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Friday 6 June, 2008  

Good morning

This week saw a most egregious example of all that is worst with how airlines compete against startup carriers; an event that passed by apparently unnoticed by the main stream media and its talking head commentators.

You probably know of the three alternative carriers that had been offering premium cabin services between New York and London.  All three went broke - first Maxjet at the end of last year, then Eos, and then, a week ago, the last holdout, Silverjet.  The first two airlines had been flying to Stansted, and Silverjet flew to Luton, both being secondary airports in the London area.

There are of course a dozen possible reasons why these airlines failed, ranging from inability to make a profit to jet fuel costs skyrocketing to inability to secure extra financing to help them trade their way to viability.

But, while analyzing the failures of these three airlines' business plans, there is a huge issue that apparently no-one wants to talk about.  This is the competing service that American Airlines launched to Stansted, with business class fares of about $2730, compared to its business class fares to Heathrow of $10,000 and up.

Is there some magic that allows American Airlines to fairly charge $2730 to fly people to one of the London airports while charging $10,000 to fly people to one of the other London airports?  Is $2730 too low a fare, or is $10,000 too high a fare?  One or the other situation must apply, and neither reflects credit to AA.

I wrote about this in detail in an article published after the demise of the second of the three carriers (see here).  At the time I said

...let's see what AA does to its frequency of flights to STN [Stansted] and the fares it charges.  There is still one remaining competitor across the Atlantic though that AA may wish to see off - Silverjet, which operates all business class flights between London's Luton Airport and Newark Airport.  So there'll likely be some anomalous pricing and scheduling for a little while longer.

Well, I was right, and I was right.  The AA flights remained in place after the demise of Eos, but the ink had barely dried on the press release announcing Silverjet's going out of business before American announced it was ending its service to Stansted.

Am I still the only person who feels this to be an outrageous example of predatory pricing being used to force competitors out of the market?  Not only were the circumstances of AA starting this competing service transparently obviously an attempt to kill its competitors, but AA has abandoned any pretense at what its actions were by immediately terminating its Stansted flights as soon as the third of its competitors disappeared.

This is completely the opposite of what rational business sense would have suggested.  Normally, if a competitor exits the market, the remaining players are pleased to increase their market share and expect to sell more of their product, and if all competitors would leave a market, the remaining competitor would be delighted and increase their product/services even more to fill the gap left by the departure of their competitors.  But in the bizarre world of airlines, apparently the exact opposite applies.  If airlines add services, other airlines add more services.  And if one airline reduces service, then other airlines reduce service too.

So, American Airlines - can you explain to us what was the business case that justified starting service last year, and which allowed you to sell $2730 fares when you were selling $10,000 fares to the airport right next to Stansted, and how that business case changed so that now, with no remaining competitors, and having the entire route to yourself, you now cancel the route entirely?

Oh, and AA - don't try linking any of this to fuel prices.  There's no way fuel prices has anything to do with the discrepancy between a $2730 and a $10,000 fare.

Doesn't this make a 100% mockery of the entire framework of legislation designed to prohibit anti-competitive behavior, and a 200% mockery of the people who so ineptly enforce these laws?

Last week's column was a review of the Hertz NeverLost GPS unit, available as an option with many of their cars around the world, and I received quite a few emails from readers about their own experiences with NeverLost.  While it is not my job to be a Hertz apologist,  I realized that in many cases, people were either unfairly (?) talking about GPS units that are one or two generations behind the times which they may have used some/many years ago, rather than the new state-of-the-art unit I reviewed and which has yet to be released in the US; and/or, in some cases, their comments weren't really a criticism about any potential shortcomings of the Hertz NeverLost GPS unit, but rather reflected broadly on the whole concept of what GPS units can and can't do, and what you should reasonably expect to experience when using a GPS unit.

Clearly there was a need for another article being exposed here - something to explain what a GPS unit can and can't do, and why and how it works and what to do to get the best use out of it.  An initial plan to add a couple of paragraphs of explanation of these points grew to fill a full article, and kept on growing to end up with some 7500 words on the topic, split into three articles.  Rather than feed this to you in three parts over the next three weeks, I've decided to release all three parts of the series now - I hate being made to wait a week between episodes of a television series, and can understand your own desire to have the complete article offered up front.  And so :

This Week's Feature Column :  A Beginner's Guide to GPS : GPS units are close to magical and definitely amazing. But they're not omniscient and do have limitations. This three part article helps you appreciate what a GPS can and can't do, how and why.

Talking about Hertz, they no longer only rent cars.  You can now rent a Hertz scooter (ie small and underpowered motorbike) in London, Paris and over 15 locations in the south of France. Scooters offer adults an easy way to travel around cities and are fuel efficient, easy to park, and in London are not charged the congestion charge for driving in the center of the city.

Personally, and as a pedestrian, I dislike scooters - they are typically noisy and tend to leap out of nowhere and terrify pedestrians.  Cities such as Rome have a continual din of noisy scooters buzzing around the city.  But if I were to rent one, I'm sure I'd have a different perspective.

Dinosaur watching :  At this rate, they'll soon be tiny lizards rather than towering dinosaurs.  The major carriers continue to feel that their only solution to hard times is to retreat far back into their shells.

Not on the the heels of American's recent announcement of capacity reductions, this week saw first United and then Continental announce major cutbacks in their services.

United will reduce its 460 plane mainline fleet by an additional 70 planes by the end of 2009, meaning that by the end of next year, it will have retired at least 100 planes - a 20+% fleet reduction.  United has already said that it will reduce its capacity by 'a double digit percentage' by the fourth quarter of this year (compared to the same time last year) - with the exact reduction believed to be about 14%.

Also a casualty of the airline's downsizing is its Ted subsidiary which is being killed off completely, something that many of us thought to be a stupid idea to start with, and adding yet another to the list of 'airlines within an airline' that have consistently failed.

The inevitable layoffs have yet to be disclosed.  United currently employs 55,000 people, so with a 'double digit percentage' reduction in capacity and planes, expect to see in the vicinity of 5,000 people let go, depending on how aggressive the airline chooses to be in pruning staff.

Hot on the heels of United's announcement came one from Continental.  Continental plan to institute cuts after the peak summer season ends in September, with a plan to have a 16% reduction in departures and an 11% reduction in capacity by the fourth quarter (compared to the same time last year).  It will take 37 planes out of its fleet this year and another 30 in 2009, and plans to lay off 3,000 of its staff, with managers being laid off soonest.

Continental has 372 planes currently so this too is almost a 20% fleet reduction, and has 46,000 employees.

While talking about United and Continental, the on-again/off-again courtship between United and US Airways is again in an 'off' state, with the current expectation being some type of joint marketing agreement (as opposed to merger) with Continental being consummated at a future date.  I guess this will be constructed to be the next extension of the process that started with codeshares and then progressed to airline alliances; with it seems, the closer that airlines get into bed with each other, the more imaginary the claimed consumer benefits become, while regulatory oversight is still kept safely at bay.

Although the dinosaurs are experiencing reductions in passenger numbers, and planning massive cutbacks, other airlines are having a different experience.  Southwest reported revenue passenger miles were up 7.9% on a capacity increase of 5.9% and load factor of 71.4% for May, and AirTran reported its best May ever with revenue passenger miles (RPMs) up 18.2% on a 14% capacity increase and a load factor up 3.1%.

Contrast that with American (3.3% reduction in domestic RPMs and a 2.3% capacity decrease) and United (7.3% RPM drop on a 5.5% capacity decrease).

Here's an interesting statistic, with a vital message within it for the dinosaurs.  Their headlong attempts to save money at present seem to revolve around two things only.  Cutting back flights and cutting back services.

It is uncertain whether either strategy works.  For example, I never eat them, so this is not necessarily bad news to me, but it illustrates how the airlines continue to save pennies while losing sight of the big picture.  US Airways is eliminating the free bags of pretzels it formerly passed out with drink services in coach class on its domestic flights, due to (of course) the high cost of jet fuel.  Guess how much this saves them?  Last I saw, the cost of a bag of pretzels was right around 3.  So, on a roundtrip ticket with an average price of perhaps $300, US Airways is saving 6, which is a 0.02% saving.  Well done, US Airways.

The more service cutbacks the airlines impose on us, and the less pleasant they make travel to be, the less likely we are to happily rush to the airport and fly somewhere.  While there may have never been a time, at least in the last 20 years or so, when people eagerly looked forward to flying, these days many of us almost dread the experience, which is fraught with hassles and inconvenience from start to finish, and no longer has any of the trivial benefits that used to be associated with flying.  Heck, even our frequent flier miles are not nearly as valuable as they used to be, and the 'free' tickets we earn cost only a little less than regular tickets to purchase.

I've been saying this for years, and suggesting that the minute savings created by each extra discomfort the airlines cause us are generally more than counterbalanced by the loss in passenger numbers and revenue that result from the cut.  Clearly the airlines disagree with me, or else they wouldn't continue down this path.

And so, back to the statistic.  Here now is proof, should the airlines care, that their service cutbacks and general hostility to us, their customers, is truly hurting them.

A survey commissioned by the Travel Industry Association has found that frustration with the air travel system is growing and is highest among those who travel most. The survey found that 28% of air travelers avoided at least one trip over the past year because of the problems with flying.

Roger Dow, CEO of the TIA said 'the air travel crisis has hit a tipping point - more than 100,000 travelers each day are voting with their wallets by choosing to avoid trips. This landmark research should be a wake up call to America's policy leaders that the time for meaningful air system reform is now.'

The TIA is hosting an emergency summit of travel leaders in Washington June 17 (I guess my invitation got lost in the mail).

If the TIA's number is correct - 100,000 less passengers a day due to people avoiding air travel when they can - then with perhaps an average $300 fare, that is $30 million a day in lost revenue, or just on $11 billion a year.  Even in their worst year, I don't think all the combined US airlines have lost that much money (apart from sudden huge one-off accounting write-offs such as Delta had a month or so back, of course).

Which brings me back to another of my favorite points.  The industry's problems, at present, are not all the result of increasing fuel costs.  The industry's biggest problem is its own dysfunctional approach to providing a pleasant passenger experience and encouraging people to use their services.

Will someone find me an airline - any airline - that is willing to try a positive approach to its passengers?  Oh - wait.  There is such an airline.  And, guess what, it is one of the world's fastest growing and most profitable airlines, too.

I'm talking of Emirates, an airline that shows every time it releases its latest set of profit figures that it is possible to provide a high quality product, at the same price as other airlines, and still make a profit (and, in case it needs to be restated, those naysayers who claim Emirates only makes a profit because it pays less for its fuel than do other airlines don't know what they're talking about, as is clearly shown by their lack of factual backing for such claims).

Why can't our dinosaurs - expert copycats that they are - stop copying each other's failures and instead copy a successful airline's successes?  Why not, instead of cutting back on capacity and laying off staff, why not add extra flights, and, oh yes please, extra customer service staff, too.

Talking about good airlines, Singapore Airlines has been voted OAG Airline of the Year and Singapore's Changi the best airport.  Virgin Atlantic won the best airline based in Western Europe, and British Airways was deemed best transatlantic airline and best business class.  Based on my two very positive recent BA business class experiences, I'll forego my former sneering at such a notion.  And, at the bottom end, easyJet won for best no frills carrier.

It isn't just airlines that are doing stupid things at present.  So too are the industry commentators.  A notable example can be seen in Australia, a country that has repeatedly struggled and failed to support more than two domestic airlines, but which currently sort of has four domestic airlines.  The established dominant carrier is of course Qantas, and the number two airline these days is Virgin Blue.

Now for the stupid commentary.  An article in the Sydney Morning Herald (one of the country's leading newspapers of record) offers the headline 'Virgin blues: Airline could go bust' and leads off with the scare sentence 'Virgin Blue will go bankrupt unless it can dramatically raise airfares, if fuel prices remain at current levels into the longer term, JPMorgan has warned.'

Sounds really bad for the airline, doesn't it.  Well, actually no.  In a sentence that starts off with the doom laden opening 'The only way to save the company...' we are told the 'dramatic' rise in airfares that would be needed to keep the airline profitable, assuming jet fuel prices stay at current levels, is a mere 10%, which is half what the US carriers say they need to increase their fares.

Being as how all four airlines in Australia are more or less equally affected by fuel costs (Qantas to the least extent due to some fuel hedging) where's the problem here?  They all need to raise their prices, they all presumably will, and a 10% increase in cost won't dramatically alter the Australian travel scene, with the competition at present often seeing some great fares out there which would stay good even with 10% added.

This article would have read better if the headline was 'A small 10% fare tweak will guarantee Virgin Blue's ongoing profitability'.

If you're in Washington state, you know you can no longer use your cell phone while driving, other than via a headset or other handsfree/Bluetooth/speakerphone type device.  On 1 July, Californian motorists are also subject to this requirement, and already states such as NY, NJ and CT have imposed similar laws.

Buying a headset can be a stupidly expensive thing, and also a surprisingly difficult challenge, due to all the different types of headset plug that is seems some phone manufacturers design purely to make it difficult for you to do anything other than buy their own overpriced headsets.

Enter www.FreeHeadset.org - a company that does more or less exactly what its name implies.  If you need a headset for your cell phone, they'll give you one.  Simply go to their website, choose your make and model of phone, and then select from up to four different headset styles, and, hey presto.  Look for a free headset in the mail a few days later.

So what is the catch?  Yes, of course there is one.  They charge a 'shipping and handling fee' - a relatively trivial $3.94.  And with the price of gas what it is today, it costs you that much just to drive to a local electronics store and discover that your model phone is the one model phone that they currently just happen to be out of headsets for.

I know the guy who runs the organization.  It is a bona fide operation, and a couple of the headsets that he sent me as samples, while not the world's greatest, definitely do work satisfactorily.  If you lost your headset, if you never had one, or if you simply want a spare, go get one from this site.

In other transportation initiatives, California is closer to getting high-speed train service.  The State Assembly has approved legislation to improve the existing California High Speed Train Bond Act which will be on the November statewide ballot.

The state wants to provide 200-mile per-hour train service from Southern California through the Central Valley to the Bay area and Sacramento.  Let's wish this measure every good chance for successful passage.

Cell phones are dangerous for your health, continued :  In case you needed another reason to get a headset (I almost never hold my phone directly to my ear), here's an interesting albeit somewhat anecdotal article that suggests that medical practitioners are slowly coming to accept some linkage between cell phone use and brain cancer.

Nearly a drunk pilotThis pilot definitely would have been drunk on duty the next morning, but for the unfortunate circumstance that saw him getting arrested, naked, the night before.

This Week's Security Horror Story :  A passenger flying from London to Dusseldorf was wearing a French Connection t-shirt that had an image of one of the television Transformers characters on it, 'Megatron'.  Heathrow security refuses to allow him to travel while wearing the t-shirt, because the fictional cartoon character is holding some sort of fictional cartoon type gun.

Last week I wrote about the woman with a miniature charm bracelet type gun shaped pendant, but this week, it seems that the picture of a cartoon character with a cartoon gun is similarly dangerous and must not be publicly displayed on a plane.  More details and a picture of the t-shirt here.  Who only knows what will be banned next week.

Fortress America?  Here are an interesting couple of 'book end' stories, offering opposite views of the ridiculous nation we are becoming.

The US is already one of the most restrictive countries in the world for allowing visitors into the country (it is ironic to note that the 9/11 hijackers had all been granted official visas, which rather makes a mockery of the visa process), but does allow the sainted citizens of 27 countries to enter for stays of up to three months without a visa.  These countries are basically the western European countries, plus Australia, New Zealand, and a couple of other 'safe' countries such as Japan and, strangely, Brunei.

From the start of next year, these people will only be allowed to fly to (and enter) the US if they have completed an online registration process (note the careful avoidance of calling this an electronic visa) at least 72 hours prior to travel.  This is of course one further reason why people from these countries are going to be less likely to want to visit, as, for example, is hinted at in this New Zealand article.

Apparently someone in the US government believes it will be able to identify potential terrorists from these registration requests.  Hopefully the terrorists will cooperate and give accurate honest information when they fill in the request.  As for the people flooding across our largely unpoliced southern border, well, let's not mention that inconvenient issue, hopefully the terrorists will exclusively attempt to enter our country lawfully.

While we're selectively obsessing about only some of the many methods of entering the country, what happens when/if a terrorist does get into the US?  Quite apart from all the citizen groups clamoring to give some invented and non-existent 'rights' to illegal aliens, our own police forces seem to have little interest in reporting potential terrorists to the FBI.

As this article reports, police are routinely ignoring alerts that come back after standard background checks.  The alerts flag the person as a possible terrorist suspect, and the police are supposed to notify the FBI's Terrorist Screening Center when an alert is received.  Up to ten of these alerts are going unactioned every day - that's over 3500 potential terrorists a year that are being allowed to walk away from a situation where a law officer had a reason to run a background check on them - ie, a situation where there's something wrong to start with.

So, if you were the next President of the US, what do you think is a better use of resources?  To do something about thousands of potential terrorists who are already in country, or to make travel to the US unpleasant for millions of foreigners in the faint hope of maybe deterring or detecting a few terrorists seeking to enter the country legally?

It seems our nation continues to prefer the 'high drama' of controls at airports, while having no interest in some easy and effective issues that need improvement in lower profile parts of the overall 'war on terror'.  And as long as that remains the case, we're massively vulnerable to any terrorist with a greater intelligence and tenacity than those appointed to protect us; sadly, that seems like a very low hurdle for most intending terrorists to surmount.

I occasionally write with horror at the cost of drinks in hotels around the world.  Fellow French cruise member Steve wrote to tell about his experience at the Park Hyatt in Paris, where he ordered a well drink type Scotch on the rocks for himself and a glass of wine for his wife.

The cost of a single J&B (a rather ordinary Scotch) was 22 (about US$34).  Outrageous, you say?  But, wait - you're interrupting.  To add water to his Scotch, he had to pay an extra 5 ($7.80).  Disgraceful, you say.  Keep quiet - I still haven't finished.  He wanted some cubes of ice as well.  <Ding>  Ring up another 4 ($6.20).  Total cost for his drink of Scotch - 31 (US$48).  His wife's glass of not particularly special wine was 'only' 20.  Total cost for both drinks - 51, or US$79.

That sure makes the Park Hyatt one of the more expensive places to enjoy a drink.  Is it just me, as an impoverished travel writer, but do 'real people' happily spend $80 for a couple of ordinary drinks as part of a trip somewhere?  I sure don't.

Until next week, please enjoy safe travels - and check the price of your bar drinks before ordering them

David M Rowell aka The Travel Insider

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