Weekly Roundup, Friday 15 April 2016

Good morning

It was an exciting week this week.  I generally choose to book international travel about three months prior to departure, and so, a little ahead of schedule, I booked the flights for myself and my daughter Anna to go to France for our lovely French river cruise in Bordeaux, this coming late July.

I used miles – 125,000 miles each for business class (lucky Anna!), and noted there were also taxes/fees of $320 per ticket.  Was this Delta trying to ‘do a British Airways’ and sneak a nasty fee onto what should be a free award ticket?  No, $265 of the money went to the British government – $207.10 Air Passengers Duty and $59.10 Passenger Service charge.  There were no French fees, and ‘only’ $27 of US fees (plus a $25 booking fee).

$265 to simply board a flight in London to go back to the US (we flew direct from the US to Paris, then are going by train after the cruise to London, and flying back from London)!  It is not all that long ago (well, actually, now I count the years, 25+ years) that you could buy a roundtrip ticket between the US and Britain, including all taxes, for $265.  And now the taxes on a one way flight out of the UK are more than the former roundtrip fare and all taxes.  That is beyond outrageous.

So, I guess what I’m saying is in two parts.  It is definitely not too late to join a lovely group of fellow Travel Insiders, Anna and myself on this cruise/tour around some of the most beautiful parts of France – and please remember/check out the special discounts and extra value inclusions I’ve negotiated for us to make this not only a wonderful experience but a wonderful value too.  Secondly – if you choose to do so, think carefully before adding time in Britain too!

A couple of weeks ago, I asked readers to consider becoming Beta Testers for a new internet social media/service I’m launching (and thank you to all who volunteered).  As part of the beta testing process, I asked some of them if we could do screen sharing sessions using Skype, and I was surprised at how many people were not familiar with Skype.

I’ve written about Skype from time to time over the last 12 years, and so I guess it is time to update everyone on its continued steady improvement and greater usability and value to us all.  So, please find, following tonight’s newsletter, an update on Skype and why it is such a great (and generally free) addition to your computer, your tablet and your smart phone.

What else this week?  I’m typing this under duress – while being ‘Mr Mom’ and doing the dishes on Thursday evening, I plunged my hand into the water filled sink, only to come into contact with a recently sharpened knife blade that was pointing up.  Ouch!  Now I have a clumsy bandage around my middle finger which now causes me to randomly hit two or three keys instead of just the one I wish.

Perhaps it is time to reload the Dragon Naturally Speaking voice recognition software – it is six years since I reviewed that product and, if the successive new versions are to be believed, it has improved steadily over time, and with faster computers to drive the software too, it might indeed be improved.

Anyway, please keep reading for :

• Alaska Airlines Buying Virgin America
• Pilot?  We Don’t Need No Pilot – Woof!
• The Air Force Tanker Farce, 14 Years On
• EU Equates US and Canada with Bulgaria and Croatia
• Three Things the Movies Get Wrong about Air Travel
• And Lastly This Week….

Alaska Airlines Buying Virgin America

While sharing the rumor with you a couple of weeks ago about Alaska Airlines and JetBlue both considering a buyout of Virgin America, I’d not given much credence to the thought of Alaska Airlines proceeding to buy Virgin America, because it didn’t seem to make much sense.

Well, yet again, I gave too much credit to an airline and its executives.  Alaska Airlines has now had its bid accepted by Virgin America.  Noting the lack of obvious benefits to the buyout, does Alaska’s offer reveal that it managed to drive a bargain priced deal?  Actually, no.

Prior to news of a potential sale, VX’s share price had sat semi-stably around the $30 point and a $1.5 billion market capitalization for the past year, with perhaps a bit of latent potential, in line with the buoyant airline industry as a whole, to generally drift upwards.  When news started to appear about a potential sale, the market capitalization quickly rose to $1.7 billion, because investors reasoned that the airline would probably sell for a bit more than the current valuation and share price.

Alaska Airlines’ offer was to pay $57 per share (ie $2.6 million), plus also to assume debts and obligations/leases totaling about $1.4 billion, meaning they are paying about $4 billion for a company valued at $1.5 billion.  Way to go, Alaska!

The deal gives AS some slots at SFO and LAX that it probably can put to good use and couldn’t otherwise readily obtain, plus some slots at other airports that it might choose to sell for a few hundred million dollars if it is lucky, but precious little else.

Looking at VX’s balance sheet (as of Sept 30 2015) it shows $1.3 billion in assets, not all of which could be fully realized if sold, and $700 million in liabilities, leaving a net worth of $600 million.  As mentioned above, this net worth was reflected by a $1.5 billion market valuation, which is not unusual, but to go from actual assets of $600 million and market value of $1.5 billion to a purchase price of $4 billion – that’s a heck of a huge step to take.

In particular, it begs the question – if Alaska Airlines truly does have $4 billion to burn (and actually it doesn’t – it is having to borrow $2 billion of the $2.6 billion cash that its offer contains), why not grow organically?  What does Virgin America uniquely have that couldn’t be created and perfectly tailored to AS’s requirements and operating procedures for very much less money?  It is almost totally certain that AS will ‘retire’ the VX brand and continue its main AS brand, so the ‘going concern’ premium attached to the $1.5 billion market valuation for the $600 million in VX assets has to be shaded by the fact that VX probably won’t be a going concern for very much longer.

So think about the other part of the numbers in the previous paragraph.  Alaska Airlines has to borrow $2 billion and take on an additional $1.4 billion of debt – $3.4 billion of money it doesn’t have in total – to acquire Virgin America.  It is only putting $600 million of its own money into the deal.  Some people would say that largely using other people’s money to buy VX is clever, others might worry about AS extending its debt to buy something with an uncertain value to start with.

As an analogy, think of buying a house for $4 million.  You put in $600,000, assume a $1.4 million existing loan, and borrow another $2 million on a note.  How easy do you think it would be to borrow the extra money when the valuer’s report says that comparable sales are suggesting a $1.5 million value and the replacement value of the house is only $600,000?  That’s just never going to happen, is it!  But clearly, different rules apply for airlines.

Sure, AS gets to remove a competitor on its coastal routes, and can sort-of quickly grow some additional other routes and get sudden stronger presences in some other markets, but – well, actually, think about the word ‘sudden’.  There’s nothing sudden about this at all.

First, we’ve no idea when the discussions were first started – that should be the start of the ‘sudden’ measurement.

And now that the deal has been announced, there is a requirement for shareholder approval at VX, then regulatory approvals, and then integrating the two airlines, the fleets, the staff, the reservation systems and frequent flier programs and branding and all the other things.  It will be years before AS has completed digesting VX, the same as it always is when any airline buys another airline.  At least two years, and possibly longer.

Given then that for the next year or more, there’ll be little benefit or synergy at all, that further underscores my sense of wonder.  Why not grow organically, on a basis that is much easier to plan and manage?

Perhaps part of the answer is that AS got ‘auction fever’.  Whether or not JetBlue ever was serious about buying VX itself, its presence and apparent interest in also buying the airline surely caused AS to inflate its own offer way beyond that which seems to have been fully prudent.  Was JetBlue just a stalking horse to scare Alaska Airlines into paying over the odds, and was it playing a long game to financially over-burden a competing airline?  Certainly, JetBlue is now (and totally predictably) saying that it didn’t think it worth paying that much to buy Virgin America.

JetBlue is also – and very sensibly – now trying to woo away Virgin America’s customers, some of whom are doubtless feeling unsettled at the change in ownership and almost surely change in style at VX.  JetBlue has a new series of advertisements urging ‘JetBlue virgins’ to try their service, and have announced a major expansion to the ‘Mint’ premium cabin equipped flights.  Mint brings an international type of first class experience to domestic flights and is massively better than anything either AS or VX offer.

Alaska Airlines must be anxiously watching and hoping that its expensive new plaything doesn’t shrink in size and value between now and whenever it finally gets to take the airline over.

Pilot?  We Don’t Need No Pilot – Woof!

It has been my contention that pilots are becoming more and more unnecessary.  Indeed, just like how self driving cars promise to reduce accidents at least ten-fold, with the present situation showing more than half of all air accidents are due to pilot error, some people credibly claim that pilots make air travel less safe rather than more safe.

Of course, there are still ‘old school’ pilots who claim their skills are invaluable, essential, and both time consuming and costly to develop.  That was certainly the case, 50+ years ago, but these days, not really so much at all.  Commercial airplane pilots are now mainly administrators, attending to the paperwork of a flight, and computer operators, keying in the way points and other aspects of their flight into the autopilot.  Modern planes truly can (and do) fly themselves.

As further proof of the low level of skill needed to fly a plane, and to explain the slightly puzzling heading, may I point you to this article.  Woof, indeed.

The Air Force Tanker Farce, 14 Years On

Way back in 2002, the US Air Force decided that it would replace about 100 of its oldest KC-135 Stratotankers (a Boeing 707 derivative which first flew in 1956) with new 767s, which it would lease rather than purchase from Boeing.

This was controversial, although the main part of the controversy was initially to do with the decision to lease rather than purchase the planes.  And so the Air Force ‘compromised’ and agreed to buy 80 of the planes and only lease 20.  Senior Air Force officials probably slept soundly for some long time after, laughing themselves to sleep at the ‘compromise’ that saw them end up buying 80 planes which is surely what they’d have preferred to have done, all along.  Throw me in that briar patch, Congress!

But having now appeared on the radar screen, the entire tanker program started to be scrutinized a bit more, and in late 2003 the Air Force announced the program was suspended, pending an investigation into corruption surrounding the contract awarding process.  One of its procurement executives was subsequently jailed, and Boeing’s CFO was fired and ended up spending four months in prison.

The contract was cancelled in 2006.  So, four years down, and nothing to show for it.

The Air Force then issued a series of requests for proposals for new tankers, with much arguing and politicking by airplane manufacturers as to the RFPs terms and conditions.  Eventually, in February 2008, the Air Force selected a proposal put forward by Northrop Grumman together with EADS (ie Airbus) for the KC-30 tanker (based on the Airbus A330).

Boeing immediately protested, and in July 2008, the earlier award to the KC-30 was annulled and a new bidding process followed, and was to be an ‘expedited recompetition’ between Boeing and Airbus.  But ‘expedited’ is a relative term, and it was not until February 2011 that the Air Force finally awarded the contract to Boeing.  Yes, that is nine years after the initial decision to lease 767s.

But the good news, you’d expect, is that over the course of the nine years and so many different bidding processes and specification changes, the Air Force would have been able to take advantage of the latest and greatest technologies, and rather than choosing the already old, tired, and almost obsolete 767 in 2002, would be able to choose a 777 derivative or perhaps even the newly released 787 which had its first flight in 2009.

Ummm – the Air Force chose the 767-200ER.  But instead of 100 planes back in 2002, it was now proposing to buy 179 tankers.

Well, after all of that, and with such a ‘mature’ (that’s a polite way of saying ‘old and ordinary’) airframe that dates back to 1982, surely there’d not be much that could go wrong and the program and delivery dates would proceed more or less lockstep in line with the schedule.

Surprisingly – or maybe not surprisingly <sigh>, that is not proving to be the case.  Boeing itself has already taken a $1.2 billion charge/write-off on the program, and the schedule has managed to slip at least eight months, with recent testing exposing problems with the refueling process.

Meanwhile, the Airbus KC-30 tanker has completed its development, first flew in 2007, and is now in use around the world.  It has been purchased by several Air Forces (including the UK, Australia and France), and indeed, US planes have even been operationally refueled by such tankers in the service of other friendly Air Forces, while the Boeing KC-46A has yet to successfully complete a single test refueling mission.

Details, if you can bring yourself to read them, here.  The expression ‘couldn’t organize a party in a brewery’ springs to mind.

EU Equates US and Canada with Bulgaria and Croatia

The US and Canada allow visa free entry for citizens of many nations, including most of the EU.  But both Canada and the US require visas for Romanians and Bulgarians, and the US also requires visas for Poles, Croatians and Cypriots.

The EU bureaucracy is outraged and is insisting that all Europeans must be treated equally and all given visa free travel privileges.  The US and Canada have been unimpressed, and so now the EU is threatening to require visas from Canadians and Americans in a diplomatic tit for tat.

Wouldn’t it be more appropriate, rather than requiring visas from all Canadian and US citizens, to merely require visas from citizens of a couple of provinces and states, such as – hmmm, maybe I better not say!

More details here.

Three Things the Movies Get Wrong about Air Travel

What, only three things?  Well, okay, there are many things movies get wrong, either through ignorance, the need to simplify, to dramatize, or the need to conform to the requirements of movie-making and the public’s expectations.

The classic pair of unrealistic things that always gets me is in an action movie.  All the characters always needs to cock their shotguns and pistols, even though in real life they would already be cocked.  And no-one ever runs out of bullets, unless it is necessary to advance the plot line (a pump shotgun should have about six rounds, a pistol 10 – 20, and a ‘sub-machine gun’ could fire for less than three seconds before emptying its about 30 round magazine).

But, we’re supposed to be talking about planes.  Here are three things, one of which you surely know, one of which you’ll realize if you think about it, and the third of which might surprise you, even though you’ve experienced it hundreds of times in real life and maybe even more in the movies.

First, and contradicting my comments above about how flying a plane is really easy; so easy that a dog can do it; if the pilot and co-pilot are incapacitated, there’s no way that the hero will be able to land the plane himself, aided only by someone on the radio ‘talking him down’.  Quite apart from the motor skills needed, how can the person on the ground explain, in urgent quick terms, which knobs and dials and levers need to be moved, and when, and how?  And the person ‘flying’ the plane will need to be continually reading off data back to the person on the ground – air speed, altitude, maybe also distance from the runway, engine power settings, and so on.

Maybe there is a solution, though, but not a very exciting one for the movies.  Simply have someone guide the person on the plane into how to program the auto-pilot to land the plane, then tell the person ‘now, whatever you do, don’t touch a thing and leave it all to the plane to do by itself’!

Second, planes in the movies are almost totally silent.  Sure, there’s a background noise to imply the scene is in an airborne plane, but passengers can talk to each other in normal conversational tones, and passengers can overhear other passengers some distance away.  Try talking to the person one seat over from you, or see if you can hear what the people in the row in front or behind you are saying (hopefully you can’t!).

Even better, try recording a conversation with the person a seat over from you onto your smart phone and then play it back once you’re out of the plane.  You’ll be amazed at how loud the background noise is and how quiet the voice is.

Third, one of the movie conventions is whenever a plane lands they play a tire ‘skid/shriek’ sort of sound, sometimes a pair of such sounds, to signify that the plane has touched down.  This is a high pitched noise.  This sound effect has become so universally accepted that we all nod to ourselves and understand what we’ve just heard – which is of course the purpose of the sound.  But think of (or listen to) the sound that you really hear when the plane lands.  A low deep ‘thud’ rather than a higher pitched shriek, right?

My apologies.  I’ve now ruined your enjoyment of airplanes in movies!

And Lastly This Week….

The Lonely Planet, like most guide book publishers, is doubtless struggling to remain relevant in this age of everything we think we need to know being available on the internet and through free public websites.

But its latest new title is sure to be a best seller.  Lavishly illustrated with color photos, the 128 page book is titled ‘Toilets: A Spotter’s Guide’ and features over 100 notable toilets around the world.  It is due to be released next week and is already the #1 new release on Amazon in the Travel Pictorial Reference Books category, and Lonely Planet confidently tell us that a second edition is already scheduled (but not until 2020).

A coffee table book?  Or perhaps a bathroom book?  You can see 20 of the illustrations here.

Truly lastly this week, here’s a wonderful collection of pictures, contrasting between the publicity photos for various tourist attractions around the world, and the actual pictures taken by real people.

Who said the camera never lies?

Until next week, please enjoy safe travels

David.