Oct 282011
 

London Bridge, now in Lake Havasu City, AZ

Good morning

Please read on to enjoy the following items – my perception is that no-one seems to have been using the direct links within the newsletter, and they take quite a long time to add, so I’ll simply list the stories here rather than hot link to them.

Please let me know if I should continue the hot link experiment,

  • Three Happy Birthdays and a Thank You
  • Reader Survey Now Available
  • The 787 – Now in Commercial Service, But with Underwhelming and Untested Features
  • Delta’s Response to Southwest in Atlanta
  • US Airline Industry – One Merger Away from Monopoly
  • The Most Popular US Travel Destination
  • The Future of Travel Selling
  • This Week’s Security Horror Story
  • 100 mph Tape Not Fast Enough

Happy birthdays today to three very different things.

On the intangible side, Windows XP turned 10 this week.  Amazingly, it was only a little earlier this year that it lost its position as the most popular version of Windows in current use.  Windows Vista never succeeded in displacing XP, and it has taken Windows 7 a considerable time to finally exceed the market share of XP.

It is strange in this fast changing technological world to find an operating system that lasted so well for so long.  But is the glass half full or half empty?  Is this a testament to a brilliant XP product, or is it a negative reflection on the mess that was Vista, leading to many people being reluctant to embrace and trust Windows 7 as well?  You can choose your own interpretation.

On the tangible side, one of the most bizarre things in the US turns 40 this week.  I am referring to the structure that has been designated ‘The World’s Largest Antique’ by the Guinness Book of World Records – the transplanted London Bridge, now to be found in Lake Havasu, AZ.

The bridge was built in 1831, and was one of many bridges spanning the Thames river in London.  Unusually, instead of simply demolishing it when it was scheduled to be replaced in the late 1960s, the council decided to offer it for sale in 1967, and in 1968, it was sold for US$2.46 million to an American oil magnate, and the founder of Lake Havasu, Robert P McCulloch.  The bridge was taken apart, shipped, and then reassembled (at a cost of a further $7 million), reopening as a tourist attraction in October 1971.  It is now Arizona’s second biggest tourist attraction (after the Grand Canyon) and attracts more than 750,000 visitors a year.

The bridge isn’t exactly as it was in London.  It is a concrete structure that is merely clad in the exterior stones from the original bridge, and many of the original stones were shortened in length, so as to reduce the overall size of the bridge.  And the water underneath it is an artificial canal, dug after the bridge had been reassembled.

Rumors have sometimes suggested that there was a case of mistaken identity with the bridge purchase, because in truth the bridge is fairly nondescript.  Did McCulloch mistakenly think he was buying the only bridge that really is remarkably distinctive in London – Tower Bridge?  Both he and the councilmember who managed the sale process have subsequently denied this, and probably it is true that the $10 million investment in the bridge has proven to be a sensible investment (although one also wonders how many of the 750,000 people who travel the 155 miles from Las Vegas or 200 miles from Phoenix may also be mistaken about what they are going to see), helping McCulloch to sell many lots and homes in his new city.

The London Bridge Resort is offering some great discounts to celebrate their 40th anniversary and now is a good time of year, weather-wise, to visit.

Oh – and the third thing with a birthday?  We’ve already had intangible and tangible.  How about animate for the third.  Ummm – me.  🙂

Modesty prohibits me from saying any more, but suffice it to say that the double nickel is now a fading memory with each day that subsequently passes.  Alas.

And a Thank You, Too

Which makes me think of our annual fundraising drive.  I was very appreciative of the 23 more people who responded, even though the fundraising drive kinda sorta finished last week, bringing us up to 454 supporters in total.  We even had two more super supporters join our ranks – Karen and Tom.

Your support is of course appreciated and gratefully accepted at any time of the year (including right now if you’ve yet to participate!).  Thank you again to all who are helping out.

Reader Survey Now Available

The big news this week, as you’ll read in the next article in the collection, is our survey to ascertain which is the best travel innovation from the last quarter century.  Thank you to everyone who sent in suggestions over the last week.  With your help, there is now a formal survey for you to vote in for your favorites.  And please see if you can conscript as many of your friends to vote as well, so we have a good representative selection of responses.

May the best product or service win!

The 787 – Now in Commercial Service, But with Underwhelming and Untested Features

Back to birthdays, maybe there is also a zero’th birthday to be noted – that of the 787 marking its first scheduled commercial flight this last week.  Here is a somewhat gushy account of the flight.

Let’s put some of the Boeing hype into perspective.  The three major benefits – in terms of passenger experience – they talk about are bigger windows, better pressurization, and increased humidity.

The windows are about 30% bigger than the typical windows on earlier Boeing planes.  But does this make much of a difference if you’re in the middle set of seats, making you an aisle and as many as four seats away from a window anyway?  Probably not.  And while I’m not sure of the exact figures, it seems that A380s have larger than ‘standard’ sized windows too.

As for the pressurization, Boeing says that the 787 will typically be pressurized to that equivalent to an altitude of 6000 ft.  Most earlier planes had an 8000 ft pressurization.  Increasing the pressurization is definitely good, but it is only a small increase in pressure rather than a massive change.  It is still way less than you experience at sea level – for example, contrary to some claims, your ears will still pop, and if you have blocked sinuses, you’ll still have painful problems.

Furthermore, it seems the A380 is typically pressured to about a 5000 ft level – even better than the 787.

And the increased humidity is also a small tweak rather than major change.  Boeing says that humidity is up to about 16%, compared to a typical 8% on older jets.  That is good, but two points to keep in mind.  First, even 16% is still massively less than the typical comfort zone of 45% – 55% humidity.  Second, the A380 again beats the 787, with humidity levels going up as high as 25%.

So the 787 has some mild improvements to the environmental aspects of flying, but nothing that will significantly impact on your travel experience.  Most importantly of all, the seats will be no wider or further apart than on other planes.  The food will be no better.  And so on.

On the downside is the still semi-experimental and unproven nature of the composite materials much of the plane is made from.  The GAO (Govt Accountability Office) said in a report just now released

It is too early to fully assess the adequacy of FAA and industry efforts to address safety-related concerns and to build sufficient capacity to handle and oversee composite maintenance and repair

Hardly words to inspire confidence, and they had several other similar passages in their report as well.

I’m not suggesting for an instant that Boeing may have deliberately compromised any safety issues in its design at all.  I’m just pointing out that a lot of the ‘testing’ involved computer modeling rather than real-world testing, and the problem with computer modeling is that it can only predict that which is already understood and known.  It can’t predict things we don’t yet know.  And whereas we now have decades of detailed understanding about aluminum airplane materials, we do not have similar experience with composite materials, so relying on computer models is a bit akin to the blind leading the blind.

Metal fatigue was something unheard of until the first passenger jet, the British Comet, started mysteriously falling out of the sky.  We now know about such things.  My big worry – is there something similar waiting to surprise us with composite materials?  Something we currently know nothing about?

Delta’s Response to Southwest in Atlanta

Here’s an interesting article that predicts there’ll be no pricing or scheduling wars between Delta and Southwest now that Southwest is taking over the Airtran service at Delta’s Atlanta fortress hub.

The article points out that Delta has a 78.6% market share at ATL, whereas Southwest (Airtran) has only 16.7%.  In round figures, DL has four times the share that WN has.

But then the article says that because of this, Delta can’t afford to start any price wars with Southwest, because Delta is so big and Southwest is so small.

This is an interesting suggestion for a number of reasons.  First of all, it seems to be contradicted by every prior example of a big airline moving to crush a small airline that tries to move in on what the big airline considers to be its territory.  The big airline has not suffered from being larger – quite the opposite.  It has used its greater size to crush the smaller carrier.

Second, while Delta is indeed larger at ATL, the article makes a mistaken assumption.  It assumes that DL would need to discount every seat on every flight to force WN out of ATL.  That is not the case at all.  All DL needs to do is put on flights that closely match those operated by WN – ie, departing/arriving at very similar times, and discount only those flights.  DL could leave all the rest of its flights – flights to other destinations, and (to a slightly lesser extent) flights to the same destinations, but at other times of day – untouched.  Why should DL discount a flight to (eg) Poughkeepsie if Southwest has no service there?  It only needs to discount directly competing flights.

But a third factor – unmentioned in the article – may indeed make the article’s conclusion end up being correct, albeit for different reasons.  While DL is much larger than WN at ATL, overall, by some measures, DL is smaller than WN, and both airlines are huge.  If they were to start a ‘pissing competition’ WN is at least as financially strong as DL, and would be able to extend the battle to other routes in other parts of the country too.

And then we’d truly see a battle of the titans.  A fight to the finish?  Probably not, but it would be very damaging to both carriers, and to all other carriers who’d either have to match or else lose appreciable market share while DL/WN fought it out on a nationwide scale.

So what will happen?  Probably an extension of the status quo.  DL will continue with their marketing/scheduling/pricing, and WN will continue with their slightly different marketing/scheduling/pricing, with both uneasily and anxiously trying to pretend the other doesn’t exist.

US Airline Industry – One Merger Away from Monopoly

So – will there be effective open competition between DL and WN?  Almost certainly not, because, as I analyze in my series on competition in the US airline industry, the airlines are not competitors because they are in an oligopolistic situation.

Indeed, I need to update my table of market shares.  Since I created it 18 months ago, the four largest carriers, which then held a 60.1% market share, now hold a 71.8% market share (due to the mergers of UA/CO and Southwest/Airtran).

The definition of an oligopoly is when four companies control between them at least 50% of the market.  Until the merger of Northwest and Delta, the four largest carriers were right around the 50% mark, meaning that airline competition, at least in theory, was present to some extent.  The NW/DL merger pushed the four largest to the 60.1% figure and made the industry an oligopoly, and now with two more mergers, we’re up to 71.8%.

One more measure is now getting very close.  When four companies have at least 80% of the market, we’ve gone from an oligopoly to a monopoly (contrary to popular opinion, a monopoly doesn’t mean only one supplier, it means a very few suppliers).  If, for example, US Airways were to merge with any of the current top four (or AA to merge with one of the other three) then we’d be up to 79.2% of the market in the control of just four airlines.

A monopoly, in other words.

The Most Popular US Travel Destination

Would you care to guess as to the most popular place to visit in the US, based on the results of this year’s Conde Nast Traveler reader survey?

Well, for the last eighteen years in a row, that title has gone to San Francisco.  But this year, a new winner is anointed.  Charleston, SC (San Francisco drops to second place).  Some more details here.

The Future of Travel Selling

We were talking about travel innovations over the last 25 years at the start of this newsletter.  But there’s one innovation that is almost completely lacking – new ways of selling travel.  Oh yes, sure, we now have internet website sites for every possible type of seller of travel, from the travel product providers themselves, and then extending on through both traditional and nontraditional sellers of travel, and alongside all of this, we still have good ‘old fashioned’ travel agents providing essentially the same excellent services they always have.

But – and here’s my point – if you go to a site such as Orbitz or Travelocity or Kayak or whatever else, there’s not really any difference to how they sell travel compared to how you could buy it from a travel agent, or direct from an airline or hotel or whatever.  They sell the same products at the same prices.

Indeed, most travel suppliers go out of their way these days to ensure that there is no difference at all between the prices and inclusions you get, wherever you buy their product from.

This makes no sense, and is overdue for change.  We have seen some companies such as Costco dabble in the selling of travel, and Priceline tries to sell discounted ‘distressed’ inventory of hotel rooms that the hotels think they can’t otherwise fill, but neither of these companies, or the several others trying similar things have had any discernable impact on the overall industry structure.

Why is it that if we want to buy any sort of other product, we are offered many different ways to buy it, in different quantities, packaging, and so on, and at different prices.  But if we decide we want to buy a travel item, ‘all roads lead to Rome’ and all options end up costing us close to the same price.

Beneath the surface, there is a huge turmoil in rate negotiations, and travel suppliers are keen to do hidden discounting and incentivizing to get their products sold.  But they’re unwilling to accept anything that will see their list prices attacked.

Why hasn’t Walmart done for travel what it has done for so many other products?  And as for Costco’s tiny activity in the travel arena, why doesn’t it create its own house brand of travel products, the same as it does for so many other items?  Why not sell a ‘Kirkland’ brand cruise or a Kirkland brand flight, etc?  You can already buy Kirkland brand luggage, after all.

Perhaps the Europeans will be able to show the US a thing or two.  The German based discount supermarket chain, Lidl, with over 9,000 retail stores throughout Europe, is about to start selling tours, hotels and cruises, under its own brand name.

It plans to initially sell through its 3,000 stores in Germany, and probably will roll the new line of products out to other countries if (when) all goes well with its initial German launch.

In comparison, Costco has 425 stores in the US, and Walmart has 4,400 stores in the US.

My prediction – it seems inevitable to expect travel (particularly leisure travel) to be packaged and presented in totally new ways, and sold through totally different outlets, in the next few years.

This Week’s Security Horror Story

It is perhaps an unkind juxtaposition to point out that while the TSA seems to be quite adept at finding vibrators in female passengers’ checked luggage, it is not so good at finding loaded guns in other checked luggage.

And their excuse for not finding the loaded gun in the checked bag – ‘it isn’t our job to find them’ – could presumably be applied to the vibrator matter too.

But that’s not the point I’m seeking to adduce here.

Instead, as this article points out, within a single day of the vibrator/note incident mentioned above, the TSA conducted an internal investigation, found the offending screener, and removed him from screening duties.  He is now being subjected to ‘appropriate disciplinary action’ – whatever that means.

My question is this :  If the TSA can leap into action in response to a total ‘storm in a teacup’ and in a single day not only identify the screener in question but also remove him from his job; how is it they seem incapable of identifying other screeners when passengers complain of thefts from their checked bags?

Which is the more serious?  A harmless and good humored note, or the theft of personal valuables?  Why do the TSA take action selectively on the first matter, probably due to someone feeling embarrassed, but not take action on the ongoing thefts which number in the unknown thousands.

100 mph Tape Not Fast Enough

Lastly this week, did you know that the US armed services refer to duct tape as ‘100 mph tape’.  This amazingly useful substance has a myriad of different uses – indeed, they say that it was a key component of the fixes that were jury rigged into place enabling the troubled Apollo 13 to make it back to earth.

Duct tape may well be able to withstand 100 mph winds, but even it has limits.  Apparently it is unable to withstand the type of speeds that a modern passenger jet flies at (ie 500+ mph), as Ryanair found out this last week.

Here’s an interesting article revealing how Ryanair apparently taped a plane’s windscreen in place with duct tape, but after the plane had been airborne for about 20 minutes, the tape started to peel off, forcing the plane to turn back.

Until next week, please enjoy safe travels

 

 

 

 

David.

 

 

  2 Responses to “Weekly Roundup Friday 28 October 2011”

  1. I do use the hotlinks in your newsletter and find them helpful!

  2. David, you are incorrect on your economics. A monopoly is, in fact, a market with just one (1) seller. That’s what “mono” means, my friend: one. For more: http://www.econlib.org/library/Enc/Monopoly.html.

    An oligopoly is not necessarily only four sellers and the benchmark is not necessarily 50%. After all, in your example, there could be a one player having 47% of the market, and three others with 1% each. That’s hardly an oligopoly. An oligopoly is a market with few sellers (economists differ on how many, but it can certainly be more than four, but probably not more than eight) with similar market shares who “tacitly collude” by not competing on the basis of price. “Tacit collusion” is not illegal. It’s implied by the actions of competitors. For more: http://en.wikipedia.org/wiki/Oligopoly.

    In its current configuration, the U.S. airline industry should be an oligopoly, but it’s not. One reason is that the CEOs running the carriers–with the exception of Southwest–are too stupid to understand basic economics. The second is that the industry has a cost structure that is disproportionately fixed: depreciation, insurance, maintenance. High-fixed-cost industries have a ton of pricing flexibility, and they use it when demand softens. The U.S. carriers have fought the softening-demand scenario by relentlessly reducing supply, the better to keep their prices up. Think the OPEC oil cartel. At some point, I predict, the U.S. federal government will step in (again) and force these fools into honest competition that doesn’t abuse the passengers.

Leave a Reply