Friday 23 May, 2003

Good morning.  The prospect of a long weekend makes it hard to think of work, but with my off-shore clients there'll be little rest for me on Monday.  I've always admired the way that embassy staff seem to enjoy both their own country's holidays and their host country's holidays; but, alas, instead of having the best of both worlds, I seem to have the worst of each!  (And, yes, those are indeed crocodile tears that I'm crying....)

This Week's Column :  Loss Control Part 3 :  In the last of this three part series on protecting against the loss of your documents, I provide ten tips on how to cloak your identity, making your credit cards and other personal information less valuable to a thief.

Deathwatch Part 1 - United :  Last week I mentioned about United's upcoming schedule changes affecting more than a million of their customers, and passed on a word of warning about their reported undertaking to notify all affected customers.  They sent out a clarification note that says

Regarding flight schedule changes, UAL's policy is that our Reservations Department will only call those with reservations directly booked with us.  We do not call customers booked through agencies (online or offline).  A recent Newsbrief stated that UAL would be contacting all customers this is not so.

As I said last week, you'd better check the status of any future UA bookings yourself!

The contract that UA entered into with consultancy McKinsey & Co after declaring bankruptcy has already aroused considerable controversy.  Many observers have been doubtful as to the wisdom of this contract, or the value United would receive from McKinsey's high fees.  UA's unsecured creditors have now filed an objection against United extending its contract with McKinsey for another $3 million of work.  The creditors said they have been unable to talk to McKinsey staff or in any other way get information about what McKinsey may be doing for United, or to determine if McKinsey is doubling up on services already contracted for by other consultants UA is already paying.

These unsecured creditors are in a very perilous position, with little say in how UA reorganizes, and being at the bottom of the priority list for getting their bills paid.  One assumes that the $2.8 million which McKinsey billed UA for their mystery work in December, January and February is not also being treated as an unsecured creditor, but rather has already been paid in full!

The new UA/US codeshare flights seem to be causing some headaches.  Although by law passengers must be told, when booking/buying tickets, that their flights will be operated by another airline on a codeshare basis, this advice - if given at all - seems to be often overlooked and forgotten, not only by the travelers themselves, but also by people taking them to the airport and people meeting them at the other end.  Reader Mike writes :

This weekend, I went to pick up my daughter and her new husband who was returning from their honeymoon on a flight from Miami.  They were booked on US Air with a US Air flight number.  At O'Hare, United and US Air are in different terminals, and not knowing this was a code share, I went to the wrong terminal.

It gets worse. The US Air flight number was not listed on the terminal's monitors, so I had no way of easily determining where they were.  Fortunately a friendly US Air "lost baggage" person told me about the code share arriving in the UA terminal.  He said the lack of communication happens all the time, and that the employees catch hell.

It gets worse.  My daughter and her new husband were also not told that it was a code share, and so went to the wrong terminal in Miami to take their flight home.

It gets worse.  When they finally checked in, they were never given the United flight number, and the gate was changed.  Had they not gotten worried when the flight was not called, and checked with a US Air agent, they (and others) would have missed their flight.

As my friendly baggage person put it "I'm sure somebody in the higher ups sees us making millions more from this, but down here, we're the ones paying for it."

Although code share flights are always proudly announced by airlines as offering greater convenience for passengers, the reality seems to be that the only people that benefit from it are - ooops - the airlines themselves, by being able to create the appearance of competition while actually providing the exact opposite.

Deathwatch Part 2 - American :  My cynicism about AA's new CEO has been confirmed by his announcement earlier this week that AA is giving up their wonderful 'More Room in Coach' concept in much of their fleet.  The interesting thing about his announcement was that he abandoned the pretense espoused by his predecessor that American could charge 30% and more above the fares offered by its competitors and still have passengers happily choose AA.  In explaining the backward step, he said 'We are simply returning to standard seating in those markets where customers tell us price and seat availability at low prices is predominately how they choose a carrier.'

Let's look at the 'More Room in Coach' concept in a bit more detail than he seems to have done himself :

AA's 'More Room in Coach' concept was a brilliant plan that recognized a basic truth - most of the time, planes don't fly full.  And so, by taking out a few seats, the airline was not actually reducing the real-world number of people that would fly on its planes to any significant extent.  The percentage of seats removed was much greater than the rare times when it was missing out on more passenger sales.

Indeed, in AA's case, they have a low load factor - on average, their planes were flying only 69% full for the first quarter of 2003.  AA doesn't need more seats in their planes - they need more passengers in the embarrassingly abundant seats they already have.

It is true that passengers place most importance on an affordable 'fair fare' - and this is a truth that the dinosaurs have tried to ignore for too long, pretending that their customers actually enjoyed paying exorbitant fares to fly on a 'name brand' carrier.  But the most asked for service improvement is consistently more seat room.  American was the only airline with a consistently roomier coach class for all its passengers.  It had a unique competitive advantage.

An expansion minded CEO possessed of a marketing sense and passenger service vision would have chosen to promote this point aggressively in the marketplace, recognizing three key things :

  1. Better customer service brings greater customer loyalty

  2. It was costing almost nothing to offer a benefit that customers have shown they want

  3. The 'More Room in Coach' product meant that, with similar fares to competing airlines, AA would always win a larger share of the business because it was giving more value for the same price

And so AA - like all the other dinosaurs - has faced the choice between increased or reduced customer service, and, predictably, chosen the latter.  There is a saying that only fools compete on price, and that is a game that AA, with its very much higher operating costs than competitors such as Southwest and JetBlue, is now finding itself forced to play against competitors with similar or better service and much more loyalty in their customer bases.

Although AA are initially squeezing more seats only into their 757 and A300 fleets, these are the planes that are used on their trans-continental flights.  So, with an uncanny knack to inflict the most discomfort, passengers on the long 5-6 hour flights will now find their knees once more digging into the seat back in front of them, while passengers on short 1 hour flights will frequently be in one of the currently still remaining roomier planes.

AA's more legroom product is of greatest value to people on longer flights (which also command higher fares).  So, why doesn't AA leave the more legroom in their longer flights while taking it out of the shorter flights, where people don't mind nearly as much?  AA does the exact opposite of what you or I would do if we were running their airline.

In the first paragraph above, I talk about how most of the times, planes don't fly full.  This means that an airline can take some seats out of a plane and not suffer any loss of passenger revenue.  Now you can probably think of flights you've been on recently that were full.  Let me share a little secret with you.  Sure, you'll often end up on a 'full' flight, but guess what!  A significant number of your fellow passengers are 'non-revenue' passengers - they are flying with free tickets on a 'space available' basis.  These people are usually airline employees and their families.  The number of people on any flight that are 'non-revenue' is a closely guarded secret, but it is probably fair to say that there would be an average of 5%-10% on most popular flights.

So, another way of looking at what AA CEO Arpey has done is that, in a situation where his airline is desperately short of paying passengers already, he has given paying passengers even less reason to choose his airline, while making more seats available for his employees to fly for free!  I'm all in favor of staff travel benefits being generously offered, but not if it means compromising the quality travel experience of the paying passengers.

The bottom line is that with paying passengers only filling two thirds of the current number of seats on his planes, the worst thing Arpey could do is squeeze more seats onto his planes.  That isn't going to encourage anyone extra to buy a ticket from him, and probably will discourage many current customers, who may now find the comfort of a lovely leather seat and video entertainment system on JetBlue more to their liking the next time they take a coast to coast flight!

As well as squeezing more seats that no-one wants or needs into planes that currently fly half empty as often as not, AA are also reducing their coast to coast fares.  A maximum fare of $598 roundtrip will now apply, but - of course - only in markets where they're competing with low cost carriers.

Most Americans are fair minded people.  And when we see an airline that prices its fares at $598 maximum on routes where it has a low priced competitor flying alongside, but pricing its fares sometimes as much as twice as high on nearly identical routes where it does not have a low priced competitor, that truly offends our sense of fairness.

Either the airline that selectively discounts is selling below cost to try and drive out a competitor on the low fare routes, or - if not - then it would seem to be selling way above what it can and should sell tickets for on the higher priced routes and gouging its customers where there are no competitors to 'keep it honest'.  Neither scenario feels fair.  It is no wonder that so many of us deeply distrust and dislike the dinosaur carriers.

One question which has to be asked of all the airlines by their shareholders is 'if now, why not sooner'?  For example, American Airlines now claims it has made $4 billion in cost savings a year - $1.8 billion in labor savings, $175 million in better deals from suppliers, and a massive $2 billion vaguely described as 'other' cost savings.  This is great, but if there was a chance to tighten up on purchasing by $175 million a year, and a chance to save $2 billion on 'other' items, why wait until a crisis to do this?  An extra $4 billion in annual profit is welcome any time.

The fact that AA can save $4 billion now surely is a very bad reflection on management that chose not to save $4 billion last year, or the year before, or at any other prior time?

And, talking about management, JetBlue's CEO David Neeleman said that they don't feel any pressure to lower their own operating costs at all!  They are projecting 55-60% growth this year and another 30-40% this year, and their only problem at present is trying to choose from all the different new routes that they could add to their present network!

We'll probably never know the true impact of SARS on people's travel plans, but SARS sure has made a convenient scapegoat for airlines in trouble.  Conventional wisdom suggests that as soon as the SARS scare lifts, passenger numbers will quickly return to normal - and perhaps even better than normal (due to pent up demand finally being released).  But you wouldn't think that when reading the comments of Air Canada's CEO Robert Milton.  Toronto has now been taken off the WHO 'hot spot' list, but Milton says, while simultaneously announcing their plan to ground 40 planes, 'I do not expect international travel demand to Canada to recover in the near future'.

Why not?  And, if travel will be slow to recover, surely he should do something about it, rather than just passively bemoan the situation!

Winning the prize for the most innovative response to the challenge of SARS is Thailand.  The Thai government, seeking to counter SARS related fears, has offered to pay any tourist that catches SARS while visiting their country $100,000!

One airline that is doing well is British Airways, who now have announced a 135 million profit for 2002 - a nice improvement on a 200 million loss the previous year.  Well done, BA!

Meanwhile, their arch-rival Sir Richard Branson at Virgin continues to display his love of high-profile and unconventional activities.  Fresh after last week's announcement of the marvelous profit of his new Australian based airline, Virgin Blue, he went out and bought an entire island off Australia's lovely Sunshine Coast, to be used as a private resort for his staff from all around the world.  How nice to see an airline - and airline management - that treats their staff so well.  No wonder all the Virgin people I've seen are smiling, happy, and friendly!

This is actually the second island Branson has purchased; the other one has both private (staff only) and also public resort accommodation on it.

Virgin is also rumored to be in takeover talks with bmi British Midland.  This would give Virgin additional feeder routes into their long distance routes from London, and might also give them 'back door' access into the Star Alliance, which bmi belongs to.

Amazing Virgin values - their Virgin Vacations subsidiary is offering one week packages to London, including airfare and six nights of hotel, plus breakfasts each morning, for as little as $369 per person.  You'd almost certainly want to spend a bit more to upgrade from the hotel featured in the $369 package, but, whatever you do, this is a drop dead absolutely amazing value bargain.  Details on the Virgin Vacations website, or through your local travel agent.

Lastly, I'll believe it when I see it (or, more to the point, don't hear it).  Sir Richard said, in his latest pr onslaught relating to his Concorde activities, 'It's unlikely we'll be saying any more on the matter for some days.'  Sir Richard being quiet for some days in a row?  Never!

Reader Ced has a theory as to how Virgin Blue (the Australian carrier) is so profitable.  He writes

On a recent trip to Australia I wanted to fly Sydney -Melbourne and return.  I looked at Virgin for I assumed it would be the cheapest, but it seemed high so I then checked Qantas.  It was half Virgin's fares! It does seem that Virgin are good at branding, but not above gouging when they have little capacity left, not bad business-but always shop around is the maxim.

Also on a downunder theme, Australia's Queensland Tourism Industry Council is surely being a little careless with the truth when it issued a statement on Wednesday bemoaning the loss of tourism to their state.  They said that in April, 47,000 fewer people arrived in Australia.  Okay, I believe that.  But they also said that these 47,000 people represented a reduction of $300 million in earnings for Australia.  That is an average of $6383 per person.  There is no way that the average person traveling to Australia spends $6383 - if they did, I'd never have sold my Australian travel wholesale company!

For the last word on the airline industry this week, let's hear from Alan Greenspan who said, in a presentation to the congressional Joint Economic Committee :

The earnings of the airline industry since the turn of the last century is zero and that tells you that structurally something is askew here and we need to address this in a manner which makes them far more viable ....  the technologies are just remarkable, it's hard to believe that an industry that sophisticated is unable to make an adequate rate of return.

The weakening US dollar is making international travel more expensive this summer, although super deals like the one above sure helps to compensate.  In Europe Eurail have done something they've never done before, and are offering peak season discounts of up to $130 on their various rail passes.

Eurail passes can be purchased from your travel agent or from various other online sources - everyone sells them at the same price (I wonder why?).  Bob Bestor at Gemutlichkeit however doesn't charge you any shipping fee, and is a great source of advice for which pass is best value (and sometimes it is better just to buy point to point tickets rather than a pass).  He also did a very clever thing - he encouraged a bunch of hoteliers in the Germanic countries to give 'We still like Americans' discounts to travelers - details in his excellent monthly newsletter.

This Week's Security Horror Story :  22,000 of the 55,600 airport security screeners have yet to be background checked.  This came to light after newspaper reports alleging more than two dozen screeners at LAX and more than 50 at JFK had criminal histories.

What is amazing is that at LAX screeners were asked to fill out their own background questionnaire, with questions such as 'have you ever been convicted of armed robbery' and about other felony charges.  At least six in LAX answered 'yes' to one of the felony questions, which begs the question of how many more lied when they answered 'no'.  The TSA has declined to explain how it hired people with felony records to act as security screeners.

Our national security alert has gone up again, meaning potentially more hassle at the airport.  With the national pre-occupation about security matters, and the attention given to the various outrages around the world, it might seem like we're living in uniquely dangerous and troubled times.  Not so.

Acts of international terrorism fell by almost 50% from 2001 to 2002, and were at their lowest figure since 1969.  In total there were 199 'acts of global terrorism' in 2002.  Almost a hundred of the acts came in five Asian countries: the Philippines, Indonesia, Malaysia, India and Pakistan. Latin America recorded 50 attacks, but half were in one country: Colombia. The Middle East saw twenty-nine attacks, all but seven in the Palestinian territories and Israel. There were nine attacks in Europe and five in Africa.  There were no attacks in North America.

The Pentagon's plans for an Orwellian surveillance system and massive database, labeled the 'Total Information Awareness' (TIA) program has drawn a lot of criticism from both the left and right wing.  The Pentagon has now assured Congress that it will only analyze legally acquired information, and, to allay privacy concerns, it has made a major change to the program.  It has - wait for it - changed the program's name.  It is now known as the Terrorist Information Awareness (TIA) program!

The program's description remains unchanged, however.

Lastly this week, airlines often worry about the potential harmful effects on their airplane navigation and control systems from people using cell phones or computers in flight.  But it was a very different problem that was causing massive problems with air traffic control communications at Britain's Luton airport.  After two weeks of intermittently scrambled and jammed radio waves, authorities tracked down the source of the problem.  A wireless baby monitor, in a house not far from the main approach path!

Until next week, please enjoy safe travels.

David M Rowell aka The Travel Insider
ps :  Don't forget to visit Joe Brancatelli's site for his weekly updates, too.

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