Weekly Roundup, Friday 9 August 2019

Why is Emirates the only airline that seems able to make huge profits from its huge A380s? See article, below.

Good morning

I went on a mini-road trip this week, covering over 800 miles in two days, with 650 of those miles featuring my teenage daughter and her friend in the back of the car.  Strangely, they seemed little interested in enjoying edifying and extending conversation with me, and preferred to watch videos; and equally strangely, I had no wish to hear the audio of the far from high-brow programming they had selected.

I tell you this to explain how this week’s feature article came into being – a result of my search for a solution that would allow both girls to watch a video without subjecting me to aural and mental torture.  The relatively short review that follows today’s weekly roundup is of the gadget that solved this problem – a $10 headphone splitter, with the “secret sauce” being that it has independent volume controls for each of the two headphone feeds.

What else for this week?  Please continue reading for :

  • Reader Survey :  Ordering First Class Airplane Meals
  • This Week’s Bad News for Boeing
  • The Reason Delta’s CEO Didn’t Meet President Trump
  • A380 Economics
  • JetBlue’s Aggressive Plans for Flights to Europe
  • Sympathy for an Accused Air Rager
  • Worst Resort Fee Ever?
  • And Lastly This Week….

Reader Survey :  Ordering First Class Airplane Meals

Last week I asked for your opinion about how you’d like to order your meal, when flying first class, in a situation where the meal availability was guaranteed, whether you ordered in advance or on the flight itself.

I was surprised by the results, which ended up as an exact match between people wishing to order in advance and preferring to wait until the flight to decide.  Perhaps not everyone fully appreciated that the two choices were in a situation where the meal availability was guaranteed, no matter when they placed their order.

In addition, a significant number of people said they didn’t really care when they ordered their meal at all.

Bottom line – United’s offering advance meal selection, while intended to allow it to reduce still further the flexibility of choice on board, doesn’t seem as unpopular as I’d guessed.  That’s what I love about this medium – it is easy to learn and correct one’s assumptions.  As always, thanks to all for sharing your thoughts.

This Week’s Bad News for Boeing

This is truly the gift that keeps giving.  I continue to expect – even hope – that each next week will see no bad news for Boeing, but sure enough, each new week sees at least one bad thing make it to the news, and sometimes more than one.

The big item this week came from an unlikely source, but seems well documented and credible.  The item, with plenty of links to Bloomberg and NY Times and other articles to reasonably confirm its points, refers to other problems in the 737 MAX that had been earlier glossed over.  It suggests the FAA should now ask Boeing if they’d very much mind making some corrections to remove these additional risk factors as part of the FAA’s own challenge in also restoring credibility to itself and its certification process.

Interestingly, the FAA is apparently being less than transparent in disclosing what it is actually requiring Boeing to fix with the 737 MAX.  Why the secrecy and lack of disclosure?  This is a classic case of unnecessary secrecy while the potential sensitive commercial matters that are being protected are either already known by or will need to be disclosed to the parties that the secrecy is being erected to prevent.  There’s no way the European and Chinese certification authorities, who have their own airplane manufacturers to consider at least as much as the FAA does with Boeing, will continue to passively sign off on certifications based solely on an approval by the FAA.

The FAA’s refusal to open its eyes to the 737 MAX problems for way too long, and its gullibility in accepting Boeing’s self-certifications in the first place, have massively damaged its international credibility, and have empowered other certification bodies to now deservedly insist on more thorough and separate certification processes prior to giving their own approvals.

Back to this article’s disclosures, it points to unlikely combinations of factors that could cause the 737 to lose rudder control.  Unlikely, yes, but not impossible, and one wonders if the FAA is going to require this risk to be addressed and reduced.

Meanwhile, risking the label of “Methinks he doth protest too much” Boeing CEO Muilenburg is again assuring corporate fliers (or those who stay to listen – the article mentions in passing that half the audience left the room when it was Muilenburg’s turn to speak) that the 737 MAX is now safe, and points proudly to having flown on two test flights himself.  He continues to claim that Boeing will submit the final material to the FAA for approval in September and expects approval “early in the fourth quarter” – a phrase that has to mean October (November is the middle of the fourth quarter, and December is late in the fourth quarter).  We imagine that nothing Boeing formally submits in September will be new to the FAA, so perhaps granting approval for the plane’s return to service within a month is possible, particularly after what will be six months of grounding and developing of fixes and improvements prior to the submission.

If the FAA does its job properly this time, and actually goes over all of Boeing’s self-certification and grandfathered approvals with a fine toothcomb, there’s no doubt that at some point in the future, the plane would indeed become safer than any other plane ever flown before.  But will the FAA actually do that?  I’ve seen nothing to suggest the FAA is broadly revisiting and reviewing other parts of its certification process, just the parts immediately concerned with the MCAS problem.

But, of course, with the FAA keeping the exact nature of its interactions with Boeing a secret, we have to trust Boeing and the FAA that they know what they’re doing – you know, we have to trust the two official bodies that were the slowest in the entire world to admit there was a problem with the 737 MAX to start with – a non-existent problem that has now taken five months so far to fix, with an unknown amount of additional fixing time still required.

Reassured?

A quiet problem that seems to resist efforts by Boeing to resolve is one which sooner or later threatens to become a big problem.  Maybe.  Here’s the latest article about what is being politely termed “problems with quality control” on the 787s being produced at Boeing’s second production line in North Charleston, SC.

The point of concern here, not clearly stated, is that if planes are being delivered to airlines with quality control issues, at what point does quality control become more than a cosmetic trivial issue and start to become a safety problem.  If something is discovered as missing or not correctly tightened/secured on one part of the plane, who is to say what other surprises are lurking in other parts of the plane?  If Boeing’s internal quality control programs are failing to detect obvious errors, what does that imply about more subtle errors?

Talking about the 787, there is an interesting article this week in Wired that posits the possibility that the 787 can be hacked on board by accessing the plane’s flight control computers via the in flight entertainment screens at every seat.  This has been demonstrated in the past, to a very limited degree, and indeed, the concept of “taking over” the plane via its electronics (but as a result of gaining access to the electronics bay underneath the main deck) has even been mentioned as one possible way the MH370 777 went missing.

This is far fetched sort of stuff, but therein lies the vulnerability.  Boeing’s response – “there is no vulnerability because we don’t know of any vulnerabilities” is a classic case of myopia.  No-one ever deliberately designs a system with built-in vulnerabilities, and statements like this so often end up being followed by a tale of some hacker’s extraordinary derring do and ability to break into the formerly secure system, whether it be a commercial enterprise, or something as secure as a Defense Department computer network, or whatever else.

But while the narrative makes it seem as if the hacker was a one in a billion extraordinarily gifted individual who managed to break a super sophisticated system, more commonly the reality is that the hacker was an ordinary person who spotted a subtle security flaw – it is the lack of ability by the system designers, not the brilliance of the hacker, that creates most security flaws.

Boeing’s statement is also a bit eerily like telling us “There’s nothing wrong with the 737 MAX” after two fatal crashes, and before its grounding that now has been ongoing for five months, the longest grounding ever.

At least publicly, Boeing is simply sneering at and ignoring what the researcher has uncovered to date and simply saying that the plane is secure from hacking, rather than resolving the crumbling first lines of defense and protection that the hacker has, to date, succeeded in breaking through.

The Reason Delta’s CEO Didn’t Meet President Trump

We marveled, last week, at how it was that after pressuring President Trump for a chance to meet him and press his airline’s peculiar point of view that it is being harmed by competition from the Gulf airlines in a manner that can only be solved by legislative intervention rather than by simple competitive response or formal appeal to the enforcement body for airline competition matters, Delta CEO Ed Bastian then no-showed when he (and his fellow airline lobbyists, the CEOs of American and United) got the meeting they requested.

Not only that, Bastian couldn’t even come up with a reason/excuse for his non-attendance at the meeting.

Well, it took an extra week, but he has finally come up with a reason why he failed to attend.  We are told he had scheduled a one week vacation with his family and he didn’t wish to break that.  We are not told why he didn’t reveal that at the time he simply no-showed and stood up the President (not a man who enjoys such personal slights, need we add….).

Sycophantic airline-supporters erupted in sympathy for the poor man (Bastian, not Trump!).  Fancy the inappropriateness of suggesting that Bastian’s private personal family life should be sacrificed in favor of his job!  Well done Ed for going on vacation rather than meeting the President.

I disagree.  And rather than describe him as a poor man in any sense, in 2017 he was paid a total of $13.2 million as Delta’s CEO (not sure what his 2018 earnings were, but probably similar or possibly even higher).  That’s a tad over a quarter million dollars, every week.

I don’t mean to boast or virtue-signal, but if you offered me $13.2 million a year, I would pledge my every waking minute to the enterprise employing me.  Heck, you could offer me “only” $1.32 million and I’d still be the most dedicated committed person in the company.

Here’s an issue that Bastian claims is threatening the survival of his airline, and here he is with a $13.2 million annual package to protect his airline and ensure its prosperity, and he decides that deferring or skipping a portion of a family vacation for a couple of hour meeting with the President of the United States to advocate his request for assistance is too much to ask for.

Details here.  I also wonder – when he is on vacation, does he shut down all his connections to the office?  Or does he spend some time each day still doing work things….

Meanwhile, the CEO of one of the Gulf airlines – Tim Cook of Emirates – had some choice words to say about the continued campaign of lies and distortions by the big three US airlines.

A380 Economics

We read an interesting article earlier this week, observing the growing stockpile of nearly-new second-hand A380s.  They wondered why can’t an airline buy up, or rent/lease, a few and use them as the base for a new discount airline.

It was interesting to see that the approximate cost to operate an A380 for an hour was quoted in the order of $26,000 – $29,000.  Some Google-fu shows this to be a widely quoted figure, but just because it is widely quoted does not mean it is accurate.

First, it seems the data dates back to 2015 or possibly earlier, and secondly, these are Australian figures and presumably quoted in Australian dollars, but which have “magically” become US dollars due to careless research and sourcing.

Our guess – and it is just that – is that an A380 costs in the order of US$16,000 an hour.  We have used the following figures

Fuel  $6200
Capital/depreciation  $5600
Maintenance  $2000
Crew  $1500
Misc  $700

A flight of course also has take-off and landing fees, gate fees, parking fees and other associated costs.  These vary enormously from airport to airport.  Let’s allow $20,000 for these per flight.

Note also the second highest hourly cost is depreciation.  If you have a $350 million plane that you are depreciating at say 7.5% a year, and operating it 15 hours a day, six days a week, that’s a depreciation charge of $5600/hour.  But if you get the plane second hand for $175 million, your hourly depreciation charge reduces by $2800/hr.

Plus, a “no frill” airline wouldn’t be paying top dollar to its pilots and flight attendants.  Let’s trim that back to $1200.

To keep round figures, that suggests $13,000 per hour for a used A380, plus the landing fees and associated costs.

A typical flight between many places in the US and Europe would be about 10 hours each way.  $150,000 each way.  How much is it necessary to sell tickets on that flight to break even and start to make a profit?

Assume an A380 with 58 business class seats and 557 coach class seats (this is one of the Emirates configurations) and assume business class fares are four times coach class.  That would make the cost of this flight $190 for coach class and $760 for business class, one way.  Would you like to fly to Europe and back for $380 (plus taxes)?

Flying further afield, a 15 hour flight from the US west coast to the Australian east coast would be $215,000.  Would you fly to Australia for $545 roundtrip (plus taxes)?

Sure, these are break-even figures and assume a full plane.  But the profit and unsold seat considerations would be compensated by the extra revenue the airline makes by selling meals, drinks, by charging for baggage, early boarding, aisle/preferred seats, and so on.

The $190 each way fare to Europe could be boosted by $50 or more for a checked bag, $20 for a meal and a snack, $5 for a drink, and an average of perhaps another $10 per person for better seat or early boarding.  Then add on cancellation and change fees – assume a 5% cancellation rate and another 5% change rate (say $200 change fee) – that is another $25.  There’s another $110 of indirect income on top of a $190 ticket, multiplied by 557 coach class passengers – $61,000 of additional revenue per flight.

If you became “clever” and started to play some yield management games, you might set aside a few seats at higher fare levels, and get more income that way, too.  And so on, working your way through the airlines’ complete bag of fee tricks.

Indeed, you could also take a leaf out of the very successful RyanAir business model.  Add some more “impossible to avoid” fees (like a “ticketing fee” and a “our cost to compensate you if the flight is delayed” surcharge) and reduce the $190 each way fare down to $99 or lower, while making up the difference in extra fees.  Does that get you packing your bags and heading to the airport – and remember, too, that this isn’t a “starting from” price which you can never get.  This would be every coach class seat, all at $99.

Even more aggressively, you could have one third of the plane at $69, one third at $99, and one third at $12, and advertise fares at “from $69 each way”.  That’s the type of “bait and switch” that airlines do all day every day.

Can we also point out these are fares based on 10 hours flying time.  If you’re on the northern half of the east coast – Boston, New York, DC, your flying time reduces down to about 7 1/2 hours.  You can reduce these fares by 20% due to the reduced flying time.  That’s almost a $49 each way lead fare, depending on how creative you can get with fees and yield management.

When we see the business class fares at only $1520 roundtrip, that makes us think there could be more of a loading on business class fares – either more profit, or allowing for still lower coach class fares.

To rework those figures with a different A380 configuration, let’s look at a Singapore Airlines A380 with 6 first, 82 business, 44 premium economy and 343 economy seats.  Say that premium economy seats are 50% more than standard coach, business are four times coach, and first are eight times coach.  That would have coach class seating priced at $191 – almost exactly the same as the other configuration, and probably easier to sell/fill (fewer seats in total, and a broader spread of seat choices).

There’s also an entire and substantial category of further revenue that could be earned.  From commercial freight.  We don’t know nearly enough about the freight side of an airline business to even hazard a guess as to how much additional revenue could be earned from freight, but we know that freight is a significant part of most airlines’ total income mix.  So we’re going to err on the side of caution and ignore the freight side entirely, and simply say that the income from freight can offset the fixed costs of managing and operating a new airline.

To be fanciful, a fleet of nine planes would allow for daily service from two US cities, each to two European cities, and a spare plane to allow for taking the eight other planes out of service occasionally for maintenance or other issues.  Alternatively, you could add more cities and go down from daily service to three or four flights a week, getting more of a network and presence with the same planes.

We don’t see this as an impossibility.  The thought of advertising $99 plus tax fares each way to Europe, and perhaps $199 plus tax fares each way to Australia has us salivating.  It strikes us as the type of challenge that a young Freddie Laker or Richard Branson would have delighted at accepting, were it available back then.

And the one certain good thing about the internet, these days, is that it has massively helped new airlines to get market share.  Fewer travelers make a “brand” choice when buying travel these days, or if they encounter an unfamiliar airline, they evaluate it based on its website presence.  There’s no need to spend many millions of dollars on brand and corporate awareness advertising.

We remain puzzled no-one is trying this.

JetBlue’s Aggressive Plans for Flights to Europe

Another possible airline to consider a fleet of low-cost used A380s could be JetBlue.  They are one of the few startup airlines since deregulation that has grown and prospered and these days, they seem to be stable and successful in the markets they choose to be active in.

However, they – like almost every other airline – are adopting the opposite strategy.  Instead of getting the biggest possible plane for their new service to Europe (due to start in 2021), they are getting pretty much the smallest possible – a long range version of the A321.  Their focus is going to be on their premium cabin “Mint” experience, and at a very affordable price (compared to the massive premiums the major carriers as for their business/first class cabins).  They’ve done this already on their coast-to-coast services, and so feel confident they can replicate the process for flights across the Atlantic.

They’re a bit quieter about their pricing plans for coach class, but whatever it is, the simple and positive case of adding another airline and additional capacity has to be a good thing.  We look forward to 2021, although we doubt they’ll offer service from Seattle any time soon.

Details here.

Sympathy for an Accused Air Rager

It is true that some of the ordinary rules of criminal proceedings, arrest and custody get waived at 35,000 ft, but when an alleged offender is back on the ground and in a court-room, it is important that all normal processes and requirements are religiously followed.  A criminal felony is a fearsome thing to confront, and the “proven guilty beyond a reasonable doubt” standard must apply to “air rage” type prosecutions, just the same as it does to all other criminal cases.

To be blunt, that has absolutely not been the case to date.  Too often there are “he said/she said” situations where the unsupported word of a flight attendant or flight attendants, disputed by the accused person, and at times being hard to believe, has been the only evidence the prosecution has to offer, with the prosecution displaying a strange reluctance to get witness statements from people seated all around the accused.

Imagine a “normal” felony charge of, perhaps, assault, where a person is accused of assaulting one of the serving staff in a bar.  You know the prosecution will trot out half a dozen witnesses – other patrons in the bar, giving their corroborative testimony.  But this does not seem to happen in air rage cases.  Why not?  The airline knows exactly who everyone is all around a problem person, much more so than a bar knows who its other patrons are.

Furthermore, and again to be blunt, it is clear to us that some pilots will gratuitously and ridiculously decide to divert a flight not because it is essential, but to “prove” that a passenger is being a huge problem.  We’re not aware of defense attorneys disputing such nonsensical decisions by a pilot who as often as not never left the cockpit, and never witnessed any part of any altercation, but just passively and obediently did whatever he was told to do by a flight attendant with a score to settle.  That is something that needs to be subjected to careful scrutiny.

We are absolutely delighted therefore to read about a man currently being charged with a felony count of air rage (to be precise, the very nebulous crime of ‘interfering with a flight crew member’) who is pleading not guilty.  He concedes he was an abusive jerk, but not unreasonably points out that if every abusive jerk was charged and convicted of felonies, the country would become a quieter emptier place, while the jails would explode from their over-population.

We do agree that an abusive jerk is much more unpleasant on a plane where the people around him can’t avoid him, but currently the justice system is totally unbalanced and is dishing out draconian sentences inappropriately.

In this particular case, the accused felon was denied bail and has been in jail since last October – so he has already suffered a 10 month imprisonment, whether he be found guilty or not.  He is now faced with an up to 20 year federal prison sentence if found guilty.

One other comment.  There have been public outcries for airlines to stock Narcan dispensers on planes to save drug addicts who have overdosed themselves and consequently dying on a flight.  We admire the compassion shown in such cases.  So why do we flip from compassion to condemnation when the same drug addict, rather than risking death, behaves badly?  Similar outcomes – passengers inconvenienced, plane diverted and emergency landing.  Similar cause – person on drugs.  But totally different handling and consequences.

We’re not saying that people – be they drug addicts, drunks, or totally sober – should be excused for inappropriate behavior or actions, on planes or anywhere else.  But we are saying that it is beyond over-kill to have a guy in jail for 10 months so far, and facing up to a 20 year jail term, for some regrettably inappropriate drug-induced behavior on a flight and almost surely being goaded into a bad response by a flight attendant who rather than using their “conflict de-escalation and resolution” training, abuses it and knows how to subtly press such a person’s buttons to maximize the draconian outcome.

Details here.

Some good news on this topic is Cathay’s admission that is is video surveiling passengers on its flights.  It would be great to have a video record of passenger altercations, although probably there’d be no sound.  Indeed, I’ll go one further – maybe we should require flight attendants to wear body cams, just like police officers.  I’ve no concerns at all at having every interaction with flight attendants recorded, but I suspect there’d be regular cases of video footage being “lost” or cameras accidentally being turned off at critical moments.

Worst Resort Fee Ever?

I’ve long lamented that high end hotels sometimes include less and charge higher rates and for more things than budget properties which happily include it all for free.  My first introduction to this was on my first ever visit to Boston, well over three decades ago, when the hotel I was staying at snootily told me that of course they didn’t have an ice maker on each floor.  Instead, “for my convenience”, I could order ice through room service.  The “convenience” of that meant having to wait half an hour for a tiny quarter-full bucket of ice to arrive at the door, and then pay the bellboy a tip for doing something half an hour later that I wanted to do, myself, 30 minutes earlier.

That was in the “good old days” before resort fees became endemic, of course.  But I’ll wager that while that particular hotel probably now adds a $30/night “resort fee” to its room rates, it still doesn’t provide ice makers for guests to access directly.

I was looking at a website for a fairly new rural resort property earlier this week, and noticed that it was asking $2500 a night for each of its eight guest “suites” – a rate that did include meals and some (but not all) drinks, and some outdoor activities, but which was still heart-stoppingly high.  I was also amused to note that, at least according to its online booking page, it didn’t have a single room booked between now and the end of the year.

Not so amusing though was a mention, well-buried in the fine print somewhere (I can’t even find it again now) that in addition to the $2500 “all inclusive” rate, there was also a resort fee to be added.  Some of you might wonder how a resort fee can co-exist with an all inclusive rate, but that wasn’t to become the issue of greatest surprise.

So how much do you think would be fair as a resort fee to be added on top of the $2500/night all inclusive rate?  Of course, the obvious and compelling answer is “not a single penny more”, but there’s probably a small extra cost that could get lost as a mere “rounding error” in the context of a $2500/night room rate.

Well, the amount this property was asking for its resort fee was definitely not a small extra “rounding error” type cost.  It was an extra 20%.  Let me do the math in case it isn’t obvious.  They were asking $500/night as a resort fee, on top of the all-inclusive $2500/night rate.

Much as I want to name and shame this outrageous rip-off, I’m not going to give the property even a shred of publicity or Google link boosting by mentioning its name or its website, but I can tell you that it is located 30.2 driving miles to the west of Missoula, MT, just south of I-90, and is a ranch that proudly boasts of a river view in its name.  It doesn’t yet appear on Trip Advisor or Google Reviews.

And Lastly This Week….

Here’s one of the lovely articles that sometimes appear, chronicling a much more optimistic time when it seemed our great nation could do anything and everything, and was full of bold brave plans for doing so – in this case, a floating airport on Lake Erie to serve the then booming metropolis of Cleveland, in the 1960s.

Including the cost of stock options, Uber managed to lose $5.2 billion in the last quarter.  That’s a beyond-staggering loss, and even its CEO admits it is unsustainable.

More than that, we’re starting to wonder if the entire Uber business model is unsustainable.  To be blunt, they’re not charging us enough for each ride we take.  This is something some people have instinctively sensed, even if not carefully costed out.  I know people who have abandoned their car and take Uber rides wherever they go, observing it to be cheaper, and that’s probably correct, because the Uber rides are being sold to us at well below the cost of providing them.  Just as we’re starting to get to love easily arranged affordable rides everywhere, it seems we might have to adjust back to longer waits for cars and higher costs per journey.

Or, as an alternative, does Uber really need thousands of highly paid staff in what is probably the most expensive city in the world for such people (San Francisco)?  Now that the “heavy lifting” of creating its business model has been done, perhaps it can halve its development and marketing teams, and perhaps it can move from San Francisco to somewhere in the mid-west.  One wonders how many billions of dollars that would save.

How much more would we have to pay for each ride?  In rough figures, Uber had $3.2 billion in revenue, and a $5.2 billion loss.  So if it doubled its rates, it would get another $3.2 billion in revenue – and still lose $2 billion.  It would need to almost triple its rates, which creates a new problem.  Would you still use Uber as much as you do if its cost doubled or tripled?

We also have to note that well over half the $5.2 billion loss was due to stock option costs.  How can Uber be incurring billions of dollars a quarter in stock option costs when it is also losing $1 billion and more a quarter on its actual operations?

Details here.

We’re told there’s a desperate pilot shortage, and the only cure is to pay current pilots very much more money and give them more time off.  Indeed, there is a shortage of pilots, largely caused by the ridiculous requirement enacted by Congress that now requires new pilots to have 1500 hours of flight time before they can join an airline (it was formerly 250 hours).  But the solution is obvious – make the training process for new pilots more streamlined and approachable.  Here’s one company that is doing exactly that.

There’s not much new about drunk pilots – although it was notable that United recently had an international flight that had to be cancelled because both pilots tested drunk at Glasgow.  (Their explanation for the delay was delightful double-speak – rather than simply saying the flight was cancelled because both pilots were drunk, they said it was cancelled due to “crew availability”.)

But drunk flight attendants are somewhat less frequently in the news – which is interesting because most flights have more flight attendants than pilots on board.

Not so a recent regional flight that had one flight attendant on board, however, a lady who was utterly unable to conceal her almost total dysfunctionality as a result of having a blood alcohol level five times the limit for flight attendants.  Ooops.

Details here.

Truly lastly this week, here’s a brilliant article with the headline “My Pilot’s Nickname is Bottom Gun”.  Please do read it.

Until next week, please enjoy safe travels

 

David.

 

 

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