27 July 2007

BCD fights for rationality in Global Distribution

A well meaning paper written by the folks at BCD Travel is well worth the read. http://www.bcdtravel.com/aw/home/Corporate_Page/en-us/Content_5811652/Document_centre_5912426/~bmk/White_Papers/

The points it lays out are clearly expressed and mostly valid.

There are two points that we think should be added to the debate. So since we have the pulpit - we will exercise our rights:

1. Fragmentation of distribution actually benefits TMCs who can now show their value by being the real aggregator of content - rather than just the re-presenter of information.

2. The true cost of distribution has not fallen - either for the Airlines nor the users of travel.

We will continue to push these points in coming weeks and months as we believe that there is a sea change of distribution re-alignment occurring. One thing is for sure. Full Content deals were not the great seminal moment of change that the airlines thought it would be. Rather it has resulted in an increase in distribution costs as the GDSs unbundled their offerings while rejoicing in the the handcuffs they have placed on the airlines signing such deals.

24 July 2007

Wrath of Kahn - what is his legacy

The nice old man with the youthful grin is largely ignored whenever he travels. Yet he has had more impact on Airline Travel than anyone on the planet. Bar none.

In Tuesday's USA Today there is a lovely article on the father of de-regulation. http://www.usatoday.com/money/industries/travel/2007-07-23-alfred-kahn_N.htm?csp=34

There is a of course a huge debate by many people on the long term impact. Economically it was largely inevitable. De-regulation would happen. If not under the Carter administration then for sure under the Reagan one that followed.

However there are still some who are guilty of not making the sea change easier through the regulatory and economic framework. Inappropriate and just plain lame government action or inaction is the root cause of today's issues. Now is it fixable. Sure. But fixing things that are broken are always more difficult than preventing things.

There are no excuses. The numbers do not lie.

For those who think that this is a pure economic solution - then that is wrong. Sorry - I am a great believer in the free market but by definition there has to be a fair market. Thus far the market is badly organized by the market's managers. That needs fixing. There needs to be new rules for a true market with all stakeholders acknowledged. (See our blog from yesterday on the Air Space Control system).

For those who want a return to full regulation. Well that's just insane.

So there needs to be a rational approach. There is no rocket science to this. Just plain common sense. Do we have it?

Let’s hope so. Professor Kahn did. Let’s not waste his legacy. Let’s celebrate his achievements and our benefits but fixing the Air Traffic mess permanently


23 July 2007

Pricing Power hits - er India?

The headline is not a mistake.

While there has been a lot of attention paid to the stellar growth of the Online Travel Sector in India and the spectacular explosion of LCC traffic - the hotel sector has been quietly suffering. There are essentially no hotel rooms in India. So anyone with any can charge a premium. Up till now the paucity of product has been tempered by the lack of available distribution channels. With all the Online players and even the airlines now able to offer hotel rooms in combination or seperately - the hotelliers can rightly flex their muscles. In a recent report in Travel Weekly OZ one tour operator described the situation as "out of control". Duh... wake up people. Just look at the US market and for a REALLY tight supply situation look no further than the world's most expensive city... Moscow

Expedia Trips... Stock drops

Big drop today!

We have written before that we think Diller may have lost some of his magic. The recent stock behavior of Expedia has been interesting. From the depths of last year’s catastrophic position to this year's all time high we can attribute this to many things. But is the stock still a darling?

Clearly not enough to capture the imagination of the large scale bond holders. They have derailed the massive $3.5 Billion Stock Buyback. WSJ blogs point the culprit at the bond vigilantes. http://blogs.wsj.com/deals/2007/07/23/bond-vigilantes-take-down-expedia/

Today Expedia (EXPE) was forced to scale back its second stock buyback program since its re-launch over 2 years ago. The powers that be are punishing Expedia for either being greedy or too opportunistic. Either way it took a big drop today - over 9%.

The company however remains fundamentally sound and Dara and Co can stay on a little longer. Growth however is not going to be as easy to come buy as in former years. With the US market (sssssshhhhhhhh) now at saturation point for online - it’s a game of share shift rather than market expansion. Internationally the second tier markets will not return big numbers (for example recent expansion into the Nordic Countries). So outperforming the market will be hard unless good old Barry can work some of his old black magic.

Our view is the overall market will be pretty stable. Today was also coincidentally the market debut of Orbitz Worldwide. (OWW) That finished just slightly down on the day. With both Sabre and Amadeus currently out of the market and in the hands of Private Equity firms - we don’t have as much market info to work with. But still Priceline (PCLN) (who seem to have done everything right to assure themselves a seat at the top table) are the current darlings.

Of course tomorrow it could all change.



Air Space Control Systems - A Manifesto for ATC.

For too long the ATC systems around the world have been looked on as unimportant and isolated parts of national government controlled infrastructure. This is no longer acceptable when the demand is soaring. To address this set of issues we are proposing a manifesto be adopted by ALL Stakeholders starting with the US ATC system and then using it as a model to work with other centralized systems.


· Safety is paramount for users and impact footprint stakeholders alike.
· The air is not free
· A new unit of AS – Air Space - needs to be determined and defined for usage. Current definitions are not adequate now that air is a scarce resource
· The Air Space is part of a total infrastructure system from Gate to Taxiway to Runway to Air and back down again.
· The Air Space has multiple stakeholders all of whom are entitled to a share of the use.
· Citizens have a right to clean unpolluted and correctly oxygenated air without paying for it.
· Recognizing that there are multiple users of Air Space some of whom are interconnected – some of whom are not
· Stakeholders are anyone who consumes Air Space irrespective of their reasons for usage.
1. Military users must be brought into the systems
2. Transient users must be part of the system (above a certain height – through, in or via certain heights.
3. The Eco-system including Birds and passage of natural phenomena E.G. from Spores to Volcanoes must be acknowledged.
· The Air Space bounded by certain traditional jurisdictions is a part of the infrastructure of more than just nations. It is inextricably linked with other areas of air in the same manner that the sea is comprised of water that moves in and out of jurisdictions.
· Economic usage of the Air Space scarce resource demands fair premium pricing should be paid for inefficient usage.
· Ineffective and inefficient usage can be on the ground as much as in the air.
· Use of Air Space as a revenue source for non-air space uses should be discontinued
· Harmonized usage based pricing should be the norm.
· Inefficient use or knowing abuse of the system (e.g. over-scheduling or deliberate substitution of less priority aircraft) should result in fines paid by the offender and compensation provided to affected parties
· It is better to charge for the future environmental damage (Pollution and Global Warming) rather than post fact payment. (as is the case of tobacco litigation).
· Protection from litigation through the creation of a fund to cover non-specific stakeholder damages (such as environmental damages) must be funded by the Insurance and the User communities.
· Pollution can be chemical, biological, noise or light. Medical and Psychological effects must also be considered.
· Some grandfather scheme must be in place for existing inefficient facilities. However a goal of reducing the impact footprint must apply by no later than 2012 for Stage A and 2020 for all areas to be compliant to a Stage B criteria.

Based on these principals we believe that the ACS – Air Control Systems - needs to replace current outdated and inadequately conceptualized ATC systems which only cover certain parts of the Air Space.


Efficient use of air resource means that a full economic price should be charged for the use of the air – irrespective of user type. Thus a private plane using airspace must pay an economic rate for the use of the air space as much as a passenger carrying plane or a military jet fighter. Specifically inter air space user communities can specify if they wish to allow cross subsidy of certain categories of air space usage however this should not come at the expense of inefficient use or price gouging.

Global Standards of ASC need to be set and delivered. Monitoring of this should be an interagency responsibility with the right to fine backward or inefficient users or ASC authorities who allow such efforts.

Private Enterprise based management systems for Air Space should be encouraged but ultimate ownership should be acknowledged as a public right just as Land Space.

Examples of issues:

1. The use of inefficient aircraft such as smaller regional jets in place of larger aircraft should be discouraged through pricing mechanisms. Today we have a situation where air traffic has increased by 14% in summer of 2007 while domestic capacity of ASMs has only increased at 2-3%. Thus an inefficient model has emerged of the use of smaller and less efficient aircraft.
2. Full responsibility for traffic rights should be applied to the seller of each Air Space user. For example if an airline A sells a seat on a regional or code share airline – yet it offers a lesser priority for routes then the compensation must be made to the whole stakeholder community.
3. Air Space units must recognize distance as well as access. For example the access to the skies at particular FL (Flight Levels) should be recognized to prevent inefficient use by say high flying business jets operating at Commercial Airliner FL.
4. Carbon Trading Schemes should be encouraged but with limits to prevent abuse. Remember the issue is a “Global Problem” not a localized one.

A global stakeholder effort is required to address the overall issues

We believe that the effort to work on this starts now. We believe that the global expansion of aviation based system users needs to be thoroughly examined. Principals should then be enacted at the highest inter-government level and implemented by 2015 for Stage A. We believe we should use an accelerated adoption method similar to the recent global warming manifesto principals.

Time line:

We believe that a definitive timeline should be put in place for all countries to adopt the manifesto and enact appropriate legislation.

Development of principals and detailed white papers on Air usage and ACS in particular – Delivery 2008 End for ratification by the UN
Detailed local ratification by top 50 air using countries – Delivery end of 2010.
Detailed ratification by all countries of principals and enacted legislation 2012
Stage A achievement 2015 – carbon neutral and consolidated global coverage
Stage B achievement 2020 – carbon reduction 1-2% per year unified global services.

As a kick start to this effort T2Impact will deploy resources to any duly authorized entity who can facilitate the changes outlined here.


Timothy J O'Neil-Dunne

Managing Partner - T2Impact Ltd
Global Travel eBusiness
Tel (US) +1 425 836 4770
Mobile (US) +1 425 785 4457
Mobile (International) +44 7770 33 81 75
Fax +1 815 377 1583
Read our Blog: http://t2impact.blogspot.com/

22 July 2007

Concorde Gone... and now forgotton - The market for Premium Seats

While some of us bemoan the forced retirement of Concorde there is however a very vibrant market for premium traffic.

If we take the Londont to New York route in Concorde's heyday there were the following flights between London (LHR and LGW) and New York (EWR and JFK):

British Airways 5X - Newark 1, JFK 4 Plus 2 Concorde
American Airlines 4 JFK-LHR
Virgin Atlantic 5 various combos PLUS CO code share
United 3
Continental 2 plus VS code share
Air India 2
Total 21 Flights per day plus 2 Concordes.

Thats a healthy bit of competition.

Fast forward to this summer (using August 12th as the date) and we have even more flights 35 flights daily with premium seat share of the new entrants at a healthy 22% of all premium seats. For clarification a premium seat is a C/J/P/F class seat not premium economy.

With Virgin and BA poised to make an entry into the market we anticipate that the segment will continue to grow. This trend is likely to spread to other markets where already there is premium single plane service on many other sectors including flights offered by Air France, L'Avion, Lufthansa, Swiss International, KLM. We believe that certain other markets will see the introduction of premium service. Even Maxjet filed for one of the US-China frequencies this month.

If general traffic and therefore yields go soft next year as has been predicted (we are still pondering that question) will traffic in the premium plane business also soften? Will the premium traffic take a load of the depressed Coach yields?

Good questions all - stay tuned


Note on sources - Source Material is OAG, SeatGuru, IATA and Airlines directly.