Weekly Roundup, Friday 10 August, 2018

Good morning

I hope your summer is proceeding apace and that you’re not being impacted by the fires and smoke coming from them that seem to be filling so much of California at present.

We have the usual sprinkling of fires here in WA too, but orders of magnitude less than the 300,000+ acre main fire and many slightly smaller ones in California currently, making in total for the largest amount of fire in the state’s history.

Some have been quick to attribute the fires to global warming, but it seems the primary reasons are actually coming from an opposite set of circumstances – greater ‘care’ of forests meaning that old dead wood accumulates rather than being allowed to burn in natural cycles of smaller fires (there’s a rush to extinguish all fires these days, meaning an accumulation of fuel for when fires run away) and of course, greater proximity of residential housing to forested areas making the outcomes of fires more directly impinging on people rather than just on places and things when they do occur.  Add more and more people to the mix, and perhaps growing carelessness when people are in forested areas, and so more fires are started, they burn more readily, and they impact more on people.  Plus – oh yes, budget restrictions limiting the state’s ability to adequately respond.

I’m writing to you today with a sore neck and shoulder, so will try not to be too irritable as a result.  My aches may have been gained from testing a new type of travel pillow – I was excited by the concept of this ‘design and build your own’ approach to a travel pillow, but as for the reality, well, the article follows this morning’s roundup.

What else this week?  Please keep reading for :

• Norwegian Temporarily Operating Deluxe A380 Flights
• Will the New Supersonic Airplane be Obsolete Before it Flies?
• A Difficult Day Today for Ryanair
• Taiwan Tries to Fight Back
• Is Airbnb Being Naughty With its Reviews?
• Is the TSA Really This Stupid?
• Is Elon Musk Pumping and Dumping?
• And Lastly This Week….

Norwegian Temporarily Operating Deluxe A380 Flights

I wrote last week about a charter/lease airline adding a used ex-Singapore Airlines A380 to their hire fleet.  After some initial flights for the British airline Thomson Airlines, it has now been hired out to Norwegian, and is being used on flights between  JFK and Gatwick.

Norwegian continues to struggle to maintain its schedule while its regular 787s are taken out of service due to the problems with their Rolls-Royce engines, and after hiring in other replacement aircraft, it has now started operating the A380 on this route.  Apparently a mere $400 extra (each way) will get you access to one of the former SQ first class suites on this plane.

But you’ll have to hurry.  The A380 moves to another assignment on 24 August, this time helping out Air Austral – another airline struggling to maintain its schedule due to the same problems with its 787s and Rolls-Royce engines.

The Norwegian experience hasn’t been all good with the A380 so far, due to scheduling problems between itself and JFK – there are fewer gates at JFK that can accept the A380 and it seems that may not have been fully allowed for when deploying the A380.  Oooops.

I’m sure I’m not the only one who is desperately hoping that exposing the A380 to several of these airlines might light a spark that causes one or more of them to decide to buy some second-hand A380s directly and add them to their fleet in a more carefully integrated and managed manner.

Wouldn’t it be an amazing combination – a low-priced airline offering deluxe travel on the world’s most impressive airplane.

Will the New Supersonic Airplane be Obsolete Before it Flies?

Talking about wonderful airplanes, here’s another “puff piece” article about the development of new supersonic airplanes, and in particular, talking about the strangely named Boom plane that is showing more credibility than most other contenders in terms of actually progressing to a real working plane.

That is a fairly low bar to pass, however, as we very much doubt many of the others will ever make it into the air.  But we’re starting to see the rise of a surprising challenge to the Boom as well – as is mentioned in passing towards the end of the article, Boeing is now starting to join the ‘other’ chorus of announcements of exciting new airplane technology, but this time not just for old-fashioned supersonic speed, something that has been around for decades, but for the very much faster hypersonic speed which is all the rage in futuristic circles these days.

Why fly at only Mach 2 – 2.5 when you could fly at Mach 5?  Without allowing for taxi time, take-off and landing, that would allow for just under an hour’s flying time between New York and London – or, in other words, you’d spend more time in the plane while on the ground at JFK and Heathrow than you would flying between the two airports.  The 15 hours between Los Angeles and Sydney would now take just under two hours.  Nowhere on the planet would be more than 3 1/2 hours from anywhere else.

On the other hand, maybe there’s still a chance for the Boom.  Boeing projects its hypersonic plane (illustrated above) might not reach the market for another 20 – 30 years, all going well, whereas the Boom is optimistically hoping to enter service a mere five years from now (but color us doubtful on the likelihood of both those dates).  This could give Boom an easy 25 years of life before being threatened by a future hypersonic plane, and we’ve not yet any idea on what the per passenger costs may be for hypersonic travel (Boom is claiming extraordinarily low prices for its SST, more or less comparable to current business class fares).

Some cynics suggest there’ll never be a hypersonic passenger plane, that all the research is destined purely for military use as a new global weapons delivery platform.

A Difficult Day Today for Ryanair

It looks like Ryanair will cancel about 400 flights today due to a 24 hour strike by members of pilot unions in Belgium, Sweden, Ireland and Germany.  The pilots want more money and not to have to accept being reassigned to different home airports from time to time.  Ryanair was given a mere 48 hours notice of the pending strike.

This industrial action is the result of two things – the first being the growing worldwide shortage of pilots, and the second being Ryanair’s concession last year to allow its pilots to unionize.  Its reward is coordinated chaos by its employees, such as will be suffered by up to 55,000 travelers today.

The growing militancy of Ryanair’s pilots is already harming the company’s profit and passenger numbers.  Are we to again see a group of self-centered pilots destroy their ‘golden goose’?  With the shortage of pilots at present, the shift in the supply/demand equation is not working to anyone’s benefit except the pilots; we as passengers need to be increasingly wary of such deliberate disruption as is being experienced by Ryanair this week.  And if the increasingly aggressive and assertive pilots get their way, the net result is obviously going to be higher fares.  There’s no upside to us at all.

Details here.

Taiwan Tries to Fight Back

Talking about becoming increasingly aggressive and assertive, the independent nation of Taiwan (oooops, sorry, readers in China, there’s a chance this may trigger the “Great Firewall of China” such that you don’t get to see this week’s newsletter) has a population of 23.6 million.  Its neighbor, the increasingly aggressive and assertive China has a population of 1380 million.

The enormous market size of China is such that whenever China says “jump”, most airlines respond compliantly by asking “How High”.  And when China says “You’ve got to pretend that Taiwan is not independent“, airlines scramble to obscure this truth in their itineraries/schedules and on their in-flight displays.

We don’t like this bullying by China, but we do understand the airlines’ responses.  Is there an airline on the planet that wouldn’t happily sacrifice access to a market of 23.6 million people if it protected their access to a market almost 60 times larger?  Taiwan apparently hopes there may be a ‘unicorn’ airline that is bold and brave enough to risk China’s ire by doing the right thing and continuing to acknowledge the independence of Taiwan, and is mulling over how to force airlines to do so.

A hint to Taiwan – this is not a battle you can win.  Don’t force airlines to choose between you and China, because you’ll surely lose if you do so.

Is Airbnb Being Naughty With its Reviews?

One of the key elements of Airbnb’s astonishing success is that it provides potential guests with the comfort and confidence they need to choose Airbnb instead of a regular ‘known quantity’ hotel/motel room.  A large part of this credibility are the reviews attached to each different listing, where previous guests review and rank the quality of stay they had.

But can you trust these reviews?  There are of course three potential ways the reviews could be skewed.

The first would be an Airbnb featured owner paying his friends (and his guests) to write over-the-top glowingly positive reviews.  This is actually a sensible business strategy – the small cost involved of having your friends come and officially stay at your Airbnb property and then writing great reviews would almost certainly be quickly recouped in new bookings.  Of course, the property would have to be reasonably good, or else the true strangers would soon contradict the glowing reviews, but for a good property eager to gain instant credibility, it is a viable strategy, much like what sellers do on Amazon all the time.

The second would be people writing unfairly negative reviews of a property to tilt the scales in the other direction (maybe the same person who is paying people to sing the praises of his property is also paying people to write bad reviews of other properties).

But it is the third strategy that is perhaps the most insidious – the one which only Airbnb itself can do.  That is censoring negative reviews, much like what has occasionally been uncovered on TripAdvisor in the past.

Airbnb of course insists it would never do any such thing, because its brand relies upon credible reviews.  But then there are reports such as this one which leave one uncertain and wondering.

Our take is that most reviews on Airbnb are fair and reliable, because if the company is indeed ‘gilding the lily’ and eliding negative reviews, it is harming the credibility of a key part of its brand promise.

Is the TSA Really This Stupid?

The good news is the TSA is looking at adding dogs as another of its much vaunted multiple layers of airport security.  The way it seems this will work is that dogs will walk along the line of people waiting to go through TSA screening, and if neither the passengers nor their bags cause the dogs to alert, then the passengers will be whisked out of line and sent to a special super-fast lane with cursory or no screening at all.

In theory, this makes sense, but I’ve two comments about the concept of dogs as being the answer to all our screening needs, and I offer them as a dog lover and owner of many German Shepherds and Labradors over time.

The first is to note that dogs tire quickly, and can only work very short shifts before needing to be given a break.  They need to be constantly stimulated, and to regularly find what they’re looking for.  To have what appears to be a single dog on patrol during a single eight-hour shift probably requires a team of four or more dogs, each working a shorter shift.  The training and maintenance costs are enormous.

The second is to observe the far from infallible behavior of such dogs.  I vividly remember chatting with a K-9 handler from a Sheriff’s department at the local Fair one year.  He was showing off his lovely German Shepherd and boasting of the dog’s magical ability to sniff out explosives from a distance.  I said, standing next to the dog and, after letting it sniff me, and while petting it “Golly, so you mean, if I had a gun or something on me now, he would alert?”.  The handler assured me proudly that would be the case and I evinced the appropriate amount of being amazed and impressed.

We chatted for a while longer then I left, anxiously patting my left and right sides, wondering if I’d forgotten the pistol and spare magazines that I usually carry with me.  But, no, they were all where they belonged, but for whatever reason, the dog had decided not to alert, even after sniffing me and being right next to me for a couple of minutes.

But that’s not really the stupidity that I’m bemoaning, here.  You see, the TSA plans to deploy the dogs on people in the regular inspection lanes, such that those who pass the dog inspection are now likely to make it through security faster than people in the PRE-check lane.

Yes, that means you might pay $85 for the promise of fastest screening but now have to wait longer than the ordinary folks who paid nothing.

Astonishingly, while the TSA acknowledges that this may penalize people who went through the rigmarole, screening, and cost of joining their PRE program, it says it still wishes to encourage people to join PRE.  Details here.

Is the TSA really this stupid?

Is Elon Musk Pumping and Dumping?

A few fortunes were made, and a few more were lost earlier this week when, apropos of nothing, Elon Musk stunned the world at lunchtime (Eastern time) on Tuesday by announcing that he was considering taking Tesla private.  Not only was he considering doing so, but he had already secured the necessary financing to do so, as he explained in his preferred method of communication with the world, Twitter.  He said he’d buy up the outstanding shares of Tesla for $420 a piece.

This caused the share price to soar.

In many people’s opinion, the share price was already acting irrationally.  Last week saw another huge quarterly loss announced, and his claim to now be producing over 5,000 Model 3 cars a week and on track to move to the ultimate target of 10,000 a week is laughingly out of touch with observed reality.  For example, in July, a month with 4 1/3 weeks in it, you’d expect production to be something like 22,000 or more Model 3 cars, but it seems in total that maybe slightly more than 14,000 were produced – a contradiction politely ignored by Tesla fans the world over.  Bloomberg have been running a Tesla Model 3 production tracker for some time, and Musk’s claim to have exceeded a weekly rate of 5,000 in late June and multiple times since then is contradicted by Bloomberg’s analysis, which suggested a peak of 3868 cars in the best week in June, and July weekly rates ranging between 2500 and 4300.

There’s another puzzling thing that no-one is talking about, too.  What happened to the almost half a million pre-orders for the Model 3?  Last month Tesla announced that people could order a new Model 3 with no waiting delay at all, just a normal factory order manufacturing lead time of about a month (that has now lengthened to 2 – 3 months).  Scarcely more than 50,000 Model 3s had been delivered at the time Tesla said it would accept open orders from everyone.  Has everyone else on the waiting list cancelled?

Or are there still people, hoping against hope for a $35,000 Model 3 as was originally promised (good luck with that – the current lowest priced Model 3 is $50,000, and a fully loaded one goes for $79,500)?  In late May, Musk was promising the $35,000 version could appear as soon as September.  That time has been, uh, ‘revised’ and now the website is talking about sometime in the Feb – May 2019 time frame.  Why has no-one held Musk to account for this broken promise?  This broken promise is all the more regrettable, because the $7500 federal tax credit is due to start expiring, reducing first to $3750 in perhaps December before then disappearing entirely.  So the ultimate promise – a $35,000 car and $7,500 tax rebate to make the net price $27,500 – looks like it will never be offered.

One more point.  While, yes, Model 3 deliveries are climbing rapidly, deliveries for their Models S and X continue to flatline.  US deliveries in July for both models (2525 cars total) were appreciably lower than in July last year (3075 cars total).

Nonetheless, the share price had risen to about $345 earlier in the week from its previous $300 territory; and after Musk’s tweet about buying up Tesla stock for $420 it shot up over 10% to pennies less than $380, before rapidly falling back to about $350.

About 20 million shares changed hands on Tuesday after his tweet, compared to about 9 million on a normal day, and Wednesday saw another 20 million or so, still at prices over $370, before reality set in and the price started dropping back down to where they’d been before.  We expect some short sellers in particular may have been harmed by sudden urgent margin calls, while the 40 million shares sold at higher than expected values represented a transfer of wealth in the order of $125 million or more to some lucky people.

All because of a tweet from Elon Musk, and a fanciful claim that started imploding almost as soon as it saw the light of day, as reported, for example, in this article.   Although Musk was careful to say he was ‘considering’ taking the company private, rather than making an outright statement that he would do so, the other part of his claim – that financing had been secured – has been met by a lot of surprised faces all wondering how you can do a cash-flow buy-out of a company with such strongly negative fundamentals and no spare cash to cover the cost of the billions in debt that would be required, and no-one willing to admit they were part of such a brave financing team.

It has also become yet another of the growing list of matters of interest to the SEC.

And Lastly This Week….

Uber, even under its new leadership, continues to experience controversy and challenges to its business model, most recently in New York where the city in its wisdom has decided to freeze the number of Uber and Lyft licenses issued.  Internationally it often finds it hard to compete against local competitors.

But there’s a new competitor just appearing in the US which, while clearly being well positioned for a certain niche market, probably doesn’t have Uber entirely concerned.

There’s no shortage of lists of “the top nn places to visit”, most of which are fairly strange in their methodology and selection.  But here’s a slightly more novel list, a list of 50 places you’d likely want to visit, but can’t.  Chances are you’ve been to one or two of the places on the list, and if you wished to, could probably visit a few more, too.

On that note of frustration and potential fulfillment, can I close with a reminder of all the places you can visit on this year’s Christmas Markets Land Cruise.

Until next week, please enjoy safe travels

David.