Weekly Roundup Friday 14 December 2012

Good morning

I’ve almost not come up for air at all this week.  I’ve been intensely busy crafting what I now view as our best Travel Insider Tour ever.  It is also the longest, with the most inclusions and activities, and makes arranging our North Korean tour look like a walk in the park in terms of the vast number of different variables involved.

Have I got your interest?  You’ll see an introduction to the tour as the second piece in your email after the weekly roundup material immediately below.  I do hope this will spark your imagination – and your enthusiasm – the same way it has sparked mine.  And of course, I do hope you’ll choose to come and be part of this very special tour – a tour I’m terming our ‘Balkan and Baltic Bucket List Tour’, because for sure, there’s bound to be plenty of things in the tour on everyone’s bucket list.

We’ve had still more readers choose to become Travel Insider Supporters over the last week (a lucky 13), including two more Super Supporters, Skipp M and Ray P.  Amazing, and enormously appreciated.  Thank you.

Our supporters got yet another thank you from me in turn, this Wednesday.  A scanned PDF of a fascinating publication about the lovely Concorde – my mention of it last week brought several replies (as any mention of this glorious plane always does) and I arranged to be able to pass on this on to all Supporters who wished it (and if you now become a Supporter, of course you’ll be offered a copy too).

Supporters have also been very helpful with suggestions and comments about the Balkan and Baltic Bucket List Tour, so what you now see represents not just my thoughts, but some modifications and enhancements suggested by other readers.

And now for a few pieces to get your Friday off to an interesting start, as always :

• Delta to Buy 49% of Virgin Atlantic
• Why Is Half a Loss Making Airline Worth $360 Million?
• Good News for Airlines (And for Boeing)
• More 787 Problems
• It’s Not My Fault – He Made Me Do It!
• Cathay Pacific Flight Attendants Threaten to Withhold Smiles
• Virgin America Concedes Open Secret on How to Cheat Their Baggage Fees
• And Lastly This Week……

Delta to Buy 49% of Virgin Atlantic

Wow.  Last week we reported that ‘talks were in a very early stage’ between Delta and Virgin Atlantic (VS); less than a week later, an official announcement proclaimed Delta’s intention to buy the 49% shareholding in VS that has currently been owned by Singapore Airlines, picking it up for $360 million, less than half what SQ paid for it originally (£600 million, back in 1999 – about $960 million at current exchange rates).  Singapore Airlines stoically said it had pretty much written off its entire investment already, so was happy with the deal.

There have been no announcements about the other thing we were speculating about last week – a European airline affiliated with Delta buying a couple of percent of Sir Richard Branson’s current 51% share, so as to give DL and another friendly airline the effective control of the carrier, and relegating Sir Richard to a minority shareholder status.

The deal may be good for the three airlines involved, but it is not good for us as passengers – that probably goes without saying, doesn’t it.  The loss of the self-styled maverick unconventional Virgin on the US-Heathrow routes will remove the disproportionate amount of pressure they formerly applied to the BA-AA colossus, while the joining of Delta’s inconsequential 8% market share and Virgin’s also not huge 17% share, now totaling 25% together, is less than half the BA-AA 60% market share.

Delta is a predictable competitor and definitely a member of the Dinosaur Airlines Old Boys Club.  We see the Delta/Virgin alliance not as making a stronger competitor, but rather as diminishing the competitive effect of Virgin, to say nothing of the simple mathematical fact that there is now one less independent competitor in the market.  These two airline groups now have 85% of the market between them, with the balance being spread around a mix of different airlines – mainly United, but even Air New Zealand (which operates flights from LAX to LHR).

Competition?  Hardly!  I estimate that the US-Heathrow route is the most traffic-intense – and also the most lucrative (ie more business and first class passengers) of all the international routes to/from the US, and the London-New York city pair in particular may possibly be the richest city pair in the entire world.  It seems that these routes, with their many dozens of flights each day, are now owned by a mere two airline partnerships.  Surely there’s no way in the world any airline could say that this market isn’t big enough for them to survive alone in.

What went wrong?  The same thing that will predictably happen when Virgin and Delta go cap in hand to the DoT asking for approval for this alliance to take place.  They’ll say ‘well, you’ve let all the other airlines partner up, now you need to let us do the same, because we can’t otherwise compete with the monster alliances you’ve previously created’.

The first time, of course, that two airlines ever asked for permission to operate jointly, it would have been described as a trivial deal not impacting on the very many competitors on the route.  But slowly, things changed, and now the request to advance still further a monopolistic route is based on the bad decisions in the past.

Oh – another thing about those bad decisions?  Are you as astonished as I was to learn that there is no provision or process for the DoT to subsequently review the promises and claims made by the airlines in support of the mergers and conjoining of airline operations the DoT has allowed, and no way they can see if the promises and claims offered in support by the airlines were actually reflected in real world events.  That’s sure a powerful disincentive to phrasing one’s arguments in favor of being granted merger approval in, ahem, realistic terms, isn’t it!

In this WSJ article, writer Scott McCartney speculates that the DL/VS tie-up will speed up the maybe-yes/maybe-no AA/US merger, ‘forcing’ AA and US together to help them respond to the ‘threat’ of the DL/VS tie-up.  He could well be correct about this, but – insert eye-rolling here – how specious a line of reasoning would that be on the part of AA and US?  Yes, sure, if you were sharing 60% of a market, would you be terrified to see a non-competitor with 8% of the market now acting as a calming influence on the 17% maverick out there.  Not!

Why Is Half a Loss Making Airline Worth $360 Million?

You might be wondering – ‘Here Virgin is, on the ropes financially, and there Delta is, buying half of a loss making airline – a half already pretty much entirely written off by SQ, for $360 million.  What gives?’

Well, that’s a great thing to be wondering.  Although Virgin is indeed losing money, and it sort of seems that Sir Richard has pretty much given up hope in terms of being able to succeed, solo; his airline has one thing of huge value that more than offsets its current moribund financials.  And it is a thing of little value to SQ but of possibly great value to DL.

This thing of enormous value also points to the real reason that competition is so constrained on the US/Heathrow routes.  Because, we shouldn’t blame only the US DoT for the appallingly uncompetitive mess that US-Heathrow flights are becoming.  The malodorous pony in the corner speaks with an English accent.  Delta would have had little or no interest in VS if it weren’t for the fact that Heathrow is unable to accept new flights.  By artificially limiting Heathrow’s capacity, the British government has destroyed the ‘free market’ that should exist, and just like a chain is only as strong as its weakest link, any deviation from free market forces distorts the entire market.

The thing of huge value owned by VS is/are its Heathrow slots – its precious permissions to fly planes in and out of the airport every day.

The delays to creating a ‘solution’ to the Heathrow problem will cost Britain dearly (some tourist research groups suggest it already is costing Britain massively) – another one of the universal laws of the market, ie, attempts to artificially control the market usually ends up making problems worse not better.  Due to the high and getting ever higher costs of operating services into Heathrow, and the inability of airlines to grow and expand their services there, Heathrow is inevitably becoming less attractive as a hub.  Delta itself has already made its choice abundantly clear – its partnership with Air France and KLM sees it more focused on AMS (and CDG) as hub centers for its European destinations.  Sure, it wants Virgin’s Heathrow access, but more as the tail end of a route, not as the hub to fly on further from.  United has done the same thing with LH and FRA.

Heathrow was once, from an airline route point of view, the center of Europe.  Now we have a forced shift by the dinosaur carriers to making other cities their central hubs, and also the enormous impact of the new Gulf super-carriers who are hubbing way back in their Gulf home airports, and fanning out from there to dozens of European airports directly, taking all hubbing out of Europe entirely.  Add a third factor – the profusion of discount carriers (such as Ryanair and Easyjet) who operate direct non-hubbed routes from and to secondary rather than primary airports, and one wonders if, by the time the British government finally comes up with a new strategy for London regional airport services, will anyone even care?  Will Heathrow have become an ‘end of the line’ point and no longer be Europe’s prime hub?

Good News for Airlines (And for Boeing)

A rising tide lifts all boats, right?  Boeing has just issued its latest 20 year forecast, and much like most of its previous forecasts, is predicting strong growth in air travel – a 5% annual growth rate (which means a doubling in 14 years).

Most industries would kill for a steady 5% growth rate, and most industries would enjoy decent ongoing profits in such a surging market.  So why is it that the US airlines not only continue to talk up their plans to size down, but also struggle to consistently report reasonable levels of profit?  What other industry has companies downsizing in a steadily growing market?  What is the airlines’ massive malfunction?

Oh – not only is the future rosy, but the allegedly difficult 2011 year saw a 6% growth in passenger numbers, too.

Boeing issues these 20 year projections every year, and has been doing so since 1964.  It says there will be a need for 34,000 new planes over the next 20 years, which it estimates as being worth $4.5 trillion.  12,100 of the planes will go to Asian airlines, 7800 to European airlines, and coming in at number three position, North America will buy 7300.

One important question for Boeing – how many of those planes will be made by yourselves and Airbus?  What will the impact of new entrants (ie from China) be?  As best I can see, their forecast is totally silent on that point.  You might think that Boeing would be at least as interested in how many planes it will sell as it is on how many planes in total will be sold.

More 787 Problems

I wrote last week about my discomfort at seeing the immediately ETOPS certified 787 having operational problems requiring emergency landings.  That’s fine when an airport is close at hand, but not when the nearest airport is three, four, or five hours away, and there’s nothing below you except either ice or water.

This week comes news of yet another 787 problem.  This time it was with a brand new plane just delivered to Qatar Airways, and is identical to the problem United had the week before.

Many commentators have said ‘it is normal for new plane models to have problems’ and I agree with that.  But it is not normal for a new model plane, having its normal problems, to immediately be granted ETOPS certification.  That’s the bit that has me worried.

The problems also expose a critical flaw in the entire ETOPS logic.  ETOPS came about when twin-engined airplanes became capable of continuing to safely fly for extended distances, even after one engine failed.  The loss of a single engine on a four (or even a three) engined plane was never such a big deal, but it was definitely a big deal on early twin-engined planes.  So, when planes were proven to be capable of flying on only one of their two engines, the concept of allowing them to fly further away from emergency airports evolved.

But – and here’s the loophole, exposed by both these events, and by the earlier pre-delivery 787 emergency too.  Not all problems on a plane involve an engine failure.  Some problems unavoidably require an urgent landing, no matter how many engines are still operating perfectly – for example, a fire on board.  Or an ‘uncontained engine failure’ – ie, one where an engine sort of explodes, and throws shrapnel into the wing, the fuselage, and who knows where else, possibly rupturing and destroying control systems and imperiling the plane’s fundamental airworthiness and controlability (this happened on a four engined A380 a year or two back – indeed, the more engines you have, the more opportunities you have for such events!).

I repeat my comment last week.  To paraphrase – well, to totally rephrase a slogan that used to be very popular here in Boeing land (‘If it ain’t Boeing, I’m not going’ :  If it’s a 787, I’m not going.

Details here.

It’s Not My Fault – He Made Me Do It!

I’m sure you’ve used that excuse once or twice in your life, and if you have children, I’m sure you’ve heard it more recently, too.  But, as grownups, it is not something we often trot out as a modern-day excuse, ourselves.

Unless, of course, you’re an airline executive.

Seattle is an interesting airline market because it has three airports, but only one of them has significant service – SEA, Seattle-Tacoma International Airport.  For a variety of reasons, the closer-in-to-downtown Seattle Boeing Field has been deprecated as an airport, and attempts by Southwest to start service there failed after the airport operator said ‘Well, if we let you fly here, we’d have to be fair and let everyone else fly here too’ – a statement of uncertain veracity, and one which killed Southwest’s plans for Seattle market expansion, something that would have been enormously beneficial for the region.

Yes, it is true that the Seattle Port Authority is charged with conducting business for the best overall benefit of the region it serves, but it also seems indisputable that its definition of what is best for the region is not the same as what normal residents might view it as being.

The third airport is Paine Field, north of Seattle up in Everett, and is notable for being where Boeing assembles its 747s, 777s and now 787s too.  It too has successfully fought off airline interest up until now, but the FAA has recently ruled that allowing commercial airlines to operate service to/from Paine Field would not mean the end of the world (NIMBY local residents of course disagree!), and so – in theory – airlines can attempt to start flying there.

Another low-cost maverick airline has immediately applied to operate flights from there – Allegiant Air.  They have applied to operate initially two flights a week with small MD83s, and hope to grow their service to ten flights a week within five years.  Read carefully – this is two flights a week, rather than two flights an hour or two flights a day.  An almost non-existent level of service.

Allegiant’s request for permission to operate these two flights immediately provoked a response by local airline Alaska/Horizon, which through their Horizon unit filed for permission to operate six flights a day, growing to ten a day within five years.

So Allegiant’s two flights a week brought about a response from Horizon, requesting 42 flights a week.

Now for the lovely part.  Horizon said it didn’t really want to operate these flights at all, and would prefer to keep all their services down at Seatac, but that it was forced to move these flights to Paine Field due to Allegiant’s two flights a week.

That doesn’t even start to make sense.  But, in aviation, who cares about making sense.  Or, as is so often the case, about making money, either.

Details here.

Cathay Pacific Flight Attendants Threaten to Withhold Smiles

Here’s a threat that US flight attendants could probably never make.  The generally very pleasant and personable flight attendants employed by Cathay are threatening to ‘be selective in providing their services’ as a result of an ongoing dispute about their rates of pay.

So what sorts of services might they be selective in providing to passengers?  Their union’s general secretary said

This could include not smiling at passengers, not providing certain types of beverages — such as alcohol — or stop serving meals

Hmmm – which do you fear the most?  Abundant food and drinks provided by a po-faced flight attendant, or a smiling flight attendant refusing to serve any food or drinks at all, on a 12 hour flight?

Virgin America Concedes Open Secret on How to Cheat Their Baggage Fees

Do you know how to check a bag for free on an airline that charges fees for checked bags?  Well, the answer is a bit of an open secret.  You don’t check it at all – you simply turn up, all innocent eyed, at the gate with it, and allow the gate agent to ‘tut tut’ at you, take it, and gate check it, without charging you a penny.

This often means that your bag doesn’t have to go through the whole baggage claim process either, but instead will be waiting for you as you walk off the plane.  A triple bonus – a free bag, almost no chance of it getting lost, and faster than priority delivery at the other end.

As greedy as the airlines are for every penny they can take from us, it is amazing that more airlines aren’t more assertive at catching the people who deliberately cheat the system this way on every flight.  Even worse are the totally passive airlines that allow enormous sized bags onto the plane, filling up the overheads before normal people with normal bags get any chance to access to even the slightest bit of overhead space.

Here’s an article in which Virgin American CEO acknowledges this loophole, but offers no promise to close it.

For this passive inability to solve a simple problem, and for the loss of revenue his airline experiences as a result, he is paid how many hundreds of thousands of dollars a year?

And Lastly This Week……

I mentioned, above, about CX flight attendants threatening to withhold their smiles.  But are their smiles, when in place, actually sincere smiles?  Here’s an interesting article that claims to tell us what airline employees really think about us – the people who put money in their pockets and give them their jobs.  Hint – it ain’t all positive.

Now, truly lastly, I’d mentioned South Korea’s Toilet Culture Park last week, and said it claims to be the only one in the world.  Well, maybe so, but reader Gary sends in a link to a not dissimilarly themed Plumbing Museum, located in the appropriately named Watertown, MA.

Until next week, please enjoy safe travels

David.