13 December 2008

Help T2 Choose our Charity Project of the year.

Oh Best Beloved... (if you know your Kipling)...

Every year T2 sets up to take an amount of money based on the number of emails received and transmitted during the holiday season. We define this as from Thanksgiving until Jan 6th. So fare we have contributed thousands of dollars to such charities as
Kiva, http://www.kiva.org/app.php?page=home
Heifer, http://www.heifer.org/
Guide Dogs for the Blind, www.guidedogs.org, http://www.guidedogs.org.uk/
UNICEF http://www.unicef.org/
Red Cross. http://www.redcross.org/ and http://www.ifrc.org/

We also contribute to reducing carbon footprints by using TerraPass.

This year we will again be no different. It is probably even more important this year given the economic down turn. This year we will also throw in visits to the Professor's Blog. In the last few months this has been averaging about 400 per week.

So here is my challenge to you. Please help the Professor choose a suitable charity.

You have just to send us an email that states your preference:

Choose from one of the choices above, a different charity or a combination.

Let us know by December 20th.


Is the LH PFP a Threat?

The BTC has been sounding the alarm for Corporate Travel Managers and TMCs about the Lufthansa Preferred Fares Program (PFP). I encourage people to read up on this important development in travel distribution realignment.

The bottom line is that LH wants to finally create a ring fence around distribution costs. Their ultimate goal is to shift the cost burden from their side of Operating Expenses to the Distributors of their products. Fine in theory rather more complex in practice which is why this program is difficult to understand and complex to implement.

My personal sense is that this is just another battle in a longer war. LH is determined to reduce their cost structures and improve their bottom line through cost re-deployment. They are well within their rights to do so. But be careful what you wish for. It may just come to pass. If or rather when it does - then I believe the realignment may not necessarily be in favor of the airlines.

The more interesting battle is what is happening behind the scenes between Amadeus (in which LH has an 11.5% share) and the airline. The Travel Managers and the agencies - both corporate and leisure will become pawns in this battle. One can only imagine what Amadeus board meetings must be like with the 2 VCs very unhappy that LH is doing this. if LH is successful there will be no shortage of airlines queuing up to do the same. Even if they are not - there will be other like attempts.

To give you some perspective - I provide verbatim the email from BTC's Kevin Mitchell. I think it behooves all of us - no matter where we sit in the debate - to understand and then to consider what the impact will be. T2 Clients are indeed wrestling with this and we have clearly pointed out where we think it will end up. Lets just say I am somewhat bearish on the GDS model.


TEXT follows: From Kevin Mitchell BTC.

Dear Travel Industry Colleague,

I write to you with a sense of urgency regarding a program Lufthansa (LH) introduced called Preferred Fares Program (PFP) that will increase corporate customers’ costs and undermine the highly efficient processes that have become the signature and goal of modern travel management. LH is imposing an indirect fare increase of tens of millions of Euros through its PFP, which will also include increased VAT and credit card costs as well as travel management company (TMC) handling fees.
If LH is successful in shifting virtually all of its distribution costs to its customers, undermining the best-practices of corporate travel managers, and tilting the competitive playing field to its advantage, other global airlines will have little choice but to implement similar programs. I ask that you to consider joining colleagues from around the world and lending your name to the Signatory Letter to LH below. (You can provide your approval to add your name to this letter at http://tinyurl.com/6xhgwg )
In January 2008 LH announced PFP for gradual phasing in beginning 1 July 2008 in Germany, Switzerland, Austria and Lichtenstein. To make the PFP program deceptively “attractive,” LH raised its standard fares by €30 for a round-trip while offering the lower, original fare structure via PFP wherein a €4.90 per-segment surcharge would be applied. As such, a 4-segment roundtrip would cost €19.6 under PFP, compared with a €30 fare increase.
Once it determined that the LH surcharge was part of a larger TMC channel discrimination initiative, Amadeus announced that it would absorb the surcharge on behalf of its TMC subscribers until at least the end of 2008, while it pursued a resolution via negotiations with LH. Amadeus recently communicated its decision that on 1 February it will cease absorbing the LH surcharge.
The goal of the Signatory Letter below is to encourage LH to forge distribution agreements that are equitable for all distribution system participants, including the corporate buyer, and that preserve the efficiency of the present TMC channel.
Thank you for your consideration in this matter.
Best regards,
Kevin Mitchell
Chairman, Business Travel Coalition

Tue Dec 9 09:06:28 2008
Mr Wolfgang Mayrhuber
Chairman and Chief Executive Officer
Deutsche Lufthansa AG
60546 Frankfurt

Dear Mr Mayrhuber,
As major Lufthansa customers headquartered in Germany and around the world, we are writing to express our anger over your airline's imposition of an indirect fare increase of tens of millions of Euros through your Preferred Fares Program (PFP), which will include increased VAT and credit card costs as well as travel management company (TMC) handling fees.
Worse, your PFP surcharge will undermine our existing highly efficient corporate travel procurement processes by requiring customers to create new infrastructure and workaround procedures. We will be forced into an expensive and inefficient case-by-case analysis of which fare is more economical to purchase -- either a PFP fare with a surcharge and a TMC handling fee, or a standard fare offering.

Lufthansa is attempting to substitute its judgment for our clearly articulated preferences. Without collaboration, you are forcing a choice between a highly inefficient process for us and our TMCs, or paying significantly higher fares. This is a false choice and we do not welcome your unilateral approach. Corporate travel managers, in close collaboration with their TMCs and technology partners, have developed a professional and productive travel procurement environment that must not be poisoned.
The marketplace for commercial air transportation services is now highly transparent as a result of this longstanding and mutually beneficial collaboration. Complete fare information and point of sale functionality are now on one screen for both TMC agents and travelers utilizing automated booking tools. Now, travel managers can use this advanced purchasing process to drive business to preferred airline partners down to the city-pair level.
Your initiative to damage the existing TMC channel and its supporting technology partners; undo our progress in developing efficient, best-practice processes; and once again endeavor to dominate the point of sale is a flawed strategy strongly rejected by your very best customers. We need to find ways to strengthen our preferred channel, not weaken it.

Such negative actions on your part will make it more difficult and expensive for our companies to continue purchasing your product. Our companies, with air travel needs in markets where you are strong, and in markets where you seek to grow, will direct future business to airlines that build their distribution programs around our preferences. As you are no doubt aware, we do have a choice in air travel.
We urge you to promptly forge distribution agreements that are equitable for all distribution system participants, including the corporate buyer, and that preserve the efficiency of the present TMC channel. We hope you will eliminate the PFP program and rededicate Lufthansa to achieving our mutual success.


You can provide your approval to add your name to this letter at http://tinyurl.com/6xhgwg

Fair Merger Rules in Europe?

In Houston's George Bush Airport - IAH - the dominance of CO is pretty awesome - 85%. There are few fortress hubs at airports in the world as good as this one. In the US market there are several that can be seen - DL in CVG, NW in DTW and MSP, AA in DFW etc etc.

In Europe the dominance can be seen at CDG (AF) and in Germany both FRA and MUC have LH.

Interestingly from the graphic - you can see what happens if we look at the combination of the top 2 carriers at key airports in Europe. One thing this chart does not show is the dominance that occurs when you add an alliance to the mix. Thus adding all the Star Alliance players in Germany would add significantly to the lift power of LH in FRA and MUC.

The core of the EU's argument against the RyanAer merger was Dublin dominance. However the catchment area for Dublin is but a mere 1/25th of the catchment area for Frankfurt.

So if the EU (Mr Tajani) is going to allow mergers of the size that BA (IB) LH (OS, SN, etc) has embarked on - he needs a different lens.

I hate the idea of mergers and acquisitions of this size and type. But if these current batch are to be allowed then surely FR has a case for EI?

Let me know what you think


Rollup Rollup - Stimulus Gravy Train is Here!

Gerald Arpey has suggested that the aviation industry should get a share of the proposed $700 Billion economic stimulus package that President to be Obama will likely unveil in his first state of the Union Address.

This is actually not a bad thing to get behind. While I would prefer that the taxation process of air travel be more accurately focused on a use based tax which in turn would lead to use based investment - this is better than nothing but it is going to be a long road to see anything happen.

As an aside I note that the Tessler car company is requesting $350 million of the tax payers money to develop an electric car to be priced at $60K.

Let's get this gravy train going...

Karl Marx - you can stop spinning in your grave, you are now officially a hero.


USTA predicts downturn 2-6% in 2009

On Thursday Roger Dow head of the newly merged US Travel Association held a conference call to layout the organizations stall (merger with Travel Roundtable and TIA).

The broader goal from just an inbound promotion group to an Industry wide group should be welcomed.

To read the statement from Roger - please go here:



Latin American Carriers continue to buck traffic trends

The latest reports out of ALTA show that the traffic from the airlines in the region continue to defy the global trend of reduced traffic.

Through October RPKs are up 10.9% and passengers are up over 7%. Very healthy numbers.

However the numbers are starting to dip. October traffic was only up RPKs 3.9% and pax up only 1.5%.

For full details go here:



Coming Clean - A New Boeing 7L87 Experience?

Well sort of.

Boeing has finally come clean that they have real problems in the 787 program and indeed in all their supply chain. While not giving us the details perhaps we would like, I can live with that provided that they have really changed the culture on the program again and indeed in the company.

We all want Boeing to succeed, (unless of course you happen to be an Airbus Salesman!). this program is not only incredibly complex but a generational change in the way that Boeing has done business. Sadly they threw the baby out with the bathwater. Hoping to solve the perennial problems of supply and high cost of new aircraft development - they took on partners to risk and develop share. This has turned out to be a big mistake. Other companies don't necessarily work like Boeing and vice versa. The time line was WAY too aggressive. The manufacturing philosophy was in hindsight also unworkable.

Boeing is not of course coming totally clean on the issue of the causes of the delay to the 787. We have not really heard a mea culpa from them. Indeed the last delay has been laid at the door of Strike by machinists. That of course is rather unfair to the machinists and illogical as well as inaccurate.

Boeing has a lot of work to do to fix the program. Frankly we believe that the (now 5th announced) delay is still not enough. They really should consider our advice to junk the first 4 aircraft and start with ship 5 as the prototype. This is not without precedent at Boeing.

So to quote Rob Stallard of Macquarrie Equities in his advice to clients, the plane has a new moniker - Dreamliner no more it is now the "seven late seven" or to the rest of us 7L87.


12 December 2008

DL’s new Medallion Qualification Program

Delta likes new math it would seem.

Platinum miles (or the supposed top tier) comes in at 75,000 MQMs. That means with NW it will create a bigger pool of members. Likely they will reduce the benefit pool.

After the announcement of the deal with Amex - something is not going right here. That is one heck of a lot of miles and seats that someone has actually paid for.

Still if you are in the very exclusive 4th tier (Known as EP) which is so secret most DL employees dont know about after 2 years in operation - I guess you will be happy.

Firstly here is DL’s new Math:

Medallion Level 2009 Qualification Requirements
Silver 25,000 MQMs or 30 Qualification Segments
Gold 50,000 MQMs or 60 Qualification Segments
Platinum 75,000 MQMs or 100 Qualification Segments
As you can see the logic falls apart of gold to platinum which is supposed to raise the barrier.

Based on the survey DL mailed out to top tier people – there will be a pay for play model emerging where your benefits only accrue when you reach certain mileage levels. This is supposition on my part I hasten to add. One of the prized Platinum pieces was the Crown Room admittance. That went away this year. (Along with about half of DL’s crown rooms in remote cities like Seattle.). Now the big benefit for me is the international upgrade program. If that goes away – I shall be very unhappy.


Pet Airways – Are you kidding?

Apparently not – someone is out there trying to raise money for a pet only airline.
Thanks to Professor Stuart who knows I am a big animal lover – but even I am not that crazy.


Let’s hope that it doesn’t spawn derivatives like Moose Air or Bovine Air. How about Working Animal Air, Zoo Air or my favorite Air Chimp? And then the LCC version: Air Crate…..


European Mood: Quiet Not Desperate, Yet.

Europe is quietly looking around at the deluge of bad news coming from the US. There seems to be a sense of impending doom coming from the USA – bad news on bad news. For the UL the news is even worse as the UK economy starts to tank badly. The value of the UK economy once the largest in the world is now rivaling that of Italy having fallen below France. The Financial Times slammed Gordon Brown in its editorial sections on December 12, 2008. For Germany there is quiet acceptance of the situation. The largest economy of Europe is taking a softly quiet approach. However Angela Merkell has her work cut out for her. Few smiles at conferences these days.

For travel for next year – we are seeing cut backs across the board.

Even the Low Cost Carriers will be cutting capacity led by Ryanair. Although in a cursory review of their schedule I noticed that Ryanair has been playing favorites. Where as flights used to start in the hubs of Stansted and Dublin many of them now start at cheaper airports on the mainland of Europe. Another way to save money. All sectors are cutting back capacity. There is almost no one who is growing. Belt tightening all way round. While the economists are saying that the recession will be over in June – I remain unconvinced. I believe that the uptick will only happen at the end of the year or more likely in Q1 of 2010.

In the coming weeks and months I will be picking on stories that will indicate how this recession is driving innovation and fundamental changes in the fabric of the Aviation, Travel and Tourism sectors.

Not a happy situation for all of us but this is the time for opportunity.


China to ask for major cut backs in Aircraft Deliveries

Boeing and Airbus better ask for a new set of braces and tighten their belts. The largest block of purchasers of their products are the China airlines. All of whom are now struggling from issues not directly related to the recession but definitely exacerbated by the global downturn.

Next year they are asking for a cut in the total of 180 craft they are planning to take. This represents about 15-18% of their planned deliveries for next year. So far neither has initiated any cuts in production due to customer delays, cancellations or the economy. Just last month Airbus reaffirmed its delivery rate. Boeing of course is still stumbling after the strike and has supply chain problems apparently up the wazoo. The only bright spot seems to be the GCC carriers with Etihad just reaffirming its giant orders from Farnborough this year.

With India’s airline market now dramatically cut back. There are no major blockbuster orders on the horizon and everyone else is going to be conservative. I suggest that we are going to see a lot more deferments. This means that the manufacturers better start trimming their schedules. For Boeing this presents a major set of issues as they struggle readjusting their product lines.

Watch for a raft of announcements starting in January on this subject.


Traffic for November. Dreadful

It doesn’t matter which metric we use its all bad. So I will just pick on a few highlights.
As we have noted for the last 3 months the downward turn has been accelerating.

In the past month we have seen:

The US airlines drop off has again been precipitous down 11.3%. We have all the majors reporting and its just plain bad
Delta Airlines;
Latest report shows passengers down by -7.5%
Southwest Airlines;
Latest report shows passengers down by -10%
American Airlines;
Latest report shows passengers down by -15.9%
Continental Airlines;
Latest report shows passengers down by -12.5%
Northwest Airlines;
Passenger numbers for the month are down by -10.5%
US Airways;
Just reported: passenger numbers drop by -8.8%
United Airlines;
Latest report shows passengers down by -17.8%
Passenger numbers for the month are down by -7.3%
Republic Airlines;
Latest report shows passengers down by -5%
American Eagle;
Passengers for the month are down by -20.4%

Travel Agent sales in the USA plummet 20% according to ARC. Remember that this tends to be a measure of forward sales whereas the Airlines are reporting traffic. This shows that the agent sales are falling faster than sales via the airlines directly. So we are seeing the double wammie of both share shift to Direct and general reduction. This bodes very badly for the intermediary infrastructure at least in this market. It also indicates that Both Leisure and Corporate segments are seeing a decline. We believe that transactions at the major online players have already turned negative. Similarly the Corporate Travel market is down.

Nor is capacity down in just the USA market. Here is just a quick peak at two of Europe’s big airlines:

Considerable passenger growth announced for the month: 10.9%

British Airways;
Passenger numbers for the month are down by -7.8%

Yet another Ouch… Is this going to drive the next wave of merger activity? I actually hope not. The airlines have always acted with a communal knee jerk response. Clearly LH is cleaning up. BA is struggling with its 3 deals (TransAltantic alliance, IB merger and QF merger). All it seems to be doing is pissing off its potential partners. Even Ryanair is playing nice and taking another run at Aer Lingus.


10 December 2008

Amex buys $1Bn worth of DL tickets HOLY COW!

So American Express has announced a deal with Delta that allows for $2Billion worth of value to the Large American Airline. Big numbers sounds interesting right? Well it does get even more interesting when you try and put this into perspective. So bear with me and lets see if we can get this right.

Typically partners have been buying miles for 10 cents on the dollar value. So if I read the fine print of the announcement - Amex paid $1 Billion in "liquid" to Delta. That would translate (if we think of that as Cash) as $10 Billion in value. At $500 per ticket that would mean 20,000,000 TICKETS. The agreement is supposed to run through 2010 so that is 2 years or 10 million tickets a year.

That is one HECK OF A LOT.

So lets continue the analysis a little more. According to Airline Business/Flight's annual traffic study DL (109.2) and NW (53.7) are now the largest carrier. So that makes 163 Million passengers. if we assume that they have cut capacity by 15% and they run at an average of 80% revenue load factor. That means that annually they have SPARE capacity of 27.7 Million seats. So at 2.3 (the industry norm) segments per ticket, that makes an annual take up during the contract of 23 million passenger segments. So accounting for Non-Revenue passengers in the form of company business (Deadheading crew, marketing folks etc etc) and its own Frequent Flyer tickets and voila - this airline is going to be theoretically flying at 100% capacity.

I don't think that will work personally. That's theory. Of course assuming that people are able to be flexible in their FF choices etc etc.

Did Amex get a bargain? Can they use it all up in one go? I do hope someone ran the numbers right. At this point I am staying close to Amex's Skymiles program because it looks like they are going to have to give out some doozie deals to use them all up. On the other hand getting a DL FF ticket is going to be extra hard over the next few years.

What do I think will happen? check out Scott McCarthy's piece on the devaluation of the FF currency. I think you will agree with him and my prior piece on this way back earlier this year that in order for this deal to work - the 1 cent a mile value will actually have to be devalued even further.

Am I nuts? Are numbers totally off base?

well let me know what you think....


09 December 2008

Tears for BA?

British Airways seems to be struggling with its attempts to sleep with its family members.

The Qantas proposal seems to be highest on the agenda but the big hidden question is whether the Oz Government will allow the merger to go ahead without a concession on the Transpac routes. If they do - then you can be sure that the WTO would have something to say about that and for sure Emirates and Singapore Airlines will be screaming blue murder.

New Qantas CEO Joyce (another Irishman running an Anglo speaking Carrier) is pouring a little cold water on the BA story. However he is throwing buckets on a 3 way. There is no way - in his opinion that the Kangeroo is looking to consummate anything with the Spanish. So Iberia is getting even more PO'd waiting. It will probably end in tears.

In all of this AA is remarkably quiet. Perhaps to counter the other noise AA should put out a counter slogan to Virgin Atlantic's famous "BA-AA No Way" paint job with one like this: "AA-BA Some Way Please"


The Lufthansa Behemoth Gobbles up German Wings

So not content with everything else they have acquired - they are now mopping up.

Only days after agreeing to acquire Austrian, German Wings (already partially owned) will become a wholly owned subsidiary of the German Barons of Frankfurt.

LH is definitely determined to be one of the top 5 no matter what.


Plane Mad at Michael O'Leary

So the Irish version of Plane Stupid - Plane Mad - had one of their chaps come and disrupt the Ryanair AGM a little while back.

Here is the Video link. http://www.planestupid.com/?q=content/plane-mad-disrupt-ryanair-agm

However MOL is wrong on one point - there is scientific evidence that Aviation contributes to Global Warming and yes there is an impact by Humans on Climate Change.

Where I absolutely agree with him is that additional Green Taxes on Aviation is hardly likely to impact air travel and we need better all round policies not just taxes that will just be spent elsewhere as has been proved so many times.


08 December 2008

So why did it take 5 Hours to remove the Protesters?

On December 8th, at 3AM about 50+ protesters from the Plane Stupid campaign www.planestupid.com gained access to Stansted Airport's one and only runway. However the airport and the police did not clear the Runway until 0800 and then did not re-open the Runway until 30 mins later.

Why did it take so long?

Well we are apparently not the only people wanting to know. the FR crew immediately took advantage of the situation and blamed BAA and demanded the Break up of BAA. All on the same day that (again) MOL decided to say he would leave when 3 conditions were met:

BAA was broken up
Irish Airports were reformed
Aer Lingus and Ryanair were one.

Dream on chaps!


Is The Bold All Its Cracked Up To Be?

One Month With the Blackberry Bold

It is a truly great machine. Having been an original adopter of Crackberry – I have had one continuously since it was on the old network from SB – Yes Mobitex!

GSM was a huge improvement of the ability to use it outside the specific geographies. Now of course it is ubiquitous. I have a great picture taken early this decade when I was on the Great Wall for the first time and I had 3 bars!

So what’s different.

A faster network it can switch between 3G (UMTS), EDGE and GPRS for data. Frankly I don’t see a huge improvement in browsing over the prior EDGE/GPRS based versions. Email does come down faster. That is good.
The display of HTML based emails is nice. Although not sure its actually better or more efficient. Scrolling through an HTML based email has trouble with columns. The browser is better not necessarily noticeably faster. The media player is better, video recorder and voice recorder are definite pluses. Navigation is much improved. The UI/UE is much improved.

What is not so great.

Well there are some basic design flaws. Battery management is problematic. It can eat up battery life very quickly. If you leave the media player turned on it still thinks it needs to eat up that battery. So there are some multitasking improvements that need to be made in the SW. The layout of the device hardware has some integration issues. For example if you use the holster as I do a lot then it can cause the media player to skip a song. Its annoying. It cannot read or process PDFs automatically. It screws them up. There are other niggles which could also be a function of my inexperience with the device. I do long for the simple days when I had just instant on email. I still get it but there are now layers between. My biggest objection is the battery life. So losing power without an explanation means that you have to worry about it. I want a device that has at least 48 hours of normal usage before a charge. The Camera could be much better than it is – 2MB is pretty weak. At least a 5MB should be the standard. Finally the system has a habit of freezing if too much is going on at the same time. Nasty.

Overall impression

Impressive device. I am glad I waited for it. Its still not without imperfections. It needs a clean up V2.0 version that addresses some of the shortcomings. But overall a credible device. If you have a Curve – then this is an improvement but not massive.

Still I am glad I got it. If you are wanting one. Wait for a bit until the next batch of machines and the revised SW is out.


The Kipper Season and Gardening Leave. Side Effects of the Recession

So has the Professor truly lost it? What the heck is the Kipper Season. Well until today I had never hear of it. I was in a London Taxi and in my unceasing efforts to find out how people are dealing with the crisis, I asked him how things were. He said that Christmas would be OK down a little but from January 6th it would be "the Kipper Season". Racing home to Wikipedia, I discovered this is a term by London traders and taxi drivers especially to describe Lean Times. That is exactly what is happening now. UK shops and businesses are really feeling the effects. The Pubs around the UK have seen their traffic off by as much as 50% in some cases may be even more. The Smoking Ban has truly affected the social fabric of the pubs. Couple this with a 4x differential in the cost of a pint from Tescos vs that at your local and - well you get the picture.

Turning to my friends in "The City" (aka the Square Mile or the City of London's financial community, I was shocked to hear that many have been sent home on "Gardening Leave". This is a term I know well. It means while the figure out what to do with you - they send you home... to garden. Hence the term.

Life in the UK is going to be pretty tough in the coming months. And some concrete issues...

One trend you can bank on is that 2009 Summer Season will be a late booking one. With the Pound down significantly against both the Dollar and the Euro - the Brits (along with Germans - the significant proportion of EU sourced Travel) will be waiting before they spend their money on their summer holidays. This will result in some nail biting times for the Holiday Sellers. Those who rely on the cash flow will be very hard pressed. Everyone is feeling it. There are no exceptions.

This recession will bite hard and long.

Cheers - I am off to drown my sorrows. More from Germany later this week.

07 December 2008

Virgin Sticks With EDS for Hosting

Virgin Atlantic is not moving - well at least not for another 5 years. They are going to stay with their current hosting provider - EDS. A few tweaks here and there on the current architecture - but essentially it is the same as before. It would seem there is no commonality with Virgin American (who is with IBS) and Virgin Blue (who is with Navitaire) and even V (who will be with Sabre) - it seems no one has an integrated strategy at Virgin's airline brands. I wonder who Virgin Galactic will choose?

Go figure.