07 April 2007

Airline Product Unbundling - A comment

This is a view of the unbundling of airline products and services.

The basic laws of economics work pretty simply. The airline business has traditionally been exempt from them due to - well lets just say unwise management decision. However in this current boom cycle - we are now seeing some interesting trends. One of which is the unbundling of services.

Clearly this is not new. However in the more recent past what has happened has been the imposition of fees for services normally provided. Examples of this are Ryanair charging for bags (now followed by both other LLCs and even a few Network Carriers). The model was add a service - then consider adding a fee.

However we are now seeing a trend towards unbundling on a greater scale. IE you pay for everything. Airlines have ALWAYS been afraid of pricing changes. But its not hard to see if the airline is moving - lets say 10 million passengers and the GDS fees are $5 per segment - then that is going to be more than the traditional net profit for that airline. Ditto in many other areas of cost vs revenue..

Examples of product unbundling come from all areas. Air Canada for example has unbundled services with its line of Tango fares. Resulting in the now famous GDS clause to accommodate it. Interestingly the results of such a GDS clause came to light during the recent Expedia vs AA cat fight. Spirit Airlines, not known for following conventional wisdom now offers its best discounts to people who will pay to join a club. Many European airlines charge for food on short haul runs. A recent example crossed my desk from AA. www.traavelperks.com Not sure I want to sign up for that just yet.

Apart from the economic situation - why are the airlines doing this and why now?

I have 3 basic reasons:

1. The core economic - supply vs demand situation. Tight supply gives pricing power to the airlines, something they have not had for a long while
2. Because they can. Emboldened by recent wins against distributer, the airlines now feel they are pretty powerful and they are flexing this power
3. There is no more savings to be had anywhere in the system. We postulated last year that when the GDS fee issue had been "resolved" the airlines would be hard pressed to find any other sources for net yield growth by cutting further costs. So this is the other shoe, revenue growth - IE more fees

We are going to see more examples of this as the airline accountants scour the system looking for more revenue opportunities. This will continue to boost the bottom line of many airlines. However be prepared for the backlash from the consumer. Remember she/he is getting smarter and will not tolerate gouging. Further expect during a run-up to the next US presidential election that the issue of price gouging by the airlines could become a popular target by at least one of the large field of candidates from either side.

Timothy J O'Neil-Dunne
Managing Partner - T2Impact Ltd
Global Travel eBusiness
Tel (US) +1 425 836 4770
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05 April 2007

BA Bags... Stardate 4-1-2007

No this is not the April fool's joke.

BA lost over 1 million bags last year based on 36 million passengers. So lets assume that on average one bag for every 1 people is checked. That means that the airline looses one bag for every 36 that it handles. Either way you cut it that's a pretty poor number. So what was BA's answer to this problem? New baggage procedures including limiting the the number of bags to be checked etc. Oh yes and lets not forget the outsourcing of bags at LHR.

What is our insight into this?

You have a 1 in 36 chance of having your bag not arrive with you on BA. But wait... just dont forget that you are ONLY allowed 1 carry on at/in/through LHR. So that means that now you have a really tough time.

So BA - do you think this is a good number? Or should you perhaps recall some of those baggage handlers you let go and SOLVE the problem. Of course let's not ask the question whether the percentage of bags lost affected the back of the bus passengers or the front more?

Having had my bag either damaged, destroyed, delayed and well mis-routed countless times on BA, I can tell you that in my experience it is better not to fly on BA if you can possibly avoid it. Particularly if you are transiting or leaving from LHR.

And this is no joke. BA fix this PLEASE

Caveat Emptor

OK... this is a real doozy of a story. A cautionary tale for anyone who takes as gospel what you read online.

Most people have a perception that humans can make mistakes but machines cannot. Therefore what ever you see posted by a machine (for example Expedia or Orbitz) engine then it must be accurate.

This was posted on Register.com by a SF based Attorney. I am sure he was pretty fuming by the end. However he realizes that the outcome is really his own fault. I doubt a class action suit will come of it. Just think you too could have made this mistake...

Orbitz TLC campaign leads to online booking bloodbath
Reg hack in serious condition as inscrutable itinerary blows up in face
By Burke Hansen in DakarMore by this author
Published Wednesday 4th April 2007 16:50 GMT
Like this story? Receive others like it in your inbox Find your perfect job - click here from thousands of tech vacancies
Product review Who knew that the online booking crew recently threw their throwback jerseys on?
In a bizarre series of events that brought back the flying nightmares of yesteryear, the Register's ICANN Lisbon correspondent found himself living out of an airport hotel in Dakar, Senegal, on a flight path only Google Maps could love.

The quickest route from Lisbon to San Francisco at this point most definitively does not pass through Dakar.
After a last-minute non-refundable booking went through online travel service Orbitz's approval routine, which proved to be the only available booking that returned to SFO in time for my annual UIGEA-approved fantasy baseball draft, your hard-pressed author clicked the "I ACCEPT" button and went about his business. Only later did I check the itinerary and realize that Orbitz's booking software had an unsavory return itinerary of Lisbon-Dakar-New York-and-about-fucking-time-San Francisco.
Uh, you mean Dakar...in Africa?
Here's the final timeline, from start to finish.
Hour 0:
9pm, Portugal time. Check in at Transportes Aereos Portugueses (TAP) counter. Joke with lady at counter about checked luggage making it from Portugal to San Fran via Senegal. Priority means priority to make it or priority to get snagged? Asks why I am routed through Senegal to get to New York, with all the major airports in Europe to go through. Not quite sure, I say.
Hour 1.35:
Hour and a half layover in Dakar scheduled. Should be easily makeable in a backwater airport like Leopold Sedar Senghor Aeroport in Dakar, Senegal. Only 20 minutes behind schedule.
Hour 2.00:
File in to what looks like the approach to the plane, only to find that it funnels us into a motorcoach, which then chugs off across the tarmac toward the plane. Stop in front of the plane - feeling pretty good, until I realize they're not actually opening the glass doors for us.
Pressed to the glass like sardines, and forced to observe the unnerving efforts of the flight crew flailing around desperately trying to get the back door of the plane to close. Guy on tarmac driving ladder truck repeatedly bashes the extended stairway into the stubborn door, finally knocking the jam loose.
Now 45 minutes behind, and cutting it close, but at least we're on the go. Quickly pass out after long week.
Hour 3.25:
Shake myself out of strange dream to the whirring of jet engines and the scrape of tires on tarmac. Check the time on my cell - over 1 hour spent waiting on tarmac. Latent anxiety rises to surface.
Hour 7.50:
Rubber hits road in Dakar. Grab carry-on. Final call for flight to NY over PA. Flash copy of itinerary to airport security. Waves me over to mass of flesh in disembarcation area. Transit line mysteriously closed.
As situational urgency sets in, long lost high school French makes comeback. Find helpful security agent, who takes me to the line for boarding. Am informed that flight is closed. Shamelessly beg to grab checked luggage and go. Luggage nowhere to be found. Adios, flight to NY.
Hour 8.00:
Last piece of luggage rolls off baggage claim. Thar she blows.
Hour 8.50:
Warren of offices in depths of Dakar airport. Argue with local TAP rep for hotel room for night. No dice.
It's not our fault, he says. Why should we pay?
Your flight was two hours late. It's your responsibility.
How were we supposed to know you had a connecting flight to New York? Who ever heard of such a thing?
Point, counterpoint. Too tired to argue any longer.
Hour 9.00:
Now in office of South African Airlines, one of four airlines somehow involved with this trip. Am told there is only one flight daily to NY. Am promised slot on next flight. Come back tomorrow.
Hour 9.25:
Slog upstairs to airport hotel. Besieged by late night scumbags offering assistance. Can't they clear these vermin out of the airport?
Hotel closed until 6am, local time. 45 min to go. Wait it out with beer at 24 hr restaurant across from hotel with other stranded travelers. Part of airport marketing plan? Slip 1 euro piece to meth-addled asshole to be left alone at last.
Tomorrow is the Prophet's birthday, they tell me. It's a national holiday.
Hour 10.00:
Check in to hotel. "Concierge" checks out bald eagle-bedecked passport.
So, you are American. Just one night?
Yes, I'm on my way to New York.
So what are you doing here? he laughs.
I don't know.
Enter room. Disgusting. Undershoots even my already abysmal expectations. Hotel Hellhole is almost a palindrome. Crash out.
Hour 23.50:
Back in SAA offices. No way I will miss this one. Promises me I am connected all the way to SF.
Back to 24 hour restaurant to wait it out. Fading quickly. Just enough afro-francs left for a beer. Last beer and testament.
Hour 26.50:
Down to check in. Absolute chaos. Now traveling on expired ticket, which exasperates my African hosts.
Hoping security's real tight on the Prophet's b-day.
Hour 27.00:
Tight enough- not letting me through due to expired ticket. Manage to flag down SAA manager from night before, who smiles and waves me through.
Hour 27.50:
At counter at last.
This ticket was for last night, the lady says.
Yes, my flight from Portugal arrived two hours late. I had to spend the night.
Well, have you paid the penalties?
Penalties?! They told me last night I didn't have to pay any penalties! That's crazy - I already had to pay for a hotel and this wasn't even my fault.
Who told you you didn't have to pay the penalties? Who?
The manager, last night. He was just here...
A tall man?
Yes, where is he...
Don't actually remember anything about penalties, but am starting to figure out how this game works. Huge and growing crowd behind getting restless.
Well if you don't pay the penalties, then I have to pay the penalties. A manager must approve this.
Continue eyeballing stirring crowd. She folds.
Hour 28.00:
Security keeps squinting at me over lapsed ticket. Retell story.
Hour 29.50:
Out on tarmac at last. One more carry-on inspection. Happy for that.
Only xanax can help me now. Now that's a palindrome.
Hour 43.50:
Arrive at JFK. Attempt to check in.
Sorry, but all the flights to San Francisco are booked.
But they told me in Senegal I was booked all the way through to SFO?
Well, they did something wrong. You can fly standby. It's the start of the holiday week.
You've got to understand, I've been travelling for two days. I'll take anything, whatever you've got. Through Denver, Chicago, anywhere.
I explain the situation about TAP and the itinerary. He's Portuguese and we chat about how much I loved Lisbon.
Well, I'll see what I can do. Tap, tap on the magic keyboard.
Well, we have a flight at 1 through Chicago, but it's out of La Guardia?
I'll take whatever you can guarantee me.
Hour 44.00:
Now on bus from JFK to La Guardia for flight to O'Hare. La Guardia, airport number 4 of 6 on return trip alone.
Hour 47.50:
Guy at JFK at least gave me real travel vouchers. Security no longer giving me the look. Chicago, here I come.
Hour 50.50:
O'Hare at last. Layover in Chicago at this point is nothing. I piss on your layover.
Hour 53.25:
Home stretch - O'Hare to SFO. Forgot how ghetto United is.
Hour 57.00:
Hard to believe I'm back. Thank god I've got Limost picking me up. I need a beer.
Grand total: 57 hours, 6 airports, and 8,362 miles.
Now that's what I call TLC. ®

03 April 2007

GOL inches towards GDS wide distribution - signs with Worldspan

Being the 3rd of 4th in a two horse race is always a problem. But in Brazil Worldspan does have some reach. As GoL's aspirations rise so does its need for distribution. But not TOO far. Recognizing that it has a growing corporate travel market - we believe that GOL's distribution strategy is not changing rather subtly it will open up the spigot for the higher yielding fares to these "more expensive" channels.

In like a Lion - out like a Lamb - BA signs WSP deal

Well clearly someone caved... and pretty quickly.

Given that most of the WSP management are lame ducks I suspect no one had the energy or inclination for a battle so they basically took what BA offered them and rolled over.

So interestingly this looks a heck of a lot like last year when AA was making nasty noises about Sabre and sidling up to WSP. Look how that changed. Now the ONLY GDS not signed up is Amadeus. I doubt that there is going to be a huge fight there. BA has still many years to run on its Res hosting contract (remember that Altea is in fact -according to some - just a sooped up version of BABS.

Reading the press release... there are the same superlative words like "Preferred" How BA can give all 4 GDS the same status is of course beyond the logic of mere mortals like you or I.

I do wonder what happened to that scrappy old Worldspan of yore?

Soon to be swallowed into the Blackstone debt laden abyss

01 April 2007

Heathrow Slot Action - Comment

The recent spate of activity at LHR indicates a further rush to gain access to the arguably most important airport in the world.

Certainly access is some of the most expensive. As noted earlier - this is the most fun in years.

However did Sir Michael Bishop sell the slots too cheap? Is there something else about this deal we don’t know about? The deal sounds pretty darn good. BMED had 73 slots, BMI sold 51 slots. That leaves 22 slots (enough for 3 daily RTs and then the odd RT to a funky destination). You can be damn sure it’s not going to use all of those slots if it can make money out of them elsewhere.

The BMED slots (the only real assets acquired by BMI) and some funky route authority it operated on behalf of BA under Franchise agreement still smacks of something that is missing here. Agreed BMI picked them up for a song right under the nose of BA who was then forced to pay GBP 30 million for something that is not actually supposed to be traded and was possibly theirs to start off with. Perhaps this is part of the new BA which is striving for the sort of domination in its home markets as AF/KLM (in AMS and CDG) and LH (in FRA and MUC) have. Lets consider the following:

BA sold BA connect (the old Brymon and co regional services) to Flybe but in return granted Flybe some pretty good code sharing deals. Since BMED is under contract to BA for Franchise services to Central and Eastern Europe and the Middle East you can be sure that there will be a follow on agreement between BA and BMI for code sharing and co-servicing at LHR. And these routes wont all go away. So where will BMI move the routes to? If there are no slots at LHR and LGW is pretty constrained those services could be combined into multi-hop flights in the region with larger aircraft. For example running a A321 to Damascus and Lebanon on a triangle would save a slot even without any 5th or 6th Freedom rights.

This creates a new order in the UK. With BA once again reaching a dominance unheard of since it acquired BCAL. With only Virgin on the Long Haul as the indiginous challenger BA is starting to look positively imperial again. But it needs to do that to fend off the challenge of the American Carriers.

So lets consider now the whole picture. BMI is no stranger to code-sharing and being everybody’s "Ho". At one time there was a BD morning flight LHR-LBA with no less than 23 code shares on it... ON A DC9!!! BMI continues to be all things to all people (imagine a flight with both Star and BA passengers on it!) BA gets market coverage additional and market carve up. Can anyone say the word monopoly???

But still this is but a mere raindrop compared to the whopping market shares that AFKL and LH have in their home markets.

All in all its starting to look like fun. My long time dream of One Terminal at LHR for each of the Alliances is starting to look very realistic. Too bad LHR will continue to be a 3rd world airport for the next few years even after T5 opens. Darn it but I do so hate changing planes there.



First there was CPC then CPA now PPA

Good article from WebPro News on Google's hush hush beta trial of PPA - Pay Per Action.

Way back when the world was new we used to surmise that the infinite real estate of the web would mean lower marketing and advertising costs. We surmised that everyone would have an equal chance at each sale whether you were a conglomorate or a Mum an Pop shop. Boy were we ever wrong. Clearly that has not happened and we are back to the sharp pyramids of havs vs have nots.

With Google Keyword search and CPC rates continuing to climb to almost obscene levels Google needs something new to drive new forms of ad revenenue. Enter PPA.

I cant help thinking that (and those who read this blog will know I have espoused this view before) - that Google is fast becoming a bigger (and badder) monopoly than Microsoft ever was. Hello - anyone awake at the DoJ??? Elliot Spitzer are you too busy with your politcal ambition. Nellie where are you? However just one caveat. I am a huge fan of what Google has done. So my concern is the level playing field for everyone particularly the small guys with niche products who cannot hope to compete with the big players.

Read on:

Google Whispers More Details About PPA
David A. Utter Staff Writer

The pay per action beta test for Google AdWords recently debuted, and spurred plenty of advertiser interest.

Since last week's announcement that Google would start offering AdWords PPA ads, where the advertiser pays only when a predetermined conversion has taken place, plenty of buzz has swirled around the plan.

A lot of that buzz has focused on a few distinct questions about PPA on AdWords. The Inside AdWords team at Google posted answers to some of the more frequently asked questions they have received about the plan.

International advertisers will have to wait to participate, as Google has opened this limited test only to US-based clients.
Advertisers must have a billing address in the United States, so even if an international business focuses on US customers, that isn't enough to be eligible yet.

PPA ads only show up through being displayed on sites that participate in Google's content network. They won't appear on Google or in its search network.

An advertiser concern of content networks has been the prospect of being displayed on less than desirable partner sites. Since the condition of PPA requires some kind of conversion to take place, typical worries about click fraud with pay per click ads should not be a problem.

On the content network side, AdSense members can sign up for a referrals program. Search marketers managing clients through the AdWords 'My Client Center' product can select individual accounts to participate in the PPA beta.

The fixed rate provision of PPA through the new program probably won't change in the near term. Some advertisers had asked about paying the PPA as a percentage of a sale, but Google is only doing the beta with a fixed price as the cost of conversion.