Weekly Roundup Friday 27 May 2011

Good morning

Memorial Day weekend marks the traditional start of our summer season; although with the crazy weather we’ve been having of late, who only knows when and what summer will be like this year.

But let’s not forget also that the significance of our three day weekend is much more than the start of the summer barbeque season, or a chance to get stuck in a car on an overfull freeway while driving away for the weekend.

As one who benefits greatly from the freedom of speech – the freedom to disagree, complain and criticize – as well as all the other freedoms that form the bedrock of this great nation, I very much understand and appreciate the men who fought and died to gain us those freedoms, and then to keep them for us over the generations from our independence until now, and hopefully for long into the future too.  This weekend, while traditionally marked by our own self indulgence, it truly is all about the selflessness of our servicemen who have served on our behalf to enable us to now be free and indulgent.

Talking about crazy weather and uncertain futures, you’ve doubtless heard of another Icelandic volcano – the Grimsvotn volcano – misbehaving and spewing dangerous quantities of ash up into the atmosphere, causing the sporadic closures of airports in Scotland and elsewhere.

You may also remember the problems suffered last year with the Eyjafjallajökull volcano’s ash emissions.  There is, however, reason to expect we will not be so severely affected this year.  As a result of the appalling airport closures last April and lesserly extending into May, the science of measuring and understanding atmospheric ash clouds and their potential impact on airplanes has been massively advanced in a very short time.

Basically, the first part of last year’s problems was a ‘better 100% safe than even the slightest bit sorry’ overreaction which treated ash as if it were an all or nothing event – if there is measurable ash anywhere in the sky, then all the sky above, below and around the ash was all closed off from airplanes.

Nowadays we understand that some ash levels are relatively benign and safe to fly through, and we also understand that there is no need to restrict flights at, say, 10,000 ft if the ash cloud is between 35,000 ft and 65,000 ft; accordingly the earlier prohibition against flying underneath (as opposed to directly through) an ash cloud has now been lifted by the British authorities.

So any ongoing ash emissions from Grimsvotn (or any other volcano) are expected to have less impact on aviation operations than was the case last year.  Furthermore, as of Wednesday this week, the activity from the volcano has massively dropped off and the Iceland Meteorological Office says that no further ash plume is expected.  That is only a moderately reassuring statement, because the ash plume that did occur was not expected, and ‘less impact’ still has impacted on over 1600 flights and seen airport closures for a day or more at a time.

Having said that, I’m glad I’m traveling to Scotland several days prior to the start of this year’s Scotland’s Islands and Highlands tour!  Whether it is delayed fights, missed flights and connections, cancelled flights, lost baggage, or any one of the many other ways that Murphy’s Law can affect long distance international air travel, it really is always prudent to travel wherever you need to do at least a day prior to when you need to be there.  If nothing else, you get a day to unwind and relax and slightly adjust to the new time zone before officially starting your business or your vacation or whatever, and the peace of mind at all times prior to traveling and during the journey itself, knowing you have a spare 24 hours (or more) in case of misadventures is tremendously reassuring.

It seems we are traveling in greatly increased numbers.  According to the US based Air Transport Association, passenger revenue in April was up 12% on the same month last year, making for the sixteenth month in a row with year-on-year revenue growth.

However, most of this growth was not from passenger numbers, but from the average fare paid.  Passenger numbers were up 3%, while the fare paid was up 9%.  The biggest fare increases were to Latin America, with an increase of 16%, year on year, in terms of the average cents paid per mile flown.

Talking about massively increasing airfares, sooner or later the enticing higher and higher fares bring new carriers into the market.  In this case, the world is about to see a very interesting new low cost airline – it will be an off-shoot of Singapore Airlines.

There has been quite a lot of development of low cost carriers primarily operating regionally within Asia that has been largely under the radar of American and European travelers, but Singapore Airlines is now talking about a new long-haul airline that would fly routes outside of the regional Asian routes that other low cost airlines have concentrated on to date.

This could conceivably see low fares even to the US and Europe.  It is early days yet and the routes and planes they’ll operate have yet to be revealed, but Singapore Airlines said it expects to operate wide-body planes on medium and long-haul routes.  If an airline the size of SQ is going to create a low cost subsidiary it is likely to have a measurable impact on the overall level of fares – both on the routes it operates and possibly even on routes that it could but doesn’t yet operate on (so as to discourage it from moving to those other routes).

The new airline is projected to start operating within a year.  As always – and this is not new news – more competition is truly a good thing.

Here’s a rather Australia-centric analysis of the new operation.  An interesting point brought out in the article is that this is not just one airline competing against other airlines, but it is one country and its hub (Singapore) competing against other countries and their hubs (most notably of course Dubai, but also Abu Dhabi, and potentially Malaysia/Kuala Lumpur, and China/Shanghai as well).

Emirates has shown us how it is possible for an airline to base itself in that general region and offer hubbed service through there between almost any two points on the globe, and the other carriers located in the region are keen to recreate Emirates’ success.

Of course, and sadly, this will have little or no impact on travel between North America and Europe.  But maybe it will encourage a similar operation to restore some effective competition on the intensely traveled trans-Atlantic routes which currently suffer from an almost complete absence of measurable competitive activity.

To tax, or not to tax.  That is the question.  So mused Hamlet – or at least, he was pondering something of similar importance.  For us though, we must suffer the decisions of local authorities who choose to tax visitors to their jurisdictions.  This is a decision that has not been universally adopted, and there are plenty of tales of cities and even entire countries that have first put their taxes up, then discovered a measurable fall off in tourist numbers and the money received from those tourists, so that in time they have been persuaded to reduce their tourist taxes, and in such cases, they have generally experienced positive results.

I wrote a couple of weeks ago about Ireland being the latest country to reduce its tourist type taxes.  But this week, news of the opposite kind, from Florence.  The city is introducing a new type of hotel tax, with effect from 1 July this year.  It is calculated on an interesting basis :  Guests will pay €1 per person per night per hotel rating star.  So if two of you are staying in a four star hotel for three nights, you’ll pay an extra 2 x 4 x 3 euros – an extra €24 or about US$35.

Would $12/night added on to the hotel’s room rate turn you away from Florence?  Probably not, but it might make you shave one night off the total stay; but many tour operators might now shift from including a night in Florence as part of a tour to just having a day tour there and staying in some other city instead.  In such a case, it is entirely foreseeable that this new tax will – the same as many other similar taxes have in the past – end up costing rather than earning new money for the city.

Currently Florence is projecting an extra €18 million/year from the tax.  Here’s an interesting calculation – if we say the typical Florence hotel is €100/night and is 3.5 stars and has 1.5 people staying in it, that means the typical hotel night brings in €5.25.  Now, that one night stay in Florence brings €100 to the hotel, maybe €50 in food, maybe €20 in drinks, and lets say €30 in taxis, souvenirs, attraction admissions, and anything else.  In total, €200, of which most will be in the form of wages to tourist industry workers, and about 17% is VAT.  Let’s not forget that the wages component of this will be taxed, and the earnings by the employees will then be spent, generating additional wages, etc, down the line – the so called ‘multiplier effect’.

So let’s say a one night stay currently generates something over €300 in economic activity, and something over €70 in taxes.  If even one person in thirteen now cancels – if there is 7.5% reduction in visitor numbers, the €5.25 extra received will be outweighed by the taxes lost, and the overall economic activity will be appreciably reversed.

This is a case where Ireland has it right and Italy (or, at least, Florence) has it dead wrong.

I wrote last week about Amazon’s possible new tablet type replacement for its current Kindle e-readers.  This week saw Barnes & Noble release a surprisingly lacklustre low-end e-reader to compete on price against the current generation of Kindle readers – this being a surprise because it had seemed, until now, that B&N’s strategy was to go up-market, offering better more capable more fully featured e-readers.

B&N’s movement further down the e-reader marketplace probably points to something significant.  eBooks and their e-readers are no longer revolutionary and of interest only to ‘early adopters’.  I’m seeing, on planes and in airports, all types of people from all age groups and apparent demographics, now happily using eBook readers.  As a device becomes mainstream, the pricing needs to drop to mainstream levels, and there needs to be some very basic simple easy to use models so as to make reading an eBook almost as completely intuitive and simple as reading a regular printed book.

Amazon also made an extraordinary announcement this week that underscores the huge rush by all of us to eBooks.  They say that they now sell 105 eBooks for every 100 regular books (in the US market).  Last year they had said they were selling more eBooks than hardcover books, but now they are saying that, on their site, eBooks are outselling all books – hardcover and paperback.

This is of course not the same as saying that overall, everywhere, eBooks are outselling printed books.  But give it another year or so and maybe that will indeed be the case.  The rapid increase in eBook market share is astonishing to behold.

There’s quite a lot else for you to read this week.  The extraordinary saga of Boeing’s continual delays in responding to the biggest threat to its corporate survival – the new Airbus A320neo, gets another chapter (when will it end, and at what total cost to Boeing for its delays?).

The longest 747 flight in the world is not without its problems, and talking about problems, a new website tells you more than you wish to know about the world’s hot spots (or should that be trot spots) for diarrhea.

There’s one other item as well which I thought carefully about before writing.  The realistic truth is that newspaper journalists have to compromise a great deal when writing their stories for their papers; they never have enough space to fully detail any story about any topic.  Some people see the often incomplete material that journalists end up writing as being evidence of bias, and sometimes it definitely is.  Some people who are interviewed for stories and who see their thousands of words of commentary reduced down to one or two brief quotes feel that the reporter has in some way cheated, and maybe sometimes the reporter has indeed done that, too.

I’m guilty of such things.  Even my lengthiest and most detailed articles often contain over-simplifications and omissions; and those of you with decades of deep experience on the topic I’m writing about sometime express exasperation at what I’ve simplified and omitted.  One of the hallmarks of a good writer is to be able to appropriately summarize and simplify an issue so it remains acceptably fair and accurate rather than allowing it to become distorted and plain wrong; I do my best, but don’t claim to be perfect, and neither do I seek perfection in my colleagues.

But, once in a while, I encounter an article so egregious that it demands some form of response; particularly if it is in a respected publication that should ‘know better’.  I came across one such piece earlier this week, and after the journalist ignored my request to enter into discussion, I felt it appropriate to write up a detailed rebuttal/expose of his facile puff piece – an article that reads more like it emerged from an airline press office on a bad day, rather than from a bylined reporter for the Wall St Journal.

Lastly this week, we know that it is a problem to fly with no ID these days – although note that, while problematic, it is not impossible.  You have to submit to ‘secondary inspection’ by the TSA – a bunch of questions to try and confirm your identity (using ‘public records’ that might include questions such as ‘is so-and-so a relative of yours’ and ‘who do you have your house mortgage with’), and a close pat-down search – but you will be allowed to fly.

However, did you know it can also be a problem to fly with too much ID?  Apparently so, as this gentleman found out – he was arrested after being discovered with 12 different IDs.  The authorities aren’t yet sure which – if any – is his real identity.

Until next week, please enjoy safe travels and have a great Memorial Day weekend

Davidsig265 David.

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