Friday 14 March, 2008
The Southwest issue, about which I sent a special newsletter on Wednesday, seems to have subsided very much more quickly than I'd expected, with the airline reporting that operations are back to normal little more than a day later.
Southwest's stock price took a bit of a beating as a result of what was a very minor bit of transient bad news, and it got me to thinking about Southwest as a potential investment. Sure - as Warren Buffett (former airline investor) roundly maintains, only a fool would invest in an airline stock at the best of times, but there have been some people who have done very nicely from buying and selling at the right time, so I went and looked at what is happening to Southwest's stock.
As you can see from the chart below, Southwest (the blue line) is trading at historic lows at present, indeed it is not just at a one year low, but it is at a five year low (it closed at $11.70 on Thursday). However, when you compare its performance to a basket of airline stocks (the red line) you can see it hasn't dropped nearly as much as other airline stocks, and while this might suggest that it doesn't have as much upside potential either (and perhaps even has further downside potential), I'm not so sure.
Now please don't go making any investments in Southwest just because of what I'm saying, because I'm absolutely not an expert, but I can't help thinking about a couple of things, both of which are positive for the company's short and medium term share price.
First is the short term drop in Southwest values occasioned by its present problem with the FAA. My feeling is that this is indeed a short term blip with no lasting effect on Southwest, and even if the airline were to get landed with a $10.2 million fine from the FAA as is currently being threatened, that's a drop in the bucket in terms of Southwest's overall profitability and not a reason for any permanent adjustment in stock price.
The second thought is that with oil prices going sky high, this is actually a very good thing for Southwest for the next few years. Why? Because Southwest, almost uniquely among the major carriers, has massively hedged its fuel costs. As this table shows, Southwest has 70% of its fuel hedged this year at a maximum of $51/barrel; and in 2009 it has 55% of its fuel hedged, also at $51; while in 2010 it has 25% of its fuel hedged at $63/barrel.
The more that the cost of fuel goes up, the greater the competitive advantage enjoyed by Southwest. When other airlines are forced to put their ticket prices up to recover extra fuel costs, Southwest can either keep its prices constant, and get more market share, or it can match the price rises and get more profit per passenger. Either way, it wins, and boosts its profitability.
The more that oil and fuel costs go up, the better Southwest should perform compared to other airlines, at least for this year and next year.
And talking about special newsletters, and specials in general, if you blinked, you missed the Briggs & Riley sale last week at Travel Essentials. It seems they, ahem, didn't get the concurrence of B&R to offer their products, across the board, on sale, and so had to withdraw the sale.
It was interesting to receive a large number of notes from readers enthusiastically agreeing with my endorsement of Briggs & Riley luggage. There were two common threads through the emails received - either 'I've had my B&R bag for ever, have traveled gazillions of miles with it, and it is still in good order' or 'I had to get a repair on by B&R bag, and even though the bag was old and well worn, and it was airline damage, not just fair wear and tear, B&R repaired my bag (and even did some other repairs to the bag as well without me asking them) with no complaints or problems.
The Briggs & Riley no questions asked lifetime warranty sets the standard in the industry, and, as I said last week, if you're looking for another bag of any type, you'd be well advised to consider B&R, even if you must pay full price.
And now, with all that as build up, some good news. I uncovered what appears to be officially approved B&R discounts, and in some cases a great deal more than 20%, on the excellent eBags website. Go and have a look and see if you can't find something to tempt yourself with.
My recommendation would be the 22" Baseline wheeled carry-on/garment bag, offered with a 40% discount, bringing the price down to $179.40.
This week sees parts 3 and 4 of my series on Round the World Airfares, plus a bonus as well - a table of comparative round the world fares that attempts to show the differences and the applicable rules for each of the different fares. You'll note lots of gaps in this table, which serves to highlight how difficult it is to get a complete accurate understanding of any of these complex fares prior to actually booking an itinerary and asking the airline to price it.
This seems to be deliberate on the part of the airline, and naturally I'm recommending you do the exact opposite - endeavor to build up as complete an understanding of how the fare works before you go to book your travel, so you know how to take best advantage of the fare, and how to avoid any of the 'gotcha!' fine print. And so :
This Week's Feature Column : Round the World Airfares (cont) : Here are suggestions to help you work out which may be the best RTW fare for your travels, and how to plan your travels to best take advantage of the opportunities offered by a RTW fare (sounds like the same thing restated the opposite way, but it's actually somewhat different).
And if you're planning to cruise in 2009, you can get a 10% discount on any Amadeus cruise you book between now and 30 April (5% early booking discount plus 5% Travel Insider discount) as well as, if applicable, $100 per person AARP and $100 per person past passenger discounts too.
Thanks for the various people who wrote in with helpful suggestions (or even just sympathy) after my Frontpage crash last week. I'm not sure if I'm digging myself a deeper hole or not, but I've been persuaded to upgrade to Frontpage's successor, Expression Web. Alas, apparently it doesn't have an autosave feature either (so tell me again exactly why I'm making this switch?) but it is described as being immensely better in other ways. We'll see - the software arrived in the mail Thursday.
This week's tale of Microsoft induced woe, however, concerns Outlook - their email and personal organizer program. This morning the system automatically updated itself with the latest 'fixes' to Outlook - that's the good news. The bad news - its Junk mail spam trapping no longer works, and the almost 1000 spams I get each day are now flooding into my inbox along with the less frequent 'real' emails.
Can't Microsoft do anything right? And - no, I won't get a Mac; please don't suggest I do!
Dinosaur watching : ATA - who? Do you remember ATA - just three years ago, it was one of the country's ten largest carriers. Now it isn't, which is perhaps the kindest thing to say about this airline, which has just announced its withdrawal from Midway (Chicago), formerly a major ATA hub.
There's an interesting thing about ATA, which might possibly foreshadow a new type of airline in the future. If you have a look at their interactive route map, you'll notice most of the routes they show appear in blue rather than in yellow. As I understand it, and sort of confirmed in their timetable, the rare yellow routes (mainly to Hawaii) are indeed operated by ATA. But the vast preponderance of what is shown, and in blue, is actually operated by Southwest, with ATA code-sharing.
We're not very far away from ATA being close to completely a 'virtual' airline, and some people have argued, somewhat convincingly, that this is the way the industry could - and maybe even should move. We'd have some companies specializing in operating planes, and other companies specializing in marketing flights and providing customer-facing services.
We already have planes that fly between two cities while carrying as many as four or possibly more different airline codes and flight numbers, and ATA is getting close to an airline that has the majority of its route network operated by a different airline, so how long will it be before we see these concepts carried to their logical conclusion?
It makes for an interesting alternative to merging sick carriers, if nothing else.
Talking about merging, Lufthansa and Jetblue have announced some integrations and tie-ins between each other. You may recall Lufthansa bought a 19% stake in Jetblue last year, and now the two airlines are linking their reservation systems and frequent flier programs.
Lufthansa also has a 30% stake in BMI (British Midland) and has an option to grow its stake to 50% in December. If it were to do this, Lufthansa would end up controlling 11% of the very precious take-off and landing slots at Heathrow, giving it the second largest allocation of slots after BA.
So - take BMI's slots at LHR and Jetblue's slots at JFK, and Lufthansa would seem to be looking very strategically well placed for whatever it might choose to do in the future to take advantage of the new US-EU open skies agreement.
Interestingly, Lufthansa said it would have no interest in taking part ownership of a merged UA/CO airline, should that happen. Major competitor, Air France/KLM has said it would be interested in buying into a merged NW/DL.
While some airlines seem incapable of growing on their own, preferring instead to buy their way to growth, there's one airline - the incredible expanding airline - that has yet to test the limits on how far and how fast it can grow. Interestingly, this very same airline, while rapidly growing, continues also to be very profitable. Could it be they've discovered something that the other airlines have overlooked?
I'm referring of course to the phenomenon that is Emirates. It seems like only yesterday that they added service from Houston to Dubai, and only the day before yesterday that they went to double daily service from JFK to Dubai. And now, from 1 September, they'll be adding daily nonstops between Los Angeles and Dubai.
I had to look on a globe to see whether a plane from Los Angeles would go east or west to Dubai - the answer is that it would go more or less due north (with a slight easterly bent). The journey is a long one - 8399 miles, taking 16 hours one way and 16½ hours the other. This is not quite the longest nonstop flight in the world - honors for that goes to the Singapore - Newark flights operated by Singapore Airlines, 9542 miles and 19 hours.
Here's an interesting list of longest flights, expressed in terms of flying time :
So this new flight is the seventh longest in one direction and the ninth longest in the other direction. Good, indeed, I almost wish it were longer, because you'll barely notice the time passing on Emirates' luxurious 777-200LR planes.
I wrote about Emirates older business class a while back (they now have new lie-flat seats and other enhancements), and at the time mentioned how much I loved their 600 different channels of entertainment on the individual seat back entertainment systems. Well, the new planes for this route offer a staggering 1000 different channels of entertainment, including 'A' list first run movies, and an extensive discography of popular and less popular music. 1000 channels? My goodness - if you spend just a single minute reading about each different channel and you've taken over 16 hours - an entire journey - just to read through what's on offer.
And that's before you enjoy the onboard Wi-Fi, and if you caught the eye of the passenger three rows back, but the seatbelt light is on so you can't stroll down to get to know them, pick up your seatback phone and call them to have a chat over the in-plane phone system instead.
Add to this Emirates' typically high quality food and cabin crew service and you've a refreshing glimpse of the way air travel could be. Maybe during the 16 hour flight you can puzzle out how it is that Emirates makes a profit while spending more on good service, but its competitors struggle to break even while grudgingly giving the barest minimum of service and comfort to their passengers.
One of the big uncertainties to me has always been why anyone would choose to fly to Dubai, and my understanding is that many of Emirates' passengers simply change planes and continue on somewhere else. But Dubai is continuing to feverishly do all it can to add more reasons for people to visit and spend time in Dubai itself.
Not only is Dubai attempting to become a regional business center, but it is also adding more and more tourist infrastructure, with the most recent announcements of just the last couple of weeks being the establishment of a SeaWorld, a Busch Gardens, and now a Six Flags, all to become part of a huge entertainment complex being built in Dubai. The project is expected to commence development next year, and at the feverish pace that things are done over there, expect it to be open not very much later.
Naughty dinosaurs? EU officials carried out unannounced inspections at the offices of several international carriers who provide scheduled passenger services on long-haul routes between Europe and Japan. The Commission has reason to believe that the airlines concerned may have violated EU Treaty rules on restrictive business practices, and describes these surprise inspections as a preliminary step in investigations into suspected cartels.
Air France/KLM and Lufthansa said they were being investigated while British Airways and Virgin Atlantic said their offices were not raided. The Commission - recently successful in pursuing antitrust violations against some airlines regarding airfreight price-fixing - says it believes some airlines may have taken part in anti competitive price-fixing and collusive behavior in services between the EU and Japan.
Perhaps the EU was also encouraged by an announcement by RCCL earlier this week that it was settling with passengers who it had forced to retroactively pay a $5/day fuel surcharge, even though the passengers had booked their trips prior to the fuel surcharge being announced. The total payout comes to $200 million - at $5/day, that is 40 million passenger days worth of surcharges.
Amazing how a trivial seeming $5/day surcharge adds up, isn't it. Or, look at it another way - on a cruise ship with 2000 passengers on board, that is an extra $10,000 in revenue per day.
Gosh - you don't think the cruise lines might be slightly overcharging, do you?
Talking about fuel costs and such like, Virgin Atlantic Airways, and its high profile founder, Sir Richard Branson, have made a big deal about their ecologically friendly policies, scoring quite a lot of headline column inches in the process. The most recent stunt was flying a plane between London and Amsterdam using biofuel, a feat which the airline described as creating 'the first airline in the world to fly on renewable fuel'.
Sounds impressive, doesn't it. Oh, the press release neglected to mention that only 5% of the fuel consumed on the flight was bio-fuel, the rest being regular jet fuel. Hardly a paradigm changing technology.
And least any of us get too excited about biofuels, have you noticed what is happening to the price of meat, bread, and dairy products recently? Yes, they are shooting sky-high ($20/lb for steak?) and threaten to go higher still, due to farmers being able to sell their wheat for more money to biofuel plants than as feedstock to farmers, and as wheat for flour.
Every time you pay some dollars extra per pound for your meat, and when you note the steady rises in the price of dairy and bakery products too, I guess you should feel good about this being your contribution towards the greenies who ostentatiously and proudly drive around in their vehicles bearing stickers denoting that they're powered with bio-fuels.
Some of Virgin's other headline grabbing eco-initiatives have been similarly unspectacular. For example, the airline's plan to tow their planes out to the end of the runway and only start them there, immediately prior to takeoff, has had to be abandoned too. The first problem was that towing the planes all that distance was found to over-stress the landing gear that the tugs would connect to. While this may not have been foreseen, the second problem - airports didn't have holding areas at the ends of their runways where planes could pause to start their engines and do all the pre-takeoff and engine start checks - was surely one that Virgin should have thought about before leaping into print.
Another one of their initiatives sounds suspiciously like the cards in hotel bathrooms exhorting you to reuse your towels. In this case, Virgin was suggesting to its Business Class passengers that instead of availing themselves of Virgin's free limo ride into London offer, they should instead accept a ticket on the Heathrow Express train. Fewer than 1% of business passengers have chosen to ride the train.
Amtrak eat your heart out (cont) : A new survey by Carlson Wagonlit Travel reveals that rail is becoming the preferred method of travel for business travelers in the UK and Europe. Compared to air, train travel is seen as much less hassle, often less expensive, sometimes quicker, and always much more comfortable.
Europe continues to invest in more and more high speed rail routes, drawing more and more people off planes and onto trains.
Amtrak eat your heart out (cont part 2) : China's most luxurious train is scheduled to start service on the route between Beijing and Tibet's capital of Lhasa on 1 September. The train line between the two cities has been open since July 2006 and has quickly become extremely popular.
The new train isn't for everyone, though. It will be about 20 times more expensive than the regular fare (about $300 - that is, for the regular fare), and is described as a five star hotel on wheels, with accommodations for only 96 passengers. Each train will have 12 passenger cars, two dining cars and a sightseeing car.
Each passenger car will have four 110 sq ft suites featuring a double bed, a living room and bathroom.
Boeing is a bad loser, apparently. On Tuesday Boeing announced it was appealing the decision to award a new tanker contract to Northrop/Grumman/Airbus. Boeing's appeal to the Government Accountability Office requires the GAO to respond within 100 days.
Meanwhile, proving that there are lies, damn lies, and statistics, the Northrop consortium has revised upwards its estimate of jobs sustained or created by its winning the tanker contract. Initially it has said it would create or sustain (in itself, a very nebulous statement) about 25,000 jobs, while Boeing was claiming that it would create or sustain about 45,000 jobs.
Earlier this week Northrop - no doubt smarting from the vociferous and almost uniformly ill informed attacks on it by politicians eager to seize upon a populist issue in an election year - issued a statement saying 'Using more recent data from our suppliers and applying the Labor Department's formula for projecting aerospace jobs at the state and regional level, the KC-45A will employ approximately 48,000 direct and indirect jobs nationwide.'
Should we now expect Boeing to almost double its jobs estimate, too?
In unrelated Boeing news, it seems all but certain that its new 787 plane will face a third major revision to its delivery schedule, with delays of perhaps a further six months, meaning the first plane may not enter commercial service until the third quarter of next year.
Assuming all goes well from here on out.
And in other airplane news, the F-117 stealth aircraft is being retired. It seems only like yesterday that this futuristic looking plane was first officially revealed, but it has been in service for 27 years. The retiring planes will be stored, capable of being reactivated in the future if needed, but for now, they are to be replaced by the new F-22 Raptor.
A slightly puzzling survey by TripAdvisor has Paris as the city with the most unfriendly hosts in Europe, followed by London, and then Moscow in third place. But making the survey's validity rather suspect is the concurrent listing of London as also being the third best city in the category of having 'most friendly and helpful locals'. London was also top destination for intending tourists this year, with Paris in second place. London and Paris again came top of another list - for being the continent's most dirty cities, with Zurich, Copenhagen and Stockholm winning honors for the cleanest cities.
Zurich also scored as Europe's second most boring city, with first prize in that category going to Brussels.
This Week's Security Horror Story : The new MacBook Air lightweight bare bones notebook computer puzzled TSA screeners sufficiently as to have them believe it not to be a real computer at all, but rather some sort of mocked up device - possibly for some nefarious purpose.
As this story recounts, it was only after a more computer savvy TSA staffer came and recognized the laptop for what it was that the laptop's owner was allowed to continue on through security. Alas, in the meantime, his flight had long since departed.
It was in a clear plastic bag, but a TSA staffer insisted on opening the sterile package that contained an emergency replacement stomach feeding tube, even though the owner pleaded with him not to break the sterile seal.
Here's a more heartwarming story of an unexpected discovery by the security screeners at Canada's Prince George Airport.
The Dutch government raised the country's domestic terrorism alert level to 'substantial' from 'limited' last week. This is partly in response to a film critical of Islam, due to be released sometime this month.
The Dutch cited a growing threat from foreign-based terrorists as a real concern and several arrests have been made. There have been political reactions and demonstrations over the film in several Muslim countries. The government is worried that there will be attacks in retaliation for airing the film and embassies are on alert.
Lastly this week, here's an idea that might seem laughable, but then again, maybe it is a necessary idea.
I'm off to San Diego today to spend the weekend looking at all the latest trends and developments in luggage and other travel related goodies. You can guess what I'll be writing about in weeks to follow. Note to self : Now would be a good time to book a hotel for the next several nights.
Until next week, please enjoy safe travels
David M Rowell aka The Travel Insider
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