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Boxing Day; Friday 26 December, 2008  

Good morning

I hope your Christmas was filled with cheer, and that Santa made an especially beneficial stop at your chimney.

This is the last newsletter for 2008, of course, and I hope that the festive season will continue to the New Year for you, and that we'll all have a great 2009 free of the trials and tribulations that have assailed us in 2008.

As Twitter followers already know, my main Christmas present to myself (yes, sad, isn't it - the major source of my Christmas presents is me!) was a Blu-ray Disc player.

Like most people, I have delayed buying a Blu-ray player until now.  First, there were the 'format wars' between Blu-ray and the rival competing format, HD DVD.  This was finally resolved early this year, with HD DVD bowing out and Blu-ray becoming the only high definition DVD type format.

The second reason for delaying purchase was, ahem, the ridiculously high cost of players and discs, and the very limited range of movies available.

But with the dropping in price of players - you can now get perfectly good players for less than $200 - and the gradual drop in the cost of movies (some can now be purchased for only $10 each) and the increasing range of movies available, the time seemed right to buy one.

And, oh my gosh, the difference in quality between a regular DVD and a Blu-ray disc is astonishing.  The Blu-ray picture quality is massively better - but there's a catch to its massive improvement.

You have to have an excellent quality screen to be able to show you the better picture quality that the Blu-ray disc provides.  I have two television sets, and while both are rated as 1080i capable, the older of the two units offered only a small amount of quality improvement compared to DVD.  But the newer screen came alive when a Blu-ray disc was played through it.

The even bigger downside to all of this?  I'm now looking at my collection of DVDs, all of which are now obsolete and so inferior as to detract from the enjoyment I used to derive from viewing them.  And, worst of all, there's a terrible feeling of deja vu to all of this.  The same thing happened to me when I upgraded from VHS tapes to laser discs; and then from laser to DVD.  I have some movies that I've bought in each format, plus on occasion extra copies for things like 'Director's Cut' or 'Special Collector's Edition' or who knows what other marketing artifice.  Blu-ray players are backwards compatible - they'll play DVDs too, so that is at least a blessing, but they can't make a DVD look as good as a Blu-ray disc.

I was in Walmart earlier this week (as my Twitter followers already know) and forced myself to walk past their bins of $5 DVDs, and concentrate only on their $10+ Blu-ray discs.

If you haven't yet bought a Blu-ray player yourself, this is something you'll probably choose to do within the next year or less, especially if/as prices continue to fall for players and discs too.  With that in mind, three things to consider :

First, if you're buying any new television sets, be sure to get sets that are capable of displaying 1080p images (important that it is 1080p, not just 1080i).  This will allow the set to display the best possible picture when you do get a Blu-ray player.

Second, ease back on buying DVDs - consider renting or the Netflix service instead, because any DVDs you buy now are going to be obsolete from a quality perspective as soon as you get your Blu-ray player.

Third, if you're buying any additional home stereo audio equipment, make sure it is compatible with the latest 7.1 and DTS surround sound specifications so as to be able to get the best sound from your Blu-ray player too.  A good sound system changes the viewing experience profoundly - I think it was Steven Spielberg who said that good sound is as equally important to a great movie as is a good picture.

Continuing an electronic/gadget type theme, last week I reviewed a midrange pair of Sony noise canceling headphones, their MDR-NC60 headphones, costing about $135.  This week, it is the turn of the top of the line Sony noise canceling headphones, their MDR-NC500D headphones, costing an impressive $400.

The major distinctive feature of these headphones is they use digital rather than analog electronics to process the sound and cancel out the noise.  Although this is presumably the reason they charge such a ridiculously high price, I have costed out the components they use and it seems the extra cost of the digital technology is something less than $11.

For sure, you want to have a very good understanding about what you get before you agree to spend $400 on a set of noise cancelling headphones, and so, here's a two part review to hopefully tell you all you need to know :

This Week's Feature Column :  Sony MDR-NC500D Noise Canceling Headphones Review :  Should you spend $400 on these headphones?  Are they truly the best headphones available?  And do they justify the $100+ extra cost over the Bose Quiet Comfort 2 headphones?

Talking about the Bose Quiet Comfort 2 headphones, thanks to reader Bill who writes

The price of new QC2 headphones is daunting. However if you already own the old QC1, Bose will trade it in for a new QC2 for 100 bucks. They don't advertise this, but it is real. I just traded in two sets. $100.00 is a great price for the QC2, if you already own the QC1. Contact their Parts and Service department.

One more thing about the Bose headphones - and if you didn't read the entire two part review of the Sony headphones, let me quickly tell you that the bottom line is that I ended up recommending the Bose Quiet Comfort 2 headphones as being a better choice than the Sony headphones.  Normally Bose has an iron-clad retail price of $300 on these headphones, and does not allow any retailer to discount them.

But while writing the Sony review, I saw them for sale on Amazon for only $269, and they remain available at that price now.  I don't know how long they will stay discounted (the Sony headphones had been also discounted for a brief while, but when I went to buy them, they had gone back up to full list price everywhere I looked), but if you've been toying with the idea of getting a set of the Quiet Comfort 2 headphones (in my opinion the best of all currently available noise cancelling headphones) it might be worth while treating yourself to a late Christmas present now.

Dinosaur watching :  How about a nice positive airline story to end the year?  So let's talk about Sun Country Airlines (yes, a very small airline, but - hey - good stories about airlines are far and few between!).

Sun Country filed for bankruptcy protection in October, and - as is traditional in such cases - imposed two rounds of wage cuts on its staff.  But it is now profitable again and expects this quarter to either break even or possibly even make a small profit.  So what is it doing?

It is paying its employees 40% of the money they lost from the wage cuts, and says that from 1 January, employees will be back to their earlier full wage rates.

And - get this - the airline will give the rest of the lost wages back to employees in April, plus a 3% interest payment too.

Southwest had a bit of year-end fun when their CEO commented that they might add flights to another major US airport as early as next fall, an announcement that will strike fear into the hearts of all the dinosaurs, who will now be wondering/worrying if it will be one of their key airports that Southwest may attack.

But one airport that perhaps Southwest is not likely to add further to is LaGuardia, where the airline recently bought the 'slots' previously owned by now bankrupt ATA.  LaGuardia has the highest number of flight delays of any airport in the country (and with Southwest's tight scheduling, unreliable airports are a real problem), and so the FAA has lowered the cap on flights from 75 down to 71 flights per hour in an effort to reduce congestion at the airport.

On the face of it, this is a sensible step, although also a backward step (a more positive step would be to improve air traffic control issues to allow the airport to better handle 75 or even 80 flights an hour).  But it may not succeed, because this cap is, ooops, a voluntary cap.  If the airlines don't agree to accept this restriction (with AA, DL and US being the three major carriers at LGA) then the situation will stay as it currently is.

If I had a dollar for every time I've read an article that quotes an airline executive who says confidently 'We are meeting our goals and are confidently on target for profitability, with plenty of cash in the bank' and which is followed, very shortly later, by the airline going bankrupt, I'd not need to write this newsletter for a living.  This is primarily true of private airlines that don't file public accounts, but it has been true of public listed companies too.

The latest executive making such bullish statements is David Cush, CEO of Virgin America (VX).  Here's a very gushy article about him and his airline that doesn't ask any hard questions or offer any real insights into the airline at all, but two days before Christmas, it is probably the best the newspaper can do - all the more so because it is the local cheerleading paper for San Francisco and therefore VX.

I make these cynical comments not in the expectation that Virgin America will go broke, and certainly I hope it will survive and prosper, exactly as CEO Cush predicts.  But the airline is understood to have been operating comparatively light loads on its flights, and certainly in the 'bad old days' of high fuel costs, it must have been bleeding cash out of every orifice.  It is, however, a great little airline, and deserves our support whenever your travels take you somewhere they fly.

Talking about Virgin, I wrote last week about the planned commencement of related company V Australia's flights between Sydney and Los Angeles on 27 February 2009.  The route between Australia and the US has been one of the least competitive of all routes, with the result being fares are much higher than for travel to most other places, and it has been one of the most profitable parts of market dominator Qantas' worldwide operation.

So it is great for us as passengers to see a new airline start to offer service on the route.

And now, news of yet another airline about to add service on the route, too.  This time it is Delta, who intend to revive their merged partner Northwest's service to Australia (Northwest briefly operated then withdrew service to Australia in the mid 1990s), with a plan to start daily 777 service in July 2009  (hmmm - July - the absolutely slowest time of the year for travel between the US and Australia.  This is the worst time of year to start service to the South Pacific, although a traditional time of year to add new service to northern destinations - do you think DL realizes that air travel patterns to Australia are six months out of phase to travel patterns to Europe?).

If Delta chooses to make a more substantial commitment to this route than did Northwest, it spells trouble for startup airline V Australia, and could lead to a major impact on Qantas' profitability too, while opening up more choices to us as passengers, with now airlines from all three major alliances (Oneword = Qantas, Star = UA and Air NZ, Skyteam = DL) offering service on the route.

Talking about impacts on Qantas, the proposed merger between Qantas and British Airways has been ostensibly called off, although I'd be far from surprised to see it back on again in the future.  Apparently the two airlines couldn't agree on their respective values to calculate a formula for merging, and so there's a good chance that pronouncing the merger as dead is equivalent to bargaining in a bazaar where you walk away, refusing to pay the price, in the desperate hope that the merchant will run after you and drop the price some more.

On the other hand, it would a strange merger of two airlines - located at almost exactly opposite sides of the world, and already cooperating on the routes they compete on, thereby providing little immediate 'synergy' (the code word for 'opportunities to reduce competition between us').  And whereas Qantas has been and continues to be robustly profitable, with a projected $500 million pre-tax profit for the current year, BA anticipates making a loss and also has the small matter of a 1.7 billion shortfall in its pension fund.

Other airline mergers have been between airlines that share the same general operational base.  A BA/QF merger would have been a totally new concept, and offering uncertain benefits and many problems to both merging partners.

This now leaves BA able to concentrate on its closer-to-home merger with Iberia, and Qantas is now rumored to be looking at Malaysia Airlines.

The flow-through impacts of DL starting service to Australia may also cause other alignments and changes.  The several times failed attempts at a merger between QF and Air NZ may be revisited, and up in the US, Alaska Airlines - formerly a 'best friend' for both QF and DL/NW - something it could get away with when there was no competition between QF and DL, may now have to choose which airline it wants to be best friends with (from the perspective of code sharing domestic flights that feed into the trans-Pacific flights to/from Los Angeles.

Good news = airlines continue to reduce their fuel surcharges.

Bad news = the fares are remaining the same.  The airlines are simply taking the money they formerly charged us as a fuel surcharge and adding it to the airfare instead.  Details here.

Which makes the entire fuel surcharge charade even more pointless.  Why don't the airlines just simply adjust their fare as needed, rather than play games calling part of the fare a fare and part of it a fuel surcharge.  Their present approach insults our intelligence and offends our sense of fair play.

One has to think that the airlines will be making huge profits in 2009 - at least until such time as fuel costs rise once more.  But this article reports on an analyst who says the airlines will need to fly with their planes 78% full next year just to break even.

If you read the article about Virgin America (which outlooks positive profitability), you may have noticed the passing mention that their fuel costs dropped from 55% of total costs down to 20%.  The same is happening for all other airlines, too.  So how can any airline fail to become extraordinarily profitable next year - especially because, as we have also seen, they are not dropping their fares to match their reduced fuel costs?  Why would an airline need to have 78% load factors just to break even?

Remember that today's airlines are structured very differently to a few years back.  The twin assaults on them of the post 9/11 crisis and the fuel crisis caused them to massively cut back on their staffing costs, paying fewer people less money to do more work.  They've phased out older gas-guzzling planes, and discontinued unprofitable routes.  They have lower cost bases now than ever before.

Why can't they be abundantly profitable (and oil is currently around $35/barrel) at present?

Reader Bruno reports that he lives equidistant between SFO and LAX, and so was checking fares to fly from either airport to Singapore and Hong Kong.  The cheapest fare from SFO routed him first to Los Angeles and then on from there.  And the cheapest flight from LAX routed him first to San Francisco and then on from there.  Because airlines typically charge more for the convenience of a nonstop flight, this means that in this case, they are charging less money for considerably more flying.

Do you think such crazy pricing schemes might be part of the reason why airlines are alleged to be struggling to be profitable in 2009?

Talking about the positive impacts of lower oil costs, here's a fascinating factoid :  Economists believe that American consumers as a whole pocket a billion dollars every time the price for a gallon of gas drops by a penny.  With the gas price today almost $3/gallon down on what it was in July, that's a massive amount of extra cash being injected into the economy.  I certainly notice it when filling my gas tank now costs only $30 instead of $90.

Perhaps this explains the drop in sales of hybrid vehicles.  The Nissan Altima saw its sales drop 70% in Nov 2008 compared to Nov 2007, the Honda Civic was down 68%, the Mercury Mariner down 53% and the Toyota Prius dropped 48%.

Another fuel related factoid :  1.137 billion gallons of extra gas are consumed each year in the US due to people in cars weighing more than they should, as reported here.  I must confess, being recently returned from the Christmas Markets cruise and having eaten way too many sausages and other food (as Twitter followers know), I needed to let a notch out of my belt, but having spent much of the last few days shoveling snow, perhaps I can soon stop worrying about the extra fuel I'm now consuming.

Fast factoid :  Tourist arrivals to Beijing in August 08 (the month the Olympics were held there) totaled 389,000 - a drop of 7.2% compared to the same month in 2007 - an even more startling drop when you consider that tourism in China is otherwise growing at an annual rate of 10.4%.

Countries always boast about the enormous positive impact on tourism that hosting the Olympic Games will bring (as part justification for the enormous cost of staging the games).  I've yet to see any country point to any convincing tourism benefit, proud boasts to the contrary notwithstanding.

This Week's Security Horror Story :  Here's an excellent article on a gentleman referred to as 'The Business Class Terrorist'.

Reader Cal had his first experience with the TSA's new three lane approach to getting through security screening.  There are lanes for 'experts', for 'casual' (ie inexperienced) fliers, and for families.  As a UA 1K Million Miler, he headed for the expert lane, but then noticed there was a long line of people in that lane with only one scanner, but no-one in the family lane that was being served by two scanners.  So he went over to the family lane, only to be told that he couldn't go through that lane, because he didn't have a family with him.

So, the bottom line for the TSA's new approach to speeding us all through security - it is a dismal failure.

This should not surprise anyone familiar with the mathematical science of queuing theory.  The fastest way to process a line of people is to have one line fanning out to the multiple scanners at the end of the line, not to have separate lines for each scanner.  This is very fundamental queuing theory, but apparently too advanced for TSA's rocket scientists.

Here's an interesting list of 'top travel stories in 2008' - albeit with a slant to frequent flier type issues.

And here's an amusing list of the most annoying types of airline passengers.

Lastly for 2008, I want to pass on some thoughts about our economy.  As FDR put it, we have nothing to fear but fear itself.

In my (rarely humble) opinion, political commentators with an underlying agenda talked up the economic problems earlier this year, so as to advantage the Democrat candidate for the presidency.  I listened, at one time, to an economics professor being interviewed on a radio show in the middle of the year and he said 'The economy is in such a bad state that we're way beyond a recession; this is a full blown depression' - even though, as he surely knew, we had yet to meet the definition for a recession (two quarters of negative growth) let alone trespass beyond that to depression territory (more nebulously defined as 'a severe economic downturn that lasts several years).

Just this week, we're told in doom and gloom laden terms that the US Dept of Commerce has revised downwards its measure of our economy for the third quarter.  But the actual statistic?  It contracted by an almost imperceptible 0.5%.  That's nothing, and certainly nothing to justify the continued gushing of emotional rhetoric that is almost literally talking us into the bad economic times they're worrying about so theatrically.

Except, of course, now that the Democrat is about to become President, we can expect to see these doomsayers suddenly become cheerleaders instead.  We'll have to wait until they've finished the classic 'Oh my gosh, things are much worse than we thought they would be' phase of their propaganda, so they can then triumphantly point to the major successes of the new administration in successfully combating the economic crisis.

My belittling of the importance of the problems we are currently confronting might seem strange when we are beset by bank blowouts/buyouts, a collapsed share market, and the much talked about 'Big Three' automaker problems, and I certainly don't wish to pretend that we don't have problems.  We do indeed have problems.  But we're far from the type of apocalyptic events of the Great Depression.  Remember the 0.5% contraction in GDP for our third quarter?  Well, from 1929 to 1930, GDP shrunk 9%, from 1930 to 1931 it shrunk 6.4%, and from 1931 to 1932 it shrunk 13.4%.  Unemployment rose from 3.2% in 1929 to as high as 25% in 1933 (but even with awful 25% unemployment, that still means that three out of every four people were working).

My point is simply this.  If we all stop spending, then we will have a financial calamity.  I'm not saying we should spend as imprudently or as profligately as the government itself is. (Do you have any idea how many trillions of dollars it has spent in the last three or so months, or on what, as part of its financial 'bailout' moves?  I don't think any of us - and I don't think even that any of our political representatives either - have an accurate handle on where and how money is currently being spent.)  But I am saying don't let this become a self-fulfilling prophecy.  Live your life prudently, but reasonably normally. 

If you're a home owner, why not refinance your mortgage - rates can be found below 5% now, and spend the money that you'd otherwise have paid in mortgage interest on economy boosting purchases such as - well, a Blu-ray disc player and new big screen tv!  Or the Bose QC2 headphones.  Or treat yourself to a nice vacation in 2009.

Here's an article from the Washington Post that puts these issues into excellent perspective.

And so, with these as the last of some 400,000 (!) words I've written this year, please allow me to wish you an excellent 2009.  May our problems be small ones, and our successes large ones.  May our resolutions last at least through the end of January.  And may the airlines become so profitable that they eliminate all the fees they've imposed on us this year.

Until next year, please enjoy safe travels

David M Rowell aka The Travel Insider

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