Our Poseidon Arctic Expedition next May continues to get strong support. Another four people joined this week, and we now have ten coming along – nearly all of whom are taking advantage of the three free days of bonus cruising at the start of the cruise.
There’s been another positive development to the cruise this week, too. In response to requests, I’ve managed to split the Scotland tour into thirds, so if you’re on the cruise and don’t want to be away from home for an entire month, you can now do a shorter one-third or two-third portion of the Scotland tour after the cruise, making for a more manageable total time away. I’ve updated the cruise page to explain this.
Please remember – this super deal is limited to the first twenty Travel Insiders. We’re half-way there just two weeks after announcing the cruise. So if you can spare time during the current seasonal rush and distractions to consider joining us, please let me know as soon as possible to get your space reserved.
While we encourage you to choose to come on the cruise – and/or, of course, some or all of our lovely Scotland’s Islands and Highlands tour that follows immediately after the cruise as well or instead, and to make that decision now, there’s one thing we suggest you delay for a while – and that is buying your airfare. See our item, below, about the impact of falling oil prices on airfares.
We are having a number of single people choose to come on the cruise, and in case you’re in a similar situation, note that Poseidon are offering a guaranteed single share/no-supplement program. They’ll either match you with a same-gendered fellow passenger or waive the single supplement (applies to main deck and classic suites). And if you can find two people to travel with, their triple share suites (the same enormous size as the classic suite pictured here) are an amazing value.
I’ve added another article to my new series on wireless data and internet access while traveling; it follows below, at the end of this week’s roundup. It might help you save some money the next time you find yourself wincing at the cost of $20+/night hotel internet access fees.
And also, below, please continue reading for :
- Will Airfares Drop in Line with Oil Price Drops?
- Mixed Fortunes and Futures for A350/A380/747
- – 747 Struggling
- – A380 : To Double Down, or to Discontinue?
- A New ‘Blue’ Airline Appearing in the United States
- A Storm in a Nut Bowl
- The Fastest Wireless Internet Service
- The US Private Passenger Rail Line that is Quietly Moving Ahead
- And Lastly This Week….
Will Airfares Drop in Line with Oil Price Drops?
As you surely know, crude oil prices are plunging downwards, and the best guesses are that prices will stay low for the next year or so. What was only a few months ago $100+ a barrel is now $60- a barrel, the lowest in over five years, with some commentators predicting a fall as low as $50.
On the other hand, airfares have been soaring, exceeded by airline profitability, which has been bolstered by the ‘perfect storm’ of rising airfares, more fuel-efficient planes, and higher passenger loads on all flights. For the first time ever, we are now in a sustained period of ‘real’ airfares (ie after adjusting for inflation) increasing steadily.
As we reported in mid November, over the last five years, US airfares have increased by 11% after adjusting for inflation, and before accounting for increased fees. That’s a hefty increase.
So, now that jet fuel costs are dropping, and airline profitability is generally at levels higher than ever before in the history of aviation, will we start to see some relief?
On the positive side, jet fuel costs represent about 30% of total airline costs. So if the airlines get something like a 35% reduction in their fuel bill, that would represent as an overall reduction in their costs of about 10%, and in theory, could possibly lead to a similar reduction in gross airfares charged.
On the negative side – there’s less than half the number of major airlines there were in the US a mere decade ago (four airlines control 80% of traffic compared to 11 airlines in 2005), and little competitive reason for any airline to drop its prices. ‘If it ain’t broke, don’t fix it’ might be considered a fair concept by the airlines in the wonderful new uncompetitive world in which they now enjoy their record profits.
It is no coincidence that for the first time since the start of a data series in 2006, US airlines are now showing as strongly more profitable (as measured by EBITDA) than their European and Asia/Pacific compatriots.
Also to be considered is that some airlines buy forward contracts for their jet fuel, and while that can serve to insulate them from sudden spikes in cost, it also usually means they miss out on the first part of any sudden surprise drops, so just because the crude price has dropped, that doesn’t mean the airlines are seeing the same direct reduction in their fuel bills. So far (ie through October, the most recent month reported on by the Dept of Transportation) their cost/gallon is about 10% down on earlier in the year, and costs can be expected to continue to reduce during 2015.
This 10% reduction, so far, would support an immediate price drop of 3% in fares.
The airlines’ international lobbying group, IATA, is predicting that prices will fall about 5% as a result of lower fuel costs (which would be supported by a 15% reduction in jet fuel costs). This has the ring of truth to it – we expect jet fuel prices are more likely to drop closer to 30% or more (crude is already down 40%, after all) and one can understand how the airlines might decide to pocket half the savings in the form of windfall profits and reluctantly share the other half with their passengers.
IATA is also predicting the strongest travel growth ever for 2015, which they expect will see a total of 3.5 billion people flying and a growth of 7% in passenger miles flown compared to this year.
So, what does all this mean? Airlines certainly can afford to start dropping fares if they wish to, and their own industry group suggests rates will drop 5% over the next year. On the other hand, passenger demand – and airplane loads – are higher than ever before, so there’s no ‘need to stimulate demand’ type pressure on airfares.
Our hope is that airfares might drop some in 2015, and from that perspective, we’d suggest there’s no need to rush out and buy your summer travel tickets just yet. Quite understandably, the airlines will be slow to move fares down to reflect dropping fuel costs, but as the weeks become months and the drops appear to be likely to hang around for a while, then it is possible we might see some fare reductions.
So, if you’re looking at coming on our Poseidon cruise in May or Scotland tour in June, we’d suggest waiting until Jan/Feb to research and book May travel and Feb/Mar for June travel. Exceptions – if you stumble across an unusual special deal, or if you’re seeking to redeem miles for award travel.
Mixed Fortunes and Futures for A350/A380/747
The first of the new A350 series of aircraft was scheduled to be delivered to Qatar Airways on Saturday. But, and at no surprise at all to industry watchers, the notoriously fickle CEO of Qatar, Akbar Al Baker (and nicknamed “U-Turn Al Baker” by some) suddenly announced his airline was refusing to accept the plane on Saturday, with no new acceptance date scheduled.
Does this hint at some serious and only now discovered underlying problems with the plane? Almost certainly not. We understand it is more to do with minor issues to do with the ‘fit and finish’ of the plane, and is in line with Al Baker’s similar rejections of other new planes in the past. But that didn’t stop Airbus’ stock price from dropping precipitously.
Probably we’ll see the plane delivered within a week or two, and this event is unlikely to affect Airbus’ ongoing manufacturing and delivery schedule for the new plane.
– 747 Struggling
Meanwhile, Boeing’s latest iteration of its now almost 46 year old plane, the 747-8, is on desperate life-support with a dearth of new orders and a dwindling order book of new planes still awaiting manufacture. Boeing has announced that it will reduce its production rate from 1.5 a month to 1.3 a month in September next year – hardly a transformational change, and one wonders just how slow it can go before the production line stalls. In comparison, Boeing is currently building 42 737s each month, will increase that to 47/month in 2017, and still further to 52/month in 2018. It is also expected to deliver 19 787 planes this month.
Tossing Boeing a tiny lifeline is the rumor that the Air Force might accelerate its schedule for replacing the current two 747-200 planes that act as Air Force One, asking for bids next year and delivery in 2018 instead of the previously scheduled 2021. Unsurprisingly, the 747-8 is thought to be highly likely to be selected to replace the current planes, which were delivered in 1990.
– A380 : To Double Down, or to Discontinue?
And now for the see-sawing fortunes of the A380. It is fair to say that the plane has not sold as well as Airbus hoped, with currently a total of 318 ordered and 147 delivered. Indeed, when you consider that Emirates alone have ordered 140 of the 318 planes, followed distantly by Singapore Airlines (24) and then Qantas (20), if you take out the disproportionate Emirates order, the plane would be a dismal failure.
It is hard to know exactly how many of the A380s Airbus needs to sell in order to break even. Numbers have been speculated at from a low of 270 to a high of 420, and some people think the actual number could be higher still (depending in particular on how much discounting has been extended for plane purchasers).
Orders have not exactly been flooding in for the plane. It first flew in 2007, so has had seven years to prove itself and show the naysayers to be wrong, and for ground infrastructure at airports to be developed to support the plane, and so there are now few remaining excuses for why the plane is not selling significantly, and little hope to expect a sudden lift in sales. This year shows a net of 14 orders received (a single order for 20 less a cancellation of 6); last year saw a net of 42, but this comprised one only order of 50 to Emirates, without which there’d have been a net of -8, and the year before saw 9 orders.
These numbers seem all the more problematic when you consider that Airbus is delivering 30 planes a year, so their forward order book is shrinking rather than growing.
Now for the curious developments of this week. Airbus has been holding a two day Investor conference on Wednesday and Thursday. On Wednesday, their CFO indicated the company was contemplating discontinuing the plane. That’s an enormous bombshell to drop and caught participants completely by surprise.
But then on Thursday, the CEO said that rather than cancelling the A380 program,
We have commercial momentum on A380, we will get additional customers. We have to get more customers, and convince them there is much more upside than downside to the A380. We are reducing the recurring costs. Longer term this aircraft has stronger potential. We will one day launch an A380neo and one day launch a stretched A380.
The reference to the A380neo is to the long talked-about and equally long denied-by-Airbus possibility of putting newer engine technology onto the plane, boosting its performance and profitability to airlines. This is something Emirates is very keen to see proceed.
So, Airbus – which is it to be? Discontinuing? Or doubling down and extending your investment in the A380 program? Could your left hand please talk to your right hand.
The underlying marketplace dynamic continue to simultaneously support – or destroy – the role of the A380. With air passenger traffic doubling every 15 (or fewer) years, congested airports such as Heathrow in particular are becoming gaspingly desperate for any way to move more people through their facility that doesn’t require more flight arrivals and departures.
But that same trend also acts in an opposite manner. With more and more people traveling everywhere, secondary routes that formerly were too ‘thin’ and lightly traveled to support their own direct services are now growing to a point where passengers can go from one secondary airport to another secondary airport without having to hub through one or two central major hubs on the way.
This ability is enhanced by higher efficiency smaller planes (like the 787 and A350), and clearly, if there is sufficient growth in these direct/secondary routes, there is less pressure on the primary (congested) hubs.
In the case of Heathrow, from memory something like 50% of all passengers are simply changing planes in Heathrow, and most major hubs have generally similar sorts of percentages. Heathrow (or wherever) is not their origin or destination, and all these connecting passengers could be diverted onto more direct routes.
So, which will triumph? Higher capacity planes flying between major airports, or smaller planes flying between secondary airports? Clearly Airbus’ CFO thinks one thing and their CEO thinks the opposite!
A sudden end to the A380 program would be very bad for Emirates. Not only does it seem to be basing much of its strategic future on the A380, but if the program ended (throwing into jeopardy some of their future orders) then almost certainly, there’d be an appreciable drop in the resale value of the planes, which would cost Emirates dearly if/when it sells its used A380s (and in the lease rates it pays for new planes).
One does have to wonder how and why it is that Emirates, and only Emirates, has become such an enthusiastic adopter of and advocate for the A380. How can it be so apparently successful for them, but not for any other airlines; even ones that operate similar hub/spoke networks?
A New ‘Blue’ Airline Appearing in the United States
Please welcome Azul Brazilian Airlines as it commences service between Sao Paulo and Fort Lauderdale this week. It will be adding flights to Orlando next week, and to New York in July next year.
Azul means ‘blue’ in Portuguese. The airline was founded in 2008 by JetBlue’s founder, David Neeleman, after his ouster from JetBlue, and now flies a fleet of 142 planes to 105 destinations. Neeleman was born in Brazil before moving to Miami when he was five.
A Storm in a Nut Bowl
You’re sure to have already read or seen how a Korean Airlines executive ordered the plane she was a passenger on to return back to the gate at JFK and offload the chief flight attendant, after deeming him unsatisfactory at his job. The woman was a Senior VP with the airline, in charge of cabin services and catering, so this would seem to be something she’d appropriately focus on and act about. She is also the eldest daughter of the airline’s chairman.
The pilot agreed to and supported her request, and when the plane did its ‘dramatic’ turn back to the gate that has excited so much comment subsequently, it was a mere 30 ft from the gate, still in its initial push-back phase. It took only 2 minutes to return to the gate and the net result was the flight arriving a mere 11 minutes late into Seoul, albeit without the initially rostered CFA, and with the ultimate delay as much the result of delays along the route and at getting vectored in at Seoul as for this brief hiccup at JFK.
On the face of it, this is a highly commendable action by the woman. Insisting on the highest service standards, and holding the flight crew directly accountable for any lapses. Tell the truth now – wouldn’t you have been cheering the woman on, and wouldn’t you love to be able to do the same!
But there are some over-riding issues here and special interests, which have seen the story spin out of control in unexpected directions. South Korea could hardly be happy at seeing a man embarrassed and dominated by a woman, and there is always an uncomfortable perception of nepotism or behind-the-scenes maneuvering when seeing a woman in any senior position in South Korea, and in this case, the woman’s relationship to her father, the Chairman, was on open view for all to see.
Now add the powerful Flight Attendant lobby, the world over, and their ability to twist stories to make the flight attendants appear blameless in any altercation with any passenger, no matter what the truth may be (their standard line about the passenger being disorderly was predictably and quickly trotted out to describe the Senior VP’s actions), and you’ve an interesting media situation.
The root cause of this was a junior flight attendant failing to follow procedures when it came to how she was supposed to serve nuts to her first class passengers. She was supposed to first ask each passenger if they would like some nuts, and if they said yes, then serve them in a china bowl. Instead, she merely dumped an unopened plastic bag of nuts in front of the Senior VP, without asking, and without putting them in a bowl.
Trivial? Not at all! That’s what first class passengers pay a $15,000+ premium for on their flight (the roundtrip first class airfare between JFK and SEL goes up to $18,000) – for highest quality personal service. It is what the airlines – particularly the Asian airlines – promise to deliver and strive to achieve. I’m impressed the Senior VP chose to respond to this.
Next came the escalation. She brought the matter to the Chief Flight Attendant’s attention, whereupon it seems he argued with her about what the junior flight attendant’s job actually was. So she asked him to bring the official In-flight Service Manual that specifies every part of the first class experience, and he failed to do so. One can only guess at the sullen passive-aggressiveness that may have been on display here.
So, the Senior VP called the CFA’s bluff, and chose to offload him. Good on her. I bet he’ll find the Service Manual more quickly next time, and be more familiar with its contents.
Or will he?
The press have ridiculed and vilified the Senior VP! There are even abjectly ridiculous suggestions she might have committed a serious crime and be liable for up to ten years imprisonment, which shows how totally detached from reality the discussion on this incident has become.
The Senior VP resigned her position a couple of days after the matter came to light, which of course has been seized upon by her critics as proof that she was in the wrong. No-one thought to interpret her resignation as an honorable action on the part of a conscientious company officer who was trying to minimize the firestorm of unfounded criticism that was not only attaching itself to her but to her employer and her father too.
As to the hapless junior flight attendant and her clueless boss who not only didn’t know the correct procedures but couldn’t find the manual that detailed them, we suspect they both still have their jobs and are high-fiving it with each other and their fellow crew members.
The Fastest Wireless Internet Service
Many of us think that the internet speeds we get on our phone are too slow, and blame the wireless service we have for this.
Sure, they’re partly to blame, but sometimes there can also be bottlenecks ‘upstream’ from their ‘last mile’ connection to your phone, and possibly also your phone is just plain running slowly, maybe doing other background tasks, or in an area with poor cellphone coverage (although you can argue the toss as to who should accept the responsibility for that).
But wouldn’t you love to know which of the major service providers is generally the best? Here’s an interesting report which claims to show you more or less exactly that, at least in general/regional terms.
Consistently fastest? Verizon. Consistently slowest? Sprint. Consistently battling for the middle ground – T-Mobile and AT&T.
The US Private Passenger Rail Line that is Quietly Moving Ahead
At one extreme we have Amtrak’s enormous losses and glacially slow trains everywhere except in the North East corridor. At the other extreme, we have the ridiculously expensive and largely unfunded high speed rail project in California.
But there is some middle ground, where rail service is showing encouraging signs of a minor renaissance. In particular, in Florida (the state that refused the ‘poisoned chalice’ of federal support for a ridiculous ‘high speed’ rail line between Tampa and Orlando) there’s a fast-enough new service being developed between downtown Miami and Orlando airport, being marketed as ‘All Aboard Florida‘ – a privately owned and operated company.
The 235 mile route will take around three hours – certainly much faster than driving, and much more pleasant too. Trains would operate hourly, and limited service between Miami and West Palm Beach is expected to start in late 2016.
We wish them well and look forward to enjoying the complete journey (they hope to have the line all the way to Orlando operational in 2017).
And Lastly This Week….
I wrote about the frustration of inconsistently fuel tank fillers on cars last week. Thank you to the many people who wrote in, pointing out that all modern cars have tiny triangles on their gas gauges, with the triangle pointing to which side the fuel tank filler is.
Here’s an interesting device, where its slightly strange promotional video (what’s with all the walking in the desert?) probably promises much more than the reality of the product. A good stocking stuffer? Possibly. But should you rely on its claim to being ‘undetectable’ and wear one on your wrist on your next flight? Ummm, I’ll guess no!
Our tour to Scotland’s Islands and Highlands takes us on visits to both to whisky distilleries and a famous Harris Tweed mill. But what happens if you cross these two very different Scottish products together? Why – whisky smelling fabric, of course. A new venture hopes there may prove to be a viable commercial demand for such a distinctive thing.
Until next week, please enjoy safe travels