04 September 2009

WTO On Illegal (or not) Airbus Subsidies - The Envelope Please....

In What has been one of the most acrimonious cases and surely the most expensive in 14 years of the WTO rulings - the august body has sent a more than 1000 page ruling to both parties in the case - the USA and the EC.

According to the Wall Street Journal the ruling goes against the EC for illegaly subsidizing Airbus (now a unit of EADS but at the time the case started it was still largely a quasi Government entity).

The Professor's initial scan of the available information is that the case became as much about making law as interpreting it. So it will be long and convoluted. In the near term this means that we will not be able to comprehend much of it.

Look for more updates over the next few days. This is a story that will take a long while to unravel.


Air Anchluss A Reality - LH aquires OS

OK so this is just a little naughty of me - and I know there will be some people who wont find this funny - but the theory has now become fact. After what seems a tortuous process including multiple trips to Brussels, LH has finally succeeded in getting control over Austrian Airlines Group.

So now comes the tricky part of integration. The chaps from Frankfurt have their work cut out for them. On the other hand judging by the success of the integration of LX (a larger airline) into the LH family - the prognosis has to be good that this will be a good program.

For the boys and girls in Vienna - this must be a huge relief.


An A380 Parked in the Desert?

The spectre of armed guards patrolling the high California desert near Victorville guarding one or more of Airbus's behemouth A380s moved a step closer yesterday with the announcement that Airbus and SQ have agreed to defer deliveries of 6 copies. With QF doing the same - it looks like several early adopters are pushing out their deliveries. Another telling sign is that EK's latest schedule is somewhat bereft of A380 routes.

Hmmm given the amount of lead time to build these puppies - it is not that easy to shift them around in the delivery schedule. I maintain that the current recession could have been much worse for both of the big 2 manufacturers if they had been firing on all cylinders on their flagship programs - the A380 and 787 respectively. Imagine if A380s and 787s had been pouring off the lines in both Everett and Toulouse as was originally envisaged. In that case one could well imagine that quite a few of them would have flown straight to the desert.


I Come (This Time) To Praise Southwest

In the past I have berated WN for not allowing direct interaction between WN and its customers via email - even though they have email addresses and could easily allow this.

However I do see that in fact they have a number of tools which would alleviate much of the need for a number of these interactions. So while I still feel they should allow it - indeed I am going to carry on my campaign to get them to allow it - The Professor would like to compliment Southwest on being aggressive in deploying a better than average customer alert system.

In a recent piece for CIO entitled Southwest Upgrades Customer Service I learned they WN even has someone who has been dubbed the CAO for Chief Apology Officer. WHAT a cool job! This is a good article to read and there are some great lessons for all airlines.

I recommend it! Further it is good to see airlines taking the moral high ground here even if it is only WN doing it. I contrast this with Easyjet and Ryanair who have deployed similar technology but have the gall to CHARGE for it!!!

Going back to my crusade, I would strongly suggest to WN that they go ahead and allow a non-verbal direct interaction tool. Examples are chat or an automated tool such as NextIT's smart agent which has been deployed as the mystical Jen on Alaska's website. I asked her for a date (since we live near each other) and she was not amused - but that's another matter.


Airlines Vs GDSs - The Sequel.

The long running battle over distribution control is akin to the Harry Potter saga. It goes on and on, a long drawn out affair with as many plot twists and turns as J K Rowling's Historic Novels. The current phase (at least as far as the movies are concerned) of teenage angst for the three heroes has broad similarities in the airlines separation of their dependency on the GDS. Thus the Three GDSs do rather look like instruments of He-Who-Must-Not-Be-Named.

Finding out who is the one (or ones) who has gone over to the Dark Side draws analogies that could fill volumes.

A recent piece in BTN entitled "GDS CEOs Assess Changed Airline Negotiating Dynamics" has brought a light onto the battle lines that are being drawn.

To some - there is a desire that says they wish the whole issue would go away so that the players could quietly negotiate in peace. Over time they could come out with a solution that is acceptable to the protagonists that evokes images of epic battles of the forces of Good vs those of the Dark Lord. In that way the seemingly innocent bystanders - which is how the agencies cast themselves - could carry on without interruption and changes on their side.

However - this is all somewhat wishful thinking. The facts of the matter demand a change in the status quo. Earlier this year at the height of the recession with bad news resounding in everyone's ears - the top two US airlines CEOs both came out in favour of radical change in the model.

"...maybe I'm dreaming here," American CEO Gerard Arpey said envisioning a future "where those folks who are the intermediary between us and our customer have to pay for access to our product rather than us paying them to distribute our product." Arpey called that shift a "long-term vision," rather than a near-term reality. Within days Delta CEO Richard Anderson followed with a similar statement saying, "Over time, the industry has to evolve to the model of other industries, where people pay us for our content rather than us paying them to take our content."

Over on the other side of the pond the model for the next round of negotiations was quietly being rolled out by arguably one of the more successful of the legacy carriers - Lufthansa. LH, itself an Amadeus owner, was able to to turn the GDS model on its head and control the GDS radically reducing its both core and marketing costs and in some cases turning its GDS expense into a profit center.

Sitting in the USA market and watching Southwest become more and more like a Full Network Carrier, it is easy to assume that the contrarian airlines (LCCs) have little impact. However again over in Europe the share and importance of the Low Cost Carriers particularly Ryanair and Easyjet have changed the dynamics of airline product distribution forever. Multi-source access is not a luxury or even just a competitive differentiator, now its an absolute necessity.

The GDSs have clearly failed to live up to their premise of universal supply chain providorship. The rapid rise in and now significant cost of maintaining independent links to direct airlines and indirect GDSs indeed the rise of all the IT costs for an agency/intermediary make the GDS just one of many - while still important - channels of distribution. For which they now have to justify themselves with better product in service models. In a conventional market - a world described above by Messrs Arpey and Anderson, this should promote a drive to excellence and passion for better products and services. However at this time the GDSs are struggling with lower transaction counts and demands for more product functionality. All at a time when they have paired both their operating services and their R&D to the lowest level possible.

It is against this backdrop that the first airlines will start to see their PCAs - participating carrier agreements open for re-negotiation starting in 2010.

Will it end in tears? Will there be peace and harmony across the land? Will they all end up in a master race lovefest?

Stay tuned - this is a battle for the long term hearts and minds of the user community, both the airlines and the intermediaries. To my point of view the current model represents an unnatural act - rather a series of them. To me it is unsustainable and demands reformation if not revolution.

For the first time real options are emerging not just from within (Like Galileo's Universal Desktop product acquired from G2 and Amadeus One) but also from the independent technology market - like Booking Builder and Farelogix. These applications represent both an unbundling of the GDS product but also new cheaper forms of commercial models that deliver the capabilities faster than the GDS have traditionally been capable.

This is a story that will run long and hard!


03 September 2009

Udvar-Hazy To Play Hardball With AIG - May Quit ILFC AND Start Rival

The battle of wits between the ILFC players has become a war of words - or rather a lack of them.

Steven Udvar-Hazy yesterday refused to deny that he would leave the company he founded ILFC. But combined with recent reports it is becoming clear that the players are not all in sync yet.

So at the heart of the matter is the need for AIG to divest itself of its holding in ILFC. But with not enough support for the divestiture deal to Udvar-Hazy himself, he is threatening to leave and start a rival. You can be damned sure that both Boeing and Airbus would support him in a heartbeat. Thus he is really in the driver's seat on this one. Starting a new company with a less complicated and burdened capital structure and the support of both the leading manufacturers could be very advantageous to the Hungarian born master aircraft salesman.

Don't you just love grown up games...

Travel M-Commerce - Still Birth Pains

I am a fan of the whole idea of M-Commerce. Particularly how it can have applications for the whole Travel Category.However my enthusiasm is tempered by (now more than) 10 years of experience in trying to get Mobile Apps off the ground without any noticeable success.

So I was very interested in reading the latest M-Commerce Report by eMarketer.

In particular there are two contrasting elements to their study.

Travel was one of the highest categories of product that people SAID they would be willing to purchase via a mobile app. However there is a huge gap between the desire and the execution - early adopters don't even rank travel apps on their radar.

So we have a chicken and egg situation. Further the obstacles to success of M-Commerce are many and varied. Of these the largest percentage are not going to get solved - in my humble opinion - any time soon.

So take a look at the list the ones that consumers in the report detailed this is illustrated on the top here. However consider both the small sample size and the audience.

I spent much of the summer roaming around Asia Pacific and Europe testing 3G networks and interactions. (OK this was a by product of what I was doing - I really am not THAT sad - even though the SFR shop in St Gilles Croix de Vie was getting pretty sick of me by the end of August). I found a lot to commend it. The networks in general are now reliable and robust. But the applications are clearly lacking. So the red hot market at the moment is the marriage of the Netbook to a 3G network and the corresponding Carrier sponsored products. EG Lease a Netbook for X Euros a month and get the device and the data included.

Steve Jobs - not so secret - iTablet project will hope to capitalize on this trend when it emerges likely at CES or MacWorld in January 2010. But by its nature this is likely to be a further obstacle to the deployment of robust Mobile applications. Namely the splintered client side applications environment.

In the various projects I have undertaken on Mobile - I have found that the stumbling block has been both the technology (lack of ubiquity of Client side application environment), the commercial model of making money. (This was usually the greed of the Mobile Operators who refuse to share the data usage revenue or alternatively at the very least figure out a way not to penalize the application with a surcharge). We long ago figured out solutions to the other problems.

The promise of Android (and son of Android aka Chrome) as well as other multi-hardware platform services such as Windows Mobile, Linux and Symbian has all so far proved to be a figment of the developers imaginations.

However I remain hopeful that this will eventually sort itself out. But as you saw from my post yesterday about Skype on Blackberry - the proprietary nature of the vendors and the networks seems to be at the root cause of the issue. However I am not holding my breath in the short term... So I am still bearish on this regardless of the optimism of others such as PhocusWright on the subject.

Thank you and have a nice day.

Southwest's Social Media Efforts Good or?

Today, at the invitation of Professor Addison - I participated in a podcast reviewing WN's effort's in the Social Media space with the new Travel Guide service.

To listen to the podcast check out this link and see if you like it.

I believe that if anyone can do it WN can. But it comes with its pitfalls.

So come listen to the Professor with his usual Curmudgeon view on some of these efforts.

Agree with me or not - this is definitely a 1.0 version. If it makes it to a reasonable delivery of a 2.0 version then I have promised Addison I would pay for his EarlyBird boarding. And I get a word in on what I think about the product too!

So at the risk of being a dart board target for the WN PR folks - see if you agree with me or not.


Booking Fee Mania Spreads to AsiaPac

Bowing to another inevitability - Zuji (aka Travelocity AP) will cut booking fees effective today.

Inevitable? Why?

Well the experience elsewhere has shown that it didn't hurt Priceline to start with who killed them in 2007. Earlier this year the big 3 US also cut them - Expedia, Travelocity and Orbitz. All with negligible effect on their bottom line. More importantly the impact in the US market showed that the transaction loss for the OTAs was less than the airlines and of course the traditional offline outlets. Thus proving that there was some growth left in the OTA model.

So Zuji cutting fees is just normalizing something that has shown to work elsewhere.

So now - no more fees... Anyone still charging fees for transactions face a diversion of business away.

So LCCs and others - pay attention - there may just be a lesson here.


02 September 2009

Any Bets On How Many More Times Boeing Will have to Re-Build 787 Prototypes ZA001 to 003?

Today's absolutely best quote comes from Flightblogger on Tweetdeck.

Flightblogger Tweeting (lord help me for reading Twitter) from the Morgan Stanley Investment Conference was listening in to Boeing's CEO describing the current status of the 787 development:

McNerney on ZA001-ZA003: "We've built a couple of the airplanes four or five times."

'Nuff said Squire!

So I guess they have one more to go before take off... but don't count those chickens. Jim has already replaced Scott - and for sure he is going to be looking not to make the same mistakes of his predecessor(s). Remember the schedule was not his... so he still has a spare life to call another delay.


Southwest Gingerly Steps Towards Ancilllary Revenue Model

... and may be trips on the way.

Now here is a turnaround. Instead of being the innovator Southwest is taking a leaf out of the European LCCs and charging for an ancillary service - namely early boarding.

Southwest's new "Early Bird" check-in product sounds simple enough - but wait... hold on theer pard'ner - not so fast.

Check out the fine print of the program:


Holy Moli - this sounds pretty complicated:

Contrast this with Ryanair's total boarding policy which fits neatly into the following page. AND this includes their DBC policy AND it covers international passport requirements.


I have to say that this only goes to show that the myth of Southwest as a non-legacy carrier is clearly just that - a myth.

Come on chaps - you can do better than this. WAY TOO COMPLICATED.

I thought Southwest is about Luv and KISS. This sure ain't it.

Open For Business Initiative - Right Time?

Farelogix seems to have done it again - lit the blue touch paper and retired to watch the resulting fireworks. This time in the Business Travel market.

This time - their focus is an area that has seen a rise of both the cost and the frustration of the user community.

The business adoption of Online should have been an easy proposition. All business users are essentially connected via their corporate web nets. However the complications imposed by both the financial controls and the GDS based environment resulted in a set of complex products that were cumbersome and difficult to deploy and administer. However with the general move away from Office Admin staff to self service activity within the corporation - the human support of the business traveller dwindled over time. Thus self service became the only game in town.

For the TMC intermediaries there was a nice pot of gold in this move. They were able to charge a fee for both automated (Touchless) and serviced (Touched) bookings. Normal figures are at the $25/50 cost per transaction level respectively.

Thus the TMCs were happy to let the user community pay in return they got to keep all the "bennies" that would have normally accrued to an agency.

This is great if the self service technology resulted in both ease of use and more importantly speed of use. However the current crop of tools remain complex and unnecessarily time consuming. One has to wonder if there really was a benefit to the corporation in this process. Today you have a chap who costs about $250-$500 per hour fully loaded making a reservation and typically taking about an hour or usually more to make his reservation. This replaced the $25/hour clerical level agent who previously did the job in half the time. Perhaps not the most efficient use of time and resources.

The level of frustration by the Corporations in the deployment of these tools (what I would call 1.0 products) has a litany that could and does fill volumes. The leading players are Concur with their CliqBook Suite and Sabre's now venerable GetThere product. Despite the development of online corporate tools from the big 3 OTAs their share of the revenue of the players has been minimal despite a fairly mature product. Smaller players have come up with niche products like Booking Builder - and who can forget Portaga - one of the best ideas that never saw the light of day.

Enter Farelogix who has once again caught the wave of the sentiment that the current tools are not up to the job and they are proposing (not a product as yet). They are proposing an open source tool that can be customized by the corporation and used to connect to the traditional GDS infrastructure or any supply chain host that the company wants to do business with - both indirect and direct.

While I am not a huge fan of Open Source I am definitely a fan of unbundling the totalitarian complex reservations and distribution systems into components aka Open Architecture. This to my mind is where Farelogix shines. Providing a platform that can be applied with local smarts to meet the needs of the specific user community. Appropriate use of technology without the need to change everything seems to be a key ingredient. But perhaps the most important feature is that the user community in the Corporations (as embodied in membership in NBTA) now has the ability to take control of their own environment and their own bilateral business relationships with suppliers and/or intermediaries. Note I say seems to be - because this is a vision not a product as yet. However as they have shown with their Hawkeye Open Source solution Farelogix can finally crack open an independent access into the GDS world. And they are developing a good track record of delivering. While this might seem to be heresy to the GDS model, they (the GDSs) clearly seem to agree with Farelogix as can be seen with their initiatives ranging from the new off-core Profiles to Travelport's Open Desktop initiative and Amadeus's ONE product.

As many readers will recall I am oft to comment that today the vast majority of PNRs created in a GDS are now touched by a third party system. This capability today is funded by the agency community themselves or increasingly by the corporations. Farelogix initiatives such as Open for Business and its encouragement by NBTA is not starting a new trend - it is actually continuing the evolution of the distribution model.

So this seems to be the right product at the right time. Let's wish them well in executing it. This is not a sector for the feint hearted. Having developed several corporate products since the mid 1980s, I can attest to the difficulty in getting them ready for market and then deploying them.

Best of luck chaps.


Shoots In The US Market?

OK - so how about a little good news for a change.

I finally got to see the numbers for July from ARC. There is clearly a trend here:

Even accounting for the aberrations in Feb and the changes in Easter - we can see that since March the transaction numbers have clearly changed for the better. July's numbers show only .77% Y/Y down. August which should be out in the next week will be interesting. I would actually expect that we will see a definitive improvement in September as this was the month when sales first started to dive last year.

So now its a game of nerves for all concerned. Will the US airlines maintain discipline and keep capacity down? So far they seem to have done a good job and we don't have a really sick player who could upset the apple cart.

I will not be cheering just yet. We are still in effect bumping along the bottom. We have lost a lot of capacity and traffic from the system. For proof of this look no further than Victorville CA (and several other places like it). That is one heck of a lot of capacity. Including some highly viable 757s out there.

At the moment the really sick sector in the market is the hotels. Despite the recession - actually their capacity (according to Smith Research) INCREASED several points this year. So hotel yields there are going to stay bad.

My current sentiment? The airlines must maintain restraint and even cut more than they would normally seasonally. We have already seen the first seasonal cuts from AMR. We will see many more programs in place. However these programs are really temporary. The Airlines have bought themselves some time and burnished their balance sheets a little to survive till next year. They still need to be prepared for 2 events - a sharp downturn in the economy somewhere in the system due to a localized problem and/or a pandemic like H1N1 flu. Either of these are very possible - one might even say probable.

I will however say one thing that hopefully by now is sinking in. The time that has been bought needs to be leveraged. That means the airlines in particular (although this applies to just about every sector) needs to go back and look at their current cost structures and cut them back. This ranges from the bloated headcount at Expedia to the marketing spends at certain companies. The signs are there. Now is the time to do something about the underlying cost structure.

Carpe Diem


Skype and Blackberry - Missing In Action

Earlier this year Skype made a big deal about producing software for mobile devices. Promising iPhones, Androis and Blackberries access to Skype.

Well not so fast quickdraw. Skype just released a new version of their code and Blackberry is still MIA!!!!

So c'mon Skype - give us what you know we want.

(Memo to everyone else) if you want to get cheap access on your Crackberry - try Truphone.



As a reminder to those people who follow this blog.

I know you are all good intentioned folk. However there does seem to be an element of radicals out there who are determined to pollute the Professor's prognostications.

Posting commercial entreaties IS STRICTLY VERBOTEN. For example to use comments on this website to sell laptops, or "my hotel in India is the best thing since sliced bread."

So please do us all a favour and don't do it. You are wasting your time and more importantly my time. You will be treated as vermin and stomped on.

If you have an article you want me to write about or you wish to contact me - please send me a private email to professorsabena@gmail.com (when it doesn't have outages of course!)

Thanks for reading and have a nice day!

01 September 2009

Oh Dear Southwest Again...

Southwest has now had to admit the number of planes affected by the uncertified parts scandal has increased to approaching 20% of the fleet (82 planes out of 500).

While the vendor has been suspended by Southwest, the issue remains. The parts are not that common that WN can simply go out and buy them off the rack, thus the FAA is being very lenient in extending the time for WN to fix things until Christmas. However it is almost guaranteed that this time the FAA will again slap WN with a fine and WN may whine but it will pay the fine this time without murmur.

You may recall that last year for a similar violation the FAA slapped one of the largest fines on an airline for maintenance violations to Southwest who fought it but in the end paid - not that they couldn't have afforded it.

The now former vendor's spokesperson described the problem this: "This is a paperwork and procedures issue, not a flight-safety issue," he said.

Whether it is or it isn't safety can never be compromised. There has to be zero tolerance 100% of the time. However this is a not just an airline issue - the regulatory body has to accept a level of responsibility as does the paymasters who must ensure adequate funding for the process.

A case in point is the extended amount of time that was allowed to address the fuel tank issue after the TW800 disaster and others.

Not that I want to jump to any conclusion. I would happily book WN today if I needed to fly on their route system. I feel they are perfectly safe, but I would probably choose another airline if the price was the same. Call it just a "safe than sorry" attitude.

We should all be able to rest easy that when we board an aircraft that the system works. In the case of WN this has happened more than once. That needs to be fixed. The FAA needs to make sure it doesn't happen again at WN or any other airline for that matter.


Opening Day of The Culling Season

Today in Idaho - many hundred of hunters headed into the hills to cull the Grey Wolf which after being removed from the endangered species list earlier this year by the US Government Department of Fish and Wildlife, became fair game for legal killing.

For the airline industry - it is still a matter of survival but there is no such Government protection. So the killing instinct is pretty darn strong.

Thus listen up - brace yourselves everyone - the shoots of the reviving economy notwithstanding, we are about to enter the airline employee reduction season. The bean counters have done their sums and the routes have already been paired. Now the only piece is to actually match the costs to the revenues. Yes it is time to cut the staff back again. First out of the gate? AMR with a 900 person cull of their flight attendant ranks.

Not withstanding one of the largest reductions (number wise for sure - and percentage-wise also) in the history of the business already since September of 2008, the airlines must cut again in order to reduce their costs. The pressure of the current elevated (I choose my words carefully) oil price and the continued low yields leave the airlines one possible choice - cut the headcount.

All the fudge factors have already been exhausted. Hiring Freezes (even Southwest), reduced wages, voluntary retirements and as a new wrinkle work for free or take enforced time off. So now the bare bones must be cut. But the other metrics are already in place - Planes parked, deliveries deferred, routes and schedules paired, I could go on.

The numbers coming out of IATA on the first half performance - while expected are still very ugly. Despite recent positive signs, in the main the prognosis is that it will only get a little worse and that we are "bumping along the bottom".

So brace yourself folks - there will be many more announcements over the coming few months on staff reductions.

One side note here - there are still several areas of cost that the bean counters may have missed. The attempt by United to address one of them (Credit Card Fees) has provoked a firestorm of protest including Senate investigation etc. So perhaps it is time again to re-open the cost of distribution and evaluate where further costs cutting can be made. If you don't think this is possible then give me a call - because I can show you multiple ways to reduce the cost of customer delivery and distribution costs. Perhaps the Airline Staff Associations and Unions should get more aggressive with the airlines to look elsewhere for cost savings.

You have been warned.

Worst Offending Airports

OK so this should be a Friday post - but since I am just having a little fun today - here is a factoid for you.

Those nice people at Skyscanner have published a list of the worst offending airports with ambiguous names and not quite that close to the city center.


In the top 10 of the airports currently with scheduled service, Ryanair takes the biscuit with serving all of them. NOTE London Oxford (newly named and badly so) doesn't have any service today from anyone.

Some of the Worst Offenders:

1. Munich West (Memmingen) - 70 miles (112km) from central Munich

2. Oslo (Torp) - 68 miles (110km) from central Oslo

3. Frankfurt (Hahn) - 68 miles (110km) from central Frankfurt.

4. London (Oxford) - 60 miles (97km) from central London

5. Stockholm (Skavsta) - 59 miles (95km) from central Stockholm

6. Barcelona (Girona) - 58 miles (94km) from central Barcelona

7. Barcelona (Reus) - 58 miles (94km) from central Barcelona

8. Paris (Beauvais ) - 55miles (88km) from central Paris

9. Dusseldorf (Weeze) - 50 miles (80 km) from central Dusseldorf

10. London (Stansted) - 40 miles (km) from central London

In the best performing category - they have forgotten a few:

Toronto City

However I believe that one of the worst distances is still Riyadh (RUH) which actually does have a downtown airport - though that is reserved for the royal family. The airport is 40 miles from the terminal to the exit gate!!!


Ebay Finally Dumps Skype

In a move that should have all of us (heavy Skype users) quaking in our boots - Ebay is going to sell off its Skype subsidiary. EBay Inc. said Tuesday it will sell a 65% stake in its Skype Internet phone business to private investors in a deal that marks the end of an unhappy tech marriage.

San Jose, Calif.-based eBay said it will get $1.9 billion in cash and a $125 million note from the buyer, an investment group led by the private equity firm Silver Lake including Index Ventures, Andreessen Horowitz and the Canada Pension Plan Investment Board.

The group will take a 65% stake in the company, while Ebay will retain 35%.

In 2005 eBay acquired all of the outstanding shares of privately-held Skype for a total up-front consideration of approximately €2.1 billion, or approximately $2.6 billion, which was comprised of $1.3 billion in cash and the value of 32.4 million shares of eBay stock, which was subject to certain restrictions on resale.

Interestingly Silver Lake is also an investor in Sabre. So there is a travel industry connection here.

Lets hope that the new chaps do the right thing with Skype and keep it true to its roots. However I don't see them being altruistic. Current Skype revenues are pretty meaningless. Today also Boingo dumped Skype as a partner for its Skype Zones service.

I guess I may just have to move to Google (UGH) or Gizmo.


EC To Review Package Holiday Protection

Bowing to the inevitable or just feeling like grabbing a fist full of nettles? Either way the European Commission is to launch a review of the Package Holiday Directive this autumn. The European commissioner for consumer affairs, Meglena Kuneva, said the legislation is "out of date having been created and implemented in the 1990s."

The core of the issue in Package Holiday protection is that now more than 50% of all holidays are booked dynamically either in total package form or in components often from different vendors.

At the same time the UK's regulatory body the CAA is reviewing protection under its ATOL scheme which last year took a big hit from the collapse of XL Airways and is potentially bankrupt.

If the EC is smart it will acknowledge that the market has changed and implement generic rules that apply to the sale of any travel product component or package no matter how its sold.

As expected the agents and tour operators are in favour, the airlines (particularly the LCCs) and online agents are not.

We will keep an eye on this ongoing issue.


SkyEurope Shuts Doors

Sadly the little airline that could finally folded. It filed for bankruptcy today and ended all operations.

I first became acquainted with SkyEurope just before launch when I sad down with Christian Mandel in a Ratskeller somewhere in Germany - I forget where. We laid out a plan for the reservations system and he followed my recommendation.

Sadly SkyEurope became a victim of over expansion and eyes too big for their capacity.

The decline was long and painful but to most inevitable. SkyEurope's model was niche and a nice one at that. They should have held out for staying there rather than the overly ambitious path they took. When O'Leary et al talked about scores of LCCs failing across Europe the seeming high flyer was the poster child for his views.

So sadly - a depressed market and the emergence of a stronger smarter competitor in WizzAir was the ultimate deciding set of factors.

Better Luck next time chaps.


31 August 2009

Service vs Price in Shopping

In a world where hard economic times are abounding - price is sometimes the only metric that makes sense to people. However it assumes that the brand value is known.

In the 1990s (and with no disrespect to the much improved airline of the same name), people used to tell me that the price of an airline ticket was the most important factor. So my usual retort to this was - if you had to fly from London to Sydney (the kangaroo route) would price be your prime consideration? Your only consideration? In well over 90% of the time people would be inflexible and say that it was naturally the case. So (said I) if Aeroflot saved you 200 pounds and took 3 days would you still do it? That would reduce the pool by - well by about 100%. On no - said they - safety is the most important thing. The ensuing debate would expose all sorts of criteria and influences that make up the buying decision.

So the service vs price choice is not a simplistic binary question. This has some interesting influences on the decision to choose an airline choice. Everyone assumes that the airline product is simple. The fact that Ryanair and others have made it so is a testament to the stripping away of the unnecessary parts of the product, namely the unbundling. However the issue is straightforward. You don't just travel from airport to airport, you travel from home to destination whether its aunt Mabel's place or the HQ of MegaCorp.

Forester has an excellent panel and it has just published a bit of research on the topic. It divides the consumer into 4 categories:

Service Seekers
Price Seekers
Service and Price Seekers

Across 12 industries Forrester found:

"Service Seekers were more likely than Price Seekers to buy more products, stay with their current provider, and recommend their provider to friends and colleagues. ... It turns out that Service Seekers are excellent customers to target."

Check out the summary here:


While I think that this is possible to be true - I shall be a little skeptical. Frankly in a questionnaire people will answer the issue in a way that would tend to favour service. In real life the shopping decision is more complex in particular airlines as I noted above.

At the end of the day - in order to get a sale - you must tick a lot of boxes. The Service must be clear and provided in a consistent manner. (How many airline fail to remember that - indeed how many companies in general forget that). Product expectation must be set realistically and again delivered against. The right context for the customer must be present. (Don't keep calling me Mrs when I told you I am Mr). And don't make too many assumptions about me.

The classic example of this is Southwest. Low expectation was the order of the day and they delivered. However recently the other airlines have matched that low expectation. So the differentiation in the honest and fresh approach taken by Southwest is less than it was before. Not really because WN did anything bad - but because in the market they became like the others. Interestingly - we just did another test on WN and we find again that their yield per mile (for the basic product) in available seats is still often higher than that of their competition. However for now their ancillary revenue is lower so the net price paid has not risen as fast as the other airlines. Could WN be missing out on revenue?

Universally I believe that most customers have a low opinion of the airline shopping experience online. The time is definitely ripe for a better experience. Then if that service can be delivered online as well as offline - the reward could be a higher price/yield. However - since the airlines have done such a good job at commoditizing themselves - I doubt we shall see that for a while.

So what do you think?


Social Media Madness

As I start to see more and more icons appearing on websites showing (and crowing) about each (usually commercial) site's social media prowess, I find some of this more than a little confusing. Further the sheer plethora of different options now is mind blowing.

However as is often the case it takes a fresh look at this. So this little idea is from my sister Professor Jennifer.

If they combined the top social media sites MySpace, Facebook, YouTube and Twitter, it would be:

My Face, You Twit!

'Nuf said!


LH Tightens Grip and Gets Toe Hold In USA

Not content with its first foray into the English Speaking geographies via the UK through its BMI acquisition, Lufthansa is now carving its initials on jetBlue. It already owns nearly 20% of the equity and now it has filed for a set of code-shares from JFK and presumably other markets in order to bolster its presence in the New York market.

With United focusing on its very close relationship with new BFF Continental, LH wants more than just a casual relationship for one of the larger US market. While the code share arrangement was almost inevitable (LH has never yet taken an equity position in another carrier without a code share deal), one cannot help but think the recent mega slot swap in New York (which made Delta the top dog) didn't have some bearing.

Most especially LH was left with almost no feed at JFK clearly a condition that the German mega carrier could not let continue.

This is a win win for both carriers. JetBlue gets access to Transatlantic feed (EI's marketing agreement doesn't exactly create head spinning numbers). LH gets domestic feed to just about any market with convenient connections throughout the USA all the way from San Jose to Burlington VT.

The new reality of coach/economy travel and a comparable product in the back cabin makes for an easy fit.

Don't expect this arrangement to be a rush job. jetBlue's aging Navitaire OpenSkies system has a hard time with connections. So the full implementation of the code shares may have to wait until SabreSonic comes up fully.

Also an interesting side note here, the timing cannot just be coincidental. With CO getting ATI approval just weeks before this announcement - it makes for some interesting discussions about the dominance of Star Alliance. Perhaps some of Justice's fears were not unfounded. Someone at Dept of Transport must be thinking that they didn't pay full attention to this eventuality. Perhaps even Mr Oberstar can raise the issue again. However the door of the stable is likely have any impact on that herd of horses who are long gone! All in all competition across the Atlantic has been decidedly lessened.


Boeing Commercial's Carson To Retire

After presiding over a major restoration of confidence and an unusually long period of prosperity Boeing Commercial Airplanes (BCA) CEO Scott Carson announced he will retire at the end of the year.

His successor is Jim Albaugh, 59 currently head of the defense systems group.

Under Carson's leadership - BCA changed from a challenged organization to one with greater focus on sales fixing what had become clearly broken. The one blot on his tenure has been the debacle of the 787. Hopefully Boeing will be able to deliver a first flight before the end of the year as a retirement present for Carson.


Is Google A Monopoly?

I have this uneasy feeling about Google. The power they wield is significant. Fine if they don't abuse it - or is it? And what if they do actually use their power and abuse it?

I have written columns on this going back to 2006, here are two of my older posts on the subject:


It seems that the Seattle Times and other Media outlets have started to feel the same way too. Today's editorial was somewhat less than subtle. The Times (a right wing paper in my view since it crushed the old Seattle PI), is calling for Google to be investigated for being in violation of the Sherman Act.


A quote from the Obama Administration assistant attorney general for antitrust, Christine Varney, as saying that Google was America's most obvious antitrust problem — Microsoft was "so last century" she said... ouch.

The editorial called for an investigation of Google under the Sherman Act. Section 2 which says:

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony...

That has been the law of the United States since 1890. All it requires (per the Seattle Times) is that the Justice Department pick it up and use it.

Should we accept that Google is being altruistic all the time or is there something more sinister about Google? It seems that Google's hand has to be forced sometimes - hardly the behavior of a good global citizen.

For my own part - I am happy to use the Google search engine but I remain leery of Google's force in the market. It is downright scary the amount of power they have.

So what do you think?


30 August 2009

Governments Look To Airlines For Models And Skills

A headline inside the Grauniad on Friday grabbed me as I was leaving LHR to return home.

have a listen to their podcast on the subject:


The idea of a model Low Cost Carrier being applied to the provision of government services is somewhat radical - even the more so by being offered by a Tory Council in the Greater London area. I only hope they don't look for inspiration to Ryanair and Michael O'Leary.

It seems that Goverments are now looking to the airline to address some of their own woes. Particularly financial.

MAS Chairman Idras Jawal after the stunning turnaround at MH has now been hired into the Government.

Wow - what a world we live in!

LH And BMI - To Have And To Hold?

There is quite a bit of speculation surrounding what LH will do with its long and hard fought win of BD.

To recap what did it end up buying for arguably a pretty heft price?

It won a bunch of slots at LHR, and 3 separate airline groups plus some route authorities.

The integration of BD and LH in Europe is pretty extensive. I recently flew LHR-TXL on a LH flight number checked in at the LH counter in Terminal 1 but the metal was BD. The flight attendants and the ground service were not so clear as to which product I was travelling on. BD refused to check me in at the airport.

But enough about me! What about BD.

BD acquired BMED for a song last year and this has translated into a good market. It essentially got it for nothing - selling back the slots to BA. it operates the routes on a more sparse basis and manages to get some good yields with a thin service. The rest of BD's fleet is really Airbus but the A330s are doing mostly charter service and some long haul to KSA. Mumbai and the US routes having been dropped recently.

So it seems natural that BD mainline will be assimilated into LH. I would think it will be operated more like the LH Italia branded product out of Milan. The likelihood of the BMI brand surviving doesn't seem that promising. This is not similar to the case of LX and OS where the national branded carrier is at stake. BMI changed its name from British Midland and has had a fairly innocuous brand since then. It cannot compete in the branding stakes with the likes of British Airways and Virgin. Lufthansa Britannia anyone? (The Sun newspaper would have a field day with that one!).

So what about the other two parts of the airline - BD Regional and BMIBaby?

Anna.Aero thinks that regional will follow the old Brymon and co to Flybe. I would place money on LH wanting to move some of that connecting traffic into Europe and away from LHR. Further LH has a pretty robust regional business both direct and franchised.

Anna.Aero also speculates that LCC BMIBaby with its old fleet of B737-300s and 500s will go to someone in the UK like Jet2 part of Philip Meeson's group of airlines. I also beg to differ. With LH tharted in creating a second tier German airline of its own - it would more likely want to take the idea of expanding the concept to its own LCC German Wings and give the purple and yellow airline another UK base and a broader footprint. Why would LH give up such a business doesn't seem logical to me.

So what do you think?


Farelogix Cements Trend Towards Off Core Profiles With New Product Line.

At this year's NBTA in sunny San Diego (sadly I could not go this year so I am late in catching up with all the info out there), one of of the hot topics was the move by the GDS to shift Profiles out of the the central TPF core. Everyone is doing it. Sabre, Amadeus and Travelport all have versions either as demoware or in roll out.

Now comes the announcement that Farelogix has a new product FLX Files. From the Farelogix PR piece:

“We see momentum toward universal traveler profiles for two reasons,” said Jim Davidson, president and CEO, Farelogix. “First, decentralization is no longer practical for storing and managing multiple profiles. Maintaining profiles in multiple sources and locations creates too much expense and duplicity, and synchronization headaches. Second, the industry is moving toward independence, data ownership and choice. Nobody wants strings attached. As technology proliferates, opening up is essential so customers can pick and choose the components that work best for them. What we are providing is an extensible, easy-to-implement, open system that can be integrated with as many other systems as customers want. With FLX-Files users get more control and flexibility, while maintaining full ownership of their data.”

In my humble opinion this is not a new issue. In my day job I have seen several far-sighted companies take their Profiles OFF GDS core before. Indeed my team have even helped to make this happen. However because it was an anathema to the centralized data management concept of the GDS - it was both frowned on and actually very hard to execute. Last year Sabre allowed me a sneak peak at their new off-TPF based Profile system. One of the interesting topics to emerge during the discussion with the project team was that they say this as not just a single and solitary change but rather the underlying core technology (my words) unbundling of one of many of the central customer file management functions of the GDS. Sabre was unabashed in their enthusiasm for the move including moving the PNR away as well.

My sense is that we are seeing (finally after very many years) a radical restructuring of reservation type products not just by the GDS but also by the airline PSS vendors as well. SITA's new PSS has a customer centric vision rather than a PNR centric vision. CRM is driving much of this change.

In my view the whole concept of the unbundling of the GDS is a natural progression. When I started working in distribution in the early 1980s, the only electronic way to communicate was a cradle to grave approach by the then CRS companies. 100% of their services were provided by their own systems. Quickly the independent vendors ABS/ADS, TravelLink et al were snapped up by the GDS. Very few PNRs made it through the agency lifecycle being touched by anything else other than a human and perhaps a back office vendor's product.

Fast forward to today and in almost all major markets each PNR is touched by multiple external systems. This has shifted the focus of the reservations system to the front line. Front Office and Mid Office applications are used (and paid for) by the intermediaries. This has eroded the importance of the GDS to the user community. In the early 1990s I used to draw a diagram that showed the GDS moving away from the front and center of the Intermediary tool kit to a box on the higher content (read supply) source line. While in my mind it has taken way too long for this to happen - it has been a slow and steady progression to get there.

If one examines the features and functions of an OTA for example - one can see that the key GDS functions (supply access, file management, search etc etc) are performed better and with far greater flexibility by these players than by the GDS platform providers. The OTA functions are a superior superset. I wont dwell on the subject of why the OTA's still use the GDS - that is for another time.

Farelogix is one of the innovators in addressing the needs of the supply side and the distribution side and their evolution. They are however by no means the only player doing that. The long term trend to me is an inevitable migration away from the bundled one size fits all GDS centric model to a fragmented but more customizable set of relationships managed by different and more appropriate technologies and players. I will caution everyone - with this power comes responsibility. Are we ready to take that on yet? I think so - and so it would seem do quite a few other players.

The death of the unitary model has oft been predicted. Frankly I think its already here.


Will Giant ILFC Be Split Up?

Probably one of the biggest boosters for Aviation is Steven Udvar-Hazy, chairman and chief executive of International Lease Finance Corp., the aircraft leasing company owned by American International Group. He built it and then sold it to AIG where it has been one of the strongest performers consistently. ILFC is one of the world's largest Aircraft Leasing Companies. (Actually THE biggest).

For the past year since AIG entered into difficulties and needed bailing out - he has been trying to take it out of the group. However the company is saddled with a lot of debt $30 billion give or take a few and $2Billion due in October.

It has been no secret that he wants to have the whole company - run from the MGM Tower in Century City - back under his direct control and independent from AIG. However this plan is looking increasingly unattainable. So he has started to look at the possibility of splitting it up into smaller chunks and he take part of the Portfolio with him.

Normally there would be no shortage of people wanting to arrange a buyout and with boat loads of cash to boot. Also in normal times the GCC Sovereign funds or one of their surrogates would be very interested. Ditto Singapore. However the GFC is not helping this - coupled with the global downturn in travel that the airlines are feeling just a little heat from.

ILFC is the grease that oils a lot of the global airline trade. Both Airbus and Boeing are heavily dependent on it for orders. Should ILFC go away all together (very unlikely) or be reduced in size - the impact on the market for airliners would be significant and likely in a detrimental way.

Quietly late last year - both Boeing and Airbus got back into the capital market of lending money to airlines. Should ILFC be affected then Boeing for one would have to pick up a significant part of the slack.

All in all - let's hope the ever effervescent Hungarian born CEO gets his wish to make ILFC independent and retain its portfolio.

So Let's Look Deep Into Twitter - UPDATE

I have been scouring around looking for a good independent source of information on how Twitter is used.

I finally found one.

Have a look here... it is everything you want to know about Twitter and how people use it.


It is a fascinating look a the world of Twitter. Some interesting results are that a large percentage of stuff is generated by Bots of some sort or another. I suspect that number will rise dramatically over time. Of course as we have seen then there are surrogate Tweeters (people who Tweet on behalf of others) and other what I would term insidious behaviour that not only damages the credibility of the Tweeter but of the whole value of Twitter.

Of course you don't have to agree with me - far from it. But anyone assuming that Twitter will continue to grow and become a force for the future must take into consideration the amount of crap that goes with it.

So I say again - when will someone come up with a value service that lets me control the amount and relevancy of the Tweets that are out there...

Dream on - or maybe not... I am the eternal optimist.

For another look at Twitter - including 40% of mindless babble - look at the white paper from Pear Analytics


Lord help us from the crap!


When Online Is Better Than Offline?

As many of you know I am a fan of Gerry McGovern's weekly mail.

This is this week's effort


However I think he misses the point here - just because the offline service process and rules are screwed up doesn't mean that this is the wrong way to do it.

Sometimes the process of being bloody minded works just as well. The problem is that you cannot be bloody minded and persuasive with a machine!

On the other hand there are some good tools where the interaction can work. For example customer service chats. This REALLY works well when you have a he said she said kind of issue.

A case in point I had a problem with my cable company. They changed to the all digital format and as a result my old VCR and my new independent DVR didn't work except when wired into the same channel I was watching. Thus depriving me of the ability to time shift.

I tried the call center (yes India again) and got no where. So I went to the chat process and was able to resolve the problem. Further they had to transfer me to another section. The chat formed part of the record and thus there was no misunderstanding and the agent was able to see what we agreed early on without me having to repeat myself (one of the biggest bug bears of customer service today).

Despite having to still do some INANE things like repeat who I was (even though I signed in as the account holder) ... so they don't get it right still!!! ... I managed to get them to do something out of the ordinary and provide me a service. This would have fallen outside of the norm of what you can do in a conventional web form world.

So is there a lesson here?


The web can be a powerful tool as we can both see what has happened and we are dealing with identical information resulting in better customer service.

Of course going back to Gerry's problem - this is unlikely to have helped given that he was at Athens airport and the process of getting online would have been painful and slow at best - unavailable would be the norm. of course the time pressure doesn't apply when dealing with the cable company. When waiting to board a flight - that pressure is really on. (BTW a recent study showed that the airport check-in and boarding process is as stressful as driving a formula 1 car!!!).

So sometimes it just pays to be a pain in the rear....


The Sick Boys Of The Airline Biz

As the world airline industry tries to put on a good front in the face of still falling traffic/revenues in both passenger and cargo, we can now see some trends of players who are going to hurt more than others.

Perry Flint's ATW editorial for August made a big point about the success of the DOT over the DOJ in approving the Continental/United/Star ATI JV. This should have been a collective sigh of relief for the industry. However in my humble opinion this masks a darker side.

The conventional wisdom of the internal airline market seems to be that bigger is better and that consolidation should be the order of the day. I disagree. Consolidation does not result in lower fares and better service. The economies of scale as a result of mergers have in the main been far outweighed by the high costs of integration and the resulting downsize has not led to any consumer benefit save the ability to have a single ticket service.

When the dust clears - the resulting airline hardly ever gets a size boost and the market returns to the state it was previously. Warts and all. Somehow the airlines always seem to expect that the government(s) will ride to their rescue if all else fails. How many shareholders have lost considerable sums in capital write offs due to bankruptcies and writedowns over the past 30 years? The number is staggering.

Michael O'Leary must be a happy person at the moment watching his nemesis Aer Lingus writhe in agony in what its own CFO called an airline "...in trouble".

It is time for the government's to get FULLY out of the airline regulatory (except for consumer protection and safety) business and to stop tampering with the market forces.

So my nominees for sickest airlines of the world and most likely to need "fixing" are as follows:

In the basket case category:
Aer Lingus

In the deeply troubled category
British Airways
Virgin Blue
Many Chinese based airlines

In the category - in need of a dose of reality
Too many to pick nominees

Strangely enough the US airlines are not immediate standouts here. True they are struggling but this is a comparative game - so I am giving them a break at the moment.

Agree with me or not - I hope this sparks more debate.

However - lets have a truly more honest and open market and let the strong survive on true metrics and let the scrappiest keep them honest..


Accor to Change Focus

Bowing to the inevitable Accor - one of the strongest players in the Hotel business - is considering splitting its Hotel and Services business. In much the same way that Marriott did with what is now a part of Sodexo. (I hope I have the branding right now!)

In the case of Accor it will mean a forced more wider review of its Hotel operations which has benefited in the past from the financial strength of the Services unit. Thus Accor has been able to develop much of its own facilities at lower financial costs (through self funding) than its competitors.

Where Accor has had its strength in the low end brands (Formule 1 and Motel 6 for example) however this has not returned as much value to it as it lacked high end brands. Indeed its product portfolio has become more and more confused as it struggled to upgrade the Sofitel Brand, raising the profile of Mercure with the Grande Mercure brand and (re)introduce the Pullman brand. Sadly this has not translated to the bottom line. Accor has suffered in line with the other hotel companies worldwide and not been able to capitalize on what should be its strengths in an economic downturn. This is as much a result of Accor's strategy as it is the extent of the worldwide Travel recession.

Another problem for Accor has been its inability to control the franchises. Its franchise arrangements have tended to be looser than some of its competitors - again in particular at the higher end of the brand. I witnessed this personally with a Sofitel product in Asia Pacific recently.

Will Accor go the way of Club Med and become an anachronistic icon of a bygone age? Hardly! But look for a change in direction and perhaps even a less Gallic perspective in the coming few years.


US Government: "Leave Laptops At Home" or "You Cannot Come In!"

OK under the "what must they be thinking" department - Here is today's stupid government pet trick.

Thanks to Professor Andrew for this one: See here for the whole government official recommendation for travelling with laptops etc.

http://file.sunshinepress.org:54445/dhs-travel-threat-assessment-2008.pdf (See page 3).

However the critical section is a statement as follows:

"Risks associated with use of electronic media overseas can be reduced
through proper handling techniques. The simplest of these is to leave such devices at home. Barring that, protective measures should include using designated “travel” computers, single-use cell phones, and temporary e-mail addresses as well as refraining from communicating with a home organization’s information technology systems."

So the US government has decided that we should not carry laptops with us when traveling and further we should not electronically speak back to the central office in the USA.

Thank god we have the CBP (Customs and Border Patrol) to protect us at Homeland Security. Clearly with their finger on the pulse of the world - their response is a Monroe Doctrine like isolationism. Gotta love those guys!

So if you think that is good... then I can now officially tell you something well official is a difficult expression as according to the document the following warning is applied: "(U) Warning: This document is UNCLASSIFIED//FOR OFFICIAL USE ONLY (U//FOUO). It contains information that may be exempt from public release under the
Freedom of Information Act (5 U.S.C. 552). It is to be controlled, stored, handled, transmitted, distributed, and disposed of in accordance with DHS policy relating to
FOUO information and is not to be released to the public, the media, or other personnel who do not have a valid need-to-know without prior approval of an
authorized DHS official. State and local Homeland security officials may share this document with authorized security personnel without further approval from DHS."

So what is it that I can tell you?

1. That your laptop can be treated like a suitcase.
2. it is subject to search and if necessary both short term and long term confiscation without any probable cause.

Further - if you are a NON-US citizen - failure to provide (if asked) passwords and access to your computer may result in you being denied entry into the USA.

I can think of only 3 other countries who have the same restriction. Burma (Myanmar) North Korea and the Kingdom of Saudi Arabia.