On Thursday there was the latest restatement of Norwegian Air’s plans to offer fares between New York and London for $99.
With their application to operate air service via Ireland now finally approved, and with rumblings from other (low(er) cost) carriers looking to expand their presence across the Atlantic, and astonishing claims from dinosaurs all the way to British Airways about creating their own low cost services, does 2017 promise the dawn of a new era in low cost air travel?
With the US dollar at its highest levels in decades, is international travel going to be more affordable and appealing than domestic travel? What else can we expect, for travel and for ‘life in general’ during 2017 and the waning years of the 2010s?
Norwegian Air’s $99 Fares
A $99 (£60) fare between New York and London? How incredible is that? Well, you need to read the fine print before rushing to pack your bags.
First, there is that awful four letter word beginning with the letter ‘F’ that modifies the claim – ‘from’. So maybe there will be two or three seats at that price, on some flights, and none at all on most flights.
Second, that is a one way fare, requiring roundtrip purchase. So we’re now looking at ‘from $198 roundtrip’, and with the $99 fares likely to be far and few between, your chances of being able to find seats for $99 on both your outbound and return journeys drops drastically.
Third, all taxes and government fees are almost certainly extra. Get ready for a shock when you see how much taxes and fees add to the basic airfare cost. With the British government’s ever more rapacious air passenger duties (ostensibly to ‘save the planet’, no less), and the US government’s steady growth in fees too, you can expect to add another $100 – $200 to the basic airfare.
Fourth, the extra fees that Norwegian will charge you. Would you like to take some luggage with you? One suitcase will add $80, two will add $170 to your fare. Oh – you’d like to have something to eat on your 7 – 9 hour flight? That will be $5 – and that’s just for one non-alcoholic drink of soda! Figure on adding $50 or quite likely more for food. A blanket? $12 extra. A reserved seat? That requires a fare upgrade – at least $150 more (but now including some food and a free checked bag too).
And, when you’ve added all of this up, and are getting ready to pay, there’s one more fee. A 1.99% charge (can’t we just call it 2%) for using a credit card.
So, even in the extremely unlikely event you can find the $99 each way fare, that’s just the start of what it will actually cost you to fly.
Air Fares in General for 2017
This is harder to predict. There are some out-of-balance forces and some possible future impacts, all of which might see changes in fares.
There are two out of balance forces. Both imply that air fares could and should drop. The first is that many major airlines are reporting record profits at present. The second is that flight loads are also at record high levels. This combination of factors would seem to create an ideal environment either for existing airlines to add extra capacity or for new airlines to come in and start flying too.
But the last few years have seen the major dinosaurs being ‘very disciplined’ (the politically correct term being bandied about to describe their price gouging) and preferring to make an unusually large amount of money on fewer tickets sold, than to make smaller sums, per ticket sold, while growing capacity to sell more tickets. So the temptation for an airline to ‘break ranks’ would seemingly be growing ever stronger – although the fact that we only have essentially four major airlines in the US now is the other limiting factor there. Free market competition? Alas, not even remotely free and not at all competitive. Meet the real reason why airline profits are high and no airlines are bucking the trend towards high fares and few flights – the lack of competition and the remaining carriers’ willingness to tacitly follow each other and not ‘upset the apple cart’ with pricing initiatives.
The only way that airlines are presently willing to break the mold and change things is by introducing new fees, and any such introduction is usually welcomed and matched by the other carriers.
A possible future impact is whatever might happen to jet fuel prices. At the time of writing, there is a possibility that OPEC, and now with the willing collusion from the other oil producing nations, might be bringing back some control to the formerly free-falling oil prices, and if we see oil prices start to firm up, airlines might see their fuel bills increase by 50% or more. We don’t expect oil and fuel costs to return back to the sky-high levels of several years ago, thanks to the oil shale revolution; the more that oil prices go up, the more that companies will bring new oil wells on-line and the increased supply will soften the pricing.
Certainly, carriers can absorb some extra fuel cost and still make decent returns (by airline standards) but the flipside of limited capacity and full flights is they currently ‘own’ the market and can increase prices with little downside. With some carriers persisting in ‘fuel surcharges’ all the way down the collapse in fuel costs, even the slightest uptick in fuel prices will surely see airlines eagerly testing the market for fare increases.
So, while there is every reason, in a free market, to see a ‘free for all’ collapse in pricing and explosion in new routes and flights, modifying that theoretical prediction to reflect the reality of the uncompetitive market we’re in, means we don’t see much chance of reductions in airfares, and plenty of opportunity for increases.
Internationally, the high-profile appearances of new discount carriers and their new flights is all great stuff and to be encouraged; but as the analysis above suggests, the reality of the $99 headline fares is that you’re going to probably be paying $500 for the true total flight experience, roundtrip.
Furthermore, not only are the $99 fares extremely hard to find, so too are the budget airlines and flights they operate. Most airports in the US either have no budget airlines operating out of them, or have so few flights as to be imperceptible in the market, and the response by the major carriers to a pinprick from a discount carrier can be to simply ignore it entirely. Why should a major carrier discount its fares on thousands, possibly tens of thousands, of seats a week across one or two dozen flights each week, in response to a discount carrier that has maybe ten $99 seats on maybe one or two flights a week?
So, best case scenario, if you strike it lucky maybe you’ll save $100 or so on an international ticket, and while that is surely to be welcomed, it is hardly a transformational change that gets us all heading to the airport more often than we do currently.
International Travel in General for 2017
We don’t want to plant any negative thoughts in your mind, and of course Travel Insiders tend to be much more sensible than some less worldly-wise segments of the total potential travel market. But we will observe that there have been measurable impacts on 2016 travel patterns as a result of the new more active level of Muslin terror and Muslim social unrest in Europe. In case anyone cares or pays attention, there are hypocritical US Department of State cautionary notes – a travel alert posted for Europe, a worldwide travel caution, and indeed a travel warning for Mexico (and other less popular countries).
We call these hypocritical because they are so vague as to be meaningless, remain in place essentially unaltered for years, recommend totally impractical behaviors (keep away from tourist areas – try that while you’re on your tourist vacation!), all the while ignoring the risk of remaining at home. We in the US are getting our own tastes of terror attacks and crime in general, too.
Most people realize that the most dangerous part of any journey is driving between their home and airport at the start and end of the total travel experience. But even the slightest degree of terror concern definitely intrudes on the hoped for ‘feel-good’ and ‘happy-making’ experience we seek when indulging in often expensive and always non-essential travel vacations. Somehow, while we happily ignore much greater (but still totally trivial) risks such as lightning striking us, catching a deadly foreign disease, having a building collapse on our head, and other improbable events, the concern over terror attacks impacting on our travel experience seems to be much harder to ignore.
An ability to guess at European travel patterns for 2017 is therefore very much dependent on what level of terror activities may occur. The much greater problems in Mexico seem to be ignored/accepted by Americans, and the occasional blips of terror activity in South East Asia also seem to be largely overlooked. So travel to those regions will likely continue unaltered by anything other than extreme externalities; strangely it is our perception of Europe that is most impacted by occasional acts of terror – perhaps because Europe presents as a ‘friendly safe easy’ place to travel, so there’s more downside to that image.
If the dollar remains strong, international travel costs will be more affordable, although we must sadly observe that we’ve not seen much clear evidence of the strong dollar flowing through to lower international package tour and cruise prices.
It is also our sense that in some areas (both within the US and internationally) hotels are getting close to full, and are eager to increase their prices whenever they can. We definitely need another cycle of hotel (over)building.
Traveling at Home
Other than our comments on domestic airfares above (unlikely to drop) and hotels (probably going to gently firm), and an unnecessary stating of the obvious (airports are getting close to maxed out making for potentially disruptive delays at peak travel times) we’d also like to touch on one of our other 2016 topics of focus, namely the trends in the automobile industry.
In theory, 2017 should see the introduction of Tesla’s affordable Model 3 car. We don’t expect to see it delivered in anything other than perhaps token numbers to prove they did indeed meet the promised release in late 2017; more likely is that it won’t start deliveries at all in 2017.
But we do expect to see more of the Chevrolet Bolt – a car reasonably similar to the Tesla Model 3 and already shipping, and we expect the drum-beat heralding an explosion of similar cars from all other car manufacturers to increase during the year. We don’t expect many major new electric vehicles to be released and start shipping in 2017, but we do expect to see many – both high end and budget, high performance and standard – scheduled for release in 2018.
Tesla will shift from being the ‘only’ manufacturer of ‘real/practical’ battery powered vehicles to instead being just one among many.
With probable continued gentle firming in oil prices (they set an 18 month high on Thursday) we expect to see a return of mainstream focus onto petrol-alternatives, and with probable continued improvements in battery technology and pricing, battery-electric vehicles seem like an inevitable and excellent solution that is increasingly practical (ie long range) and cost-justifiable (both in initial purchase price and ongoing operating costs).
The other automobile trend is towards increasingly automated vehicles with more and more self-driving capabilities. The ‘sort of/sort of not’ self-driving ability of the Tesla vehicles as was released initially in late 2014 and updated in late 2015 is now being updated again with a much more sophisticated set of sensors and software – what they are terming their Autopilot 2.0. This is expected to see a stream of new capabilities released during 2017, possibly culminating in full self-driving capabilities by the end of the year. Uber is currently testing self driving cars in several cities. Looking further ahead, Ford says it expects to release a completely self-driving car by 2021.
While government regulation is scrambling to keep up with new developments in technological capabilities, and threatens to needlessly slow it down, the reality will increasingly become obvious to all – self driving cars are enormously safer than human-driven cars.
This is a stark and simple fact desperately overdue recognition. When you think of the extraordinary costs and fuss we make over old lead-based paint and asbestos in homes (whether in safe or dangerous form), and contrast that with the almost impossible to measure health consequences, how much longer can we sit back and accept the 35,000 or so people killed in car crashes each year, and the 2+ million people injured? These numbers are for the US alone, world-wide it is suggested that almost 1.3 million people die each year. We need to strip away our selective blindness when it comes to motor vehicle dangers.
All these pending revolutionary changes to cars poses a question to the auto industry and its customers : With new types of power trains and massive advances in automation coming to our cars, plus perhaps a ten-fold increase in safety, why should anyone choose to buy a new car in 2017 when it is likely to be so obsoleted so quickly?
Amazon and Shopping
Talking about driving, there’s one type of driving we’ll continue to do less and less of. Driving to the shops. This week saw the publication of a patent filed by Amazon in 2014, anticipating huge airborne warehouses with fleets of drones shuttling between a floating warehouse in the sky and customers’ homes, and larger drones conducting restocking runs up to the warehouse. The really ‘big idea’ inherent in this is that currently, drones are limited by the power they have available to lift up a package in the first place; when all a drone has to do is gradually descend with the package and without any need to rise at all, smaller drones with less power will have greater payload capacities.
Will this appear in time for Christmas shopping in 2017? Probably not, although Amazon is already trialing drone deliveries, and something that was first thought to be an April Fool Day joke (automated drone delivery) just a couple of years ago no longer seems outlandish at all. But the airship type hovering warehouses – there’s still some leadtime required to make those into a reality.
The sooner this happens, the better. Imagine one of these hovering over any major city. Forget second day shipping, overnight shipping, even same day shipping. If we allow say five minutes from placing an order on Amazon’s site to when the item has been picked in the warehouse by a robot and loaded onto a drone, and then ten minutes for a drone to fly, say, up to 15 miles from the floating warehouse and (almost literally) drop the package off, that would allow a mere 15 minutes from placing an order to receiving the items on your door step. You couldn’t even walk/drive to the closest store, buy something, and get back home in less than that time.
Not only is this unimaginably fast and convenient, but it is also very efficient and affordable for Amazon. Amazon isn’t having to pay for the inefficient old fashioned method of boxing up product to withstand the stresses of uncaring baggage handlers and the shipping process, nor must it pay for the people and courier delivery drivers and traffic hassles and so on. Everyone wins.
Talking about not needing to pay delivery drivers, this process would probably be 100% automated, with no part of the ordering and fulfillment/delivery process involving any humans at all. Which brings me to :
Automation, Robotics, and AI
This is the scariest change of all. Will 2017 be the tipping point where people stop boasting about and eagerly looking forward to more and more automation? Will people finally understand that robotics will replace almost every imaginable human physical task, while AI will replace almost every imaginable human mental task? And will people think through the implications of that to see the dreadful horror such a circumstance will cause for us all?
In this not-too-distant future, when you lose your job due to a computer and/or a robot replacing you, what happens to you? Don’t think you’ll just go get another job, because you’ll not be alone in this predicament – other people like you will also be losing their jobs.
Some recent studies are suggesting that half – possibly even two thirds – of all jobs are vulnerable to being replaced by new technologies. These jobs are all across the spectrum from low earning McDonald’s positions to high earning stock analysts and brokers.
(As an interesting aside, in this article McDonald’s astonishingly claims its move towards automation won’t mean fewer employees, it will just mean that employees can spend more time interacting with customers and taking their orders. That sounds wonderful, but how then to reconcile their’ claim with the more recent news that McDonald’s is deploying fully automated self-ordering kiosks?)
So unemployment rates will go from 6% to 60%, maybe higher. As a comparison, peak unemployment during the Great Depression briefly touched 25%. Unlike the Great Depression, this will be permanent unemployment – there just won’t be any more jobs remaining for most people and most skills, and people without jobs will have no hope of ever getting one. What will that do to our economy – will the entire economy collapse under the disappearance of jobs for most people? Just as important – what will it do for our society, with probably two thirds of society having no work and no prospect of ever getting work?
The good news is that the full extent of this draconian future is still some years off, but the bad news is that it is almost certainly will come sooner than anyone expects.
Enough of my comments. What do others expect in 2017? Will Mr Trump also be awarded a Nobel Peace prize immediately he takes office (one prediction suggests it might go to Angela Merkel instead)? Will he create true peace with Russia? True or trade war with China? So many imponderables!