwest, too.

JetBlue is picking up the pace of its growth once more.  It opened another seven gates at JFK on 1 June, giving it a new total of 21 gates; enough to operate 185 flights a day.  In 2009 it will move to Terminal 5 where it will have 26 gates capable of supporting 250 flights.

Currently JetBlue has about 125 flights every day out of JFK, and will be adding extra services over the next couple of months, including a new shuttle service down to Dulles, with six flights each way, starting 17 August.  This shuttle service will be using its new Embraer 100 passenger jets, and has introductory prices as low as $39 each way.  Regular fares will range between $50 - $145.

Remember the BA flight from Los Angeles to London that lost an engine immediately after take-off, but which decided to press on to London - unsuccessfully - rather than return back to Los Angeles?  Here's an interesting follow up piece, which includes the startling news that BA has done this on 15 occasions in the last five years.

Not aborting a flight saves BA up to 100,000, but surely you don't think this implies BA is putting profit before safety.

As readers know, I dislike political correctness, especially when it over-rides rational debate and discussion on matters of importance.  And so in the interest of balance, here's a fascinating story from the Denver Post about Global Warming.

Good news if you're a hotelier; bad news if you're a hotel guest.  A new study suggests US hotels will be making all-time record profits over the next two years.  The industry's best year to date was 2005, with a $22.6 billion pre-tax profit.  This is projected to increase to $25.8 billion this year, and $28.1 billion in 2007.

A UK travel company says it is being forced to close down due to the lack of popularity of the destination it sells to UK holidaymakers.  Unsurprising, perhaps, except for the fact the destination it specializes in is the United States.

This Week's Security Horror Story :  Next time you're traveling out of town - or even next time you're out for a drink in your home city, be careful before you go treat yourself to a drink in the bar.  That friendly person who comes and drinks with you might have more on his/her mind than merely enjoying your company.

Read about the latest twist in identity theft and how organized gangs are recruiting unwitting helpers in bars here.  And while the focus of this story is on credit card fraud, it could as easily be a way for terrorists to get fake IDs.

The most interesting part of this story, for me, are the details of how the groups then go spending money using the stolen identity's credit cards while not provoking any law enforcement response.  This is exactly what happened to me, except in my case, someone stole my returned checks out of my mailbox, and used the details to make up new blank checks and also apparently created a counterfeit driver's licence.  They then wrote checks on my account, always for small amounts, at a number of large stores in the greater Puget Sound area, but none in my own city of Redmond.  As a result, the Redmond police - as undertasked a police department as exists anywhere in the country - were totally disinterested in what was, for them, a simply mailbox theft, and the police in other cities, each individually looking at a very petty crime, were equally unhelpful.

Although my bank refunded me the money, it annoyed me that someone had created close to the 'perfect crime' - netting a quick several thousand dollars and not having a single law enforcement officer, anywhere, do anything to track them down.

Talking about crime, do you drive a Cadillac Escalade SUV?  Bad luck if you do - it is currently the vehicle most likely to be stolen in the US.  Trade it in for a Ford Taurus - the least likely to be stolen vehicle.

Most of us have, at some time or another, been turned down for a job we applied for and wished to get.  But hopefully when such an outcome occurs to you, your response is different to that of Mr Saleh Al Suwailem.

One of the good things about all the new air security measures and automated boarding pass scanning and other related procedures is it is now much harder for passengers to get on the wrong flights.  Or is it?

I wrote last week about a Boston businessman suing United for losing his luggage and causing him to lose business because he had nothing to give out at a trade show in Las Vegas.  He sued the airline for $2,000; last week I said I didn't give much for his chances of winning.

My guess is his case was heard in Small Claims Court, because the judge agreed with him.  The airline argued it is not responsible for damages incurred after luggage is lost, but the judge ruled United doesn't explain that policy on its tickets or Web site.  The judge said United had to pay.

Score one for the little guy, but chances are not only that this case does not set a precedent that will persuade other courts to rule similarly, but also that United will quickly add the necessary wording to close its liability for future cases.

I wrote a positive story about Carnival's sensitivity to passenger service last week, and a moderately neutral one the week before.  So, in the interest of balance, here's a rather negative story about Carnival, offering a miserly 30% refund after what was described as 'a holiday from hell' and 'like being in a prison cell, except prisoners get treated better'.

Last week I referred to the famous Monty Python Cheese Shop sketch starring John Cleese.  This week it is shades of his Fawlty Towers episode about the Germans and his memorable exhortation to 'Don't mention the war', with this article detailing some of the antics of English football fans heading to the World Cup in Germany this weekend.

Thanks to reader Kyle for sending in this piece, which should be filed under the heading of 'You know you've become too frequent a flier when you ....' - a story about a very frequent flier and his distinctive at home bathroom.

Lastly this week, if you've enjoyed your read through the 3436 words of the newsletter, and the 2287 words of the feature article this week, please consider supporting this worthy publication and project.

On the other hand, of course, if you find yourself enjoying my scribblings too enthusiastically, perhaps you should instead buy a night or two at this hotel.

Until next week, please enjoy safe travels

              David M Rowell aka The Travel Insider

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