Sadly a great idea bit the dust yesterday. I was hoping not to have to write this entry.
However a good idea has fallen foul of circumstances and the market.
I firmly believe the model can work if correctly capitalized. The users loved it. They ended up with a good size working model and needed a little more scale but I do believe they could have made it work. Perversely the current cutbacks in Airline routings actually benefited the model. So we should hopefully see someone step in.
If someone is interested in forming a rescue bid - give me a ping.
Cheers
20 September 2008
18 September 2008
Airlines Defrauding Governments out of Millions?
Well that got your attention didn’t it.
If this blog entry doesn’t send you to sleep you are a better person than most! But I do encourage you to read this. It is a pretty detailed analysis of the taxation system. It should be considered that we as involuntary tax payers are being charged fees and the airlines who are benefiting from the imposition of charges are actually diverting money away from the government.
My supposition seems to be that in the rush to address revenue schemes of various sources, some airlines may be defrauding the US government. How so? Kudos to Professor A&P for bringing this one to my attention.
I am no lawyer and certainly no expert on the US tax code. But as a US tax payer, I think that the US government - for example and others also - could be cheated out of millions dollars in airline ticket taxes. This may not be the most popular statement, and no one in an official capacity may really want to examine this issue that carefully. With airlines now unbundling their services, things that we use to pay for that was part of the air fare that WAS taxed is no longer taxed, especially for domestic US travel. A little background. The current funding mechanism for the AATF – this is the federal tax revenue to fund infrastructure that supports air transport in the USA - (http://www.faa.gov/airports_airtraffic/trust_fund/ ) is however pretty specific that unless the charge is directly related to the ticket then it is not taxable. Fine. But I am not as I said earlier a lawyer (and I am really am not one nor ever want to be one) however I could argue that a requirement to pay for a service which is ancillary to my basic ticket and which I cannot avoid (like the first bag charge) could be construed as covered by the ticket cost. But then again I could be wrong.
Let me give you a simple example and its impact. We were not charged extra to check a bag in days gone by. The service was included as part of the base fare of the ticket that was taxed 7.5%. Now the service is no longer part of the base fare that is taxed. United Airlines is now charging (as are several other airlines) $15.00 for the first checked bag and $50.00 for the second checked bag. For the average Joe, UA would charge an additional $130.00 for a round trip. Voila there is no airline tax being collected on that amount. Since they didn’t actually lower the fare for this but used it to raise their revenues the airlines are effectively defrauding the tax authorities (specifically the FAA) out of that taxable income. There are other items now that have been spun out of the basic ticket price. But you get my point. What about other things that use to be included in the cost of a ticket that they now charge for – reservations, meals, etc etc
Judging by the current programs alone – United claimed in their first attack on the ancillary revenue pot that the second bag revenue @$25 would have yielded in excess of $100 million gross additional revenue. At the current tax rate of 7.5% domestic ticket tax that would be $7.5 million that has now escaped the US taxman. (Note I am speaking of the specific US domestic airline tax here). At the current new program charge scheme that taxation gross number has probably escalated to over $20 million for United alone on this single line item.
I consulted with several folks on the matter who process tax fees on a regular basis. And there are a number of “tax” charges that are not indeed taxes yet are calculated as such. Here are some good resources on the subject which hopefully you can use to further educate yourself. Clearly when you see the boxes on Kayak, Orbitz, Expedia or even the airlines direct sites – you could be lulled into believing that the charges are all taxes.
Rick Seaney who runs FareCompare.com has lots of lovely notes on fares. He really is a fare geek! http://rickseaney.com/2007/09/28/tax-free-domestic-airline-ticket-party/ .
The UK CAA has a nice little explanation on their website on the matter: http://www.caa.co.uk/default.aspx?catid=589&pagetype=90&pageid=2449.
One of the most comprehensive descriptions of the whole arcane ticket and tax process I have seen is on the Advantage Agency group pages. This is an association of travel agents in the UK. In this entry they actually show the raw GDS screens and how the taxes are charged and implemented. Here is the full link: http://www.advantagetravel.co.uk/Travel-Articles/Airline_Taxes.html
The insidious nature of this is that everyone is confused. (See my post earlier on obfuscation http://t2impact.blogspot.com/2008/09/trickery-obfuscation-is-this-politics.html#links ).
I could get really obtuse and give you a whole host of different explanations but just for illustration look at the YQ or YR type of “tax and surcharge” code. This is used as a catch all for things like fuel surcharges. Delta for example is very clear about this although the information is buried DEEP inside their website and can only be seen easily once you are in the purchase flow: https://www.delta.com/planning_reservations/plan_flight/online_reservations/fares_ticketing_rules/taxes_fees/index.jsp
Here is one airline’s YQ table. (this is a PDF file from BMI): http://www.flybmi.com/downloads/trade/BD_YQ_Intent_Trade_2008-09-04.pdf .
PHEW!
So one last comment is that since the gross airline departure ticket taxes are likely to decrease in total revenue terms due to a reduction in passengers flying, as a result the FAA in the US in my example is likely to experience a short fall in its collections. I am not a fan of big government and collecting extra taxes but addressing this problem could be away to make up that short fall. I am sure now that I will be labeled a tax and spend kind of guy. My sentiment here though is that I don’t like stealth taxes. I don’t like complicated taxes and I don’t like being charged for things that are not fairly applied. We should all be paying a simplified tax and surcharge supplement to the ticket. CLEARLY SEPARATED INTO TAXES AND AIRLINE IMPOSED FEES It seems hypercritical of ALL the taxation authorities that we are constantly bombarded with extra fees and charges because we the travelling public are a captive audience. The Europeans have now implemented a new regime of a total tax amount. Perhaps the US should do the same and be clear and transparent about it. I know – dream on.
Cheers
Timothy J O'Neil-Dunne
Managing Partner - T2Impact Ltd
Global Travel eBusiness
Tel (US) +1 425 836 4770
Mobile (US) +1 425 785 4457
Mobile (International) +44 7770 33 81 75
Fax +1 815 377 1583
UNIVERSAL VOICEMAIL BOX +1 425 749 4221
www.t2impact.com
Please treat this email and all forms of communication as confidential use only for the direct recipient(s).
Read our Blog: blog.t2news.com
Catch up on our public research: www.t2news.com
If this blog entry doesn’t send you to sleep you are a better person than most! But I do encourage you to read this. It is a pretty detailed analysis of the taxation system. It should be considered that we as involuntary tax payers are being charged fees and the airlines who are benefiting from the imposition of charges are actually diverting money away from the government.
My supposition seems to be that in the rush to address revenue schemes of various sources, some airlines may be defrauding the US government. How so? Kudos to Professor A&P for bringing this one to my attention.
I am no lawyer and certainly no expert on the US tax code. But as a US tax payer, I think that the US government - for example and others also - could be cheated out of millions dollars in airline ticket taxes. This may not be the most popular statement, and no one in an official capacity may really want to examine this issue that carefully. With airlines now unbundling their services, things that we use to pay for that was part of the air fare that WAS taxed is no longer taxed, especially for domestic US travel. A little background. The current funding mechanism for the AATF – this is the federal tax revenue to fund infrastructure that supports air transport in the USA - (http://www.faa.gov/airports_airtraffic/trust_fund/ ) is however pretty specific that unless the charge is directly related to the ticket then it is not taxable. Fine. But I am not as I said earlier a lawyer (and I am really am not one nor ever want to be one) however I could argue that a requirement to pay for a service which is ancillary to my basic ticket and which I cannot avoid (like the first bag charge) could be construed as covered by the ticket cost. But then again I could be wrong.
Let me give you a simple example and its impact. We were not charged extra to check a bag in days gone by. The service was included as part of the base fare of the ticket that was taxed 7.5%. Now the service is no longer part of the base fare that is taxed. United Airlines is now charging (as are several other airlines) $15.00 for the first checked bag and $50.00 for the second checked bag. For the average Joe, UA would charge an additional $130.00 for a round trip. Voila there is no airline tax being collected on that amount. Since they didn’t actually lower the fare for this but used it to raise their revenues the airlines are effectively defrauding the tax authorities (specifically the FAA) out of that taxable income. There are other items now that have been spun out of the basic ticket price. But you get my point. What about other things that use to be included in the cost of a ticket that they now charge for – reservations, meals, etc etc
Judging by the current programs alone – United claimed in their first attack on the ancillary revenue pot that the second bag revenue @$25 would have yielded in excess of $100 million gross additional revenue. At the current tax rate of 7.5% domestic ticket tax that would be $7.5 million that has now escaped the US taxman. (Note I am speaking of the specific US domestic airline tax here). At the current new program charge scheme that taxation gross number has probably escalated to over $20 million for United alone on this single line item.
I consulted with several folks on the matter who process tax fees on a regular basis. And there are a number of “tax” charges that are not indeed taxes yet are calculated as such. Here are some good resources on the subject which hopefully you can use to further educate yourself. Clearly when you see the boxes on Kayak, Orbitz, Expedia or even the airlines direct sites – you could be lulled into believing that the charges are all taxes.
Rick Seaney who runs FareCompare.com has lots of lovely notes on fares. He really is a fare geek! http://rickseaney.com/2007/09/28/tax-free-domestic-airline-ticket-party/ .
The UK CAA has a nice little explanation on their website on the matter: http://www.caa.co.uk/default.aspx?catid=589&pagetype=90&pageid=2449.
One of the most comprehensive descriptions of the whole arcane ticket and tax process I have seen is on the Advantage Agency group pages. This is an association of travel agents in the UK. In this entry they actually show the raw GDS screens and how the taxes are charged and implemented. Here is the full link: http://www.advantagetravel.co.uk/Travel-Articles/Airline_Taxes.html
The insidious nature of this is that everyone is confused. (See my post earlier on obfuscation http://t2impact.blogspot.com/2008/09/trickery-obfuscation-is-this-politics.html#links ).
I could get really obtuse and give you a whole host of different explanations but just for illustration look at the YQ or YR type of “tax and surcharge” code. This is used as a catch all for things like fuel surcharges. Delta for example is very clear about this although the information is buried DEEP inside their website and can only be seen easily once you are in the purchase flow: https://www.delta.com/planning_reservations/plan_flight/online_reservations/fares_ticketing_rules/taxes_fees/index.jsp
Here is one airline’s YQ table. (this is a PDF file from BMI): http://www.flybmi.com/downloads/trade/BD_YQ_Intent_Trade_2008-09-04.pdf .
PHEW!
So one last comment is that since the gross airline departure ticket taxes are likely to decrease in total revenue terms due to a reduction in passengers flying, as a result the FAA in the US in my example is likely to experience a short fall in its collections. I am not a fan of big government and collecting extra taxes but addressing this problem could be away to make up that short fall. I am sure now that I will be labeled a tax and spend kind of guy. My sentiment here though is that I don’t like stealth taxes. I don’t like complicated taxes and I don’t like being charged for things that are not fairly applied. We should all be paying a simplified tax and surcharge supplement to the ticket. CLEARLY SEPARATED INTO TAXES AND AIRLINE IMPOSED FEES It seems hypercritical of ALL the taxation authorities that we are constantly bombarded with extra fees and charges because we the travelling public are a captive audience. The Europeans have now implemented a new regime of a total tax amount. Perhaps the US should do the same and be clear and transparent about it. I know – dream on.
Cheers
Timothy J O'Neil-Dunne
Managing Partner - T2Impact Ltd
Global Travel eBusiness
Tel (US) +1 425 836 4770
Mobile (US) +1 425 785 4457
Mobile (International) +44 7770 33 81 75
Fax +1 815 377 1583
UNIVERSAL VOICEMAIL BOX +1 425 749 4221
www.t2impact.com
Please treat this email and all forms of communication as confidential use only for the direct recipient(s).
Read our Blog: blog.t2news.com
Catch up on our public research: www.t2news.com
6 Online Travel Myths - evaluated
PhocusWright issued a press release yesterday aiming to debunk some myths about the state of the Online Travel Agency Market. I would like to address some of these for clarity sake. Then you be the judge as to whether these are myths or realities. The Professors opinion is listed under each myth.
Myth #1: The number of online travel buyers in the U.S. is declining.
UNTRUE. Absolutely incorrect - we are still seeing a rise in the number of buyers. However of course as we have a maturing market the profile is changing. This is where you have to be very careful in defining the exact terminology.
Myth #2 More and more online travel shoppers use supplier sites than online travel agencies.
TRUE. If you use the correct terminology and clarify here. If the statement was that Supplier sites are getting an increasing number of transactions - then this statement is true. As capacity shrinks in the USA (the most mature market for Online Travel) the hunt seats intensifies. This is actually causing an increase in visits to all sites. Further the proliferation of search sites and meta crawling engines is raising traffic but not raising sales. Internationally non-US speaking there are still better growth rates on OTA sites for transactions.
3. Travel agencies are experiencing a resurgence as travelers return to traditional purchasing channels.
UNTRUE. Wow who started this myth. Someone out of their tree. There is no need for much debate on this issue - numbers of agents are WAY down. However there is a degree of flight to quality. Again as it gets harder to search due to shortage of inventory the noise (web traffic) increases. There is a stubborn hard core of people who refuse to switch for either looking or buying. But in general NAH!!!
Myth #4. The next generation of travelers prefers to do everything online.
TRUE. Actually this is part of the obfuscation of reports like this. The difference between traffic and transactions. Again looking at the USA market there is a considerable amount of traffic that cannot be purchased online STILL. However we believe that if there was a general universe that the preference for Millenials and GenY would be to use an online tool for search and transaction.
Myth #5. Social networks and travel reviews have the greatest influence on travel decision-making.
UNTRUE. Your friends and relatives have greater influence. However there is a lot of study on this topic that shows that Social media - call them user reviews because that is what they mostly are - have a considerable influence. What we see here is that there is a real concentration around the Expedia owned Trip Advisor businesses that stand clearly above everyone else. Further NOT having a user review section for your site actually makes your site less appealing. If you were to change the statement to Social networks and travel reviews have SIGNIFICANT influence on travel decision-making, then I would rate this as a true.
Myth #6. Online travel markets need high credit card and Internet penetration to succeed.
DRAW. This is an "it depends" answer. With all due respect to Philip and Ram - India is not a proxy for the rest of the world. Germany too has low credit card penetration (less than 40% yet it is a thriving market - albeit with lower penetration). The problems of credit cards with fraud and cardholder protection allows significant rates of fraud to exist to the detriment of the merchant. Developing multi-channel strategies is critical to success. There are very few markets where pure online works - but there are still a large number of markets where travel agents still work. Financial Fulfillment is a critical element of defining this. But a credit card is not the exclusive answer and sub-networks including non-internet ones, do work for Travel.
So how did we do on the test?
Interestingly there are 3 UNTRUES, 2 TRUES and a DRAW. I am favoring the UNTRUES due to the actual wording of the statements in PCW's myths.
Perhaps we should run a Travel Mythbusters for Travel and have Adam and Jamie replicated to go through the 6 Myths.
Let me know if you want to take up that challenge.
Myth #1: The number of online travel buyers in the U.S. is declining.
UNTRUE. Absolutely incorrect - we are still seeing a rise in the number of buyers. However of course as we have a maturing market the profile is changing. This is where you have to be very careful in defining the exact terminology.
Myth #2 More and more online travel shoppers use supplier sites than online travel agencies.
TRUE. If you use the correct terminology and clarify here. If the statement was that Supplier sites are getting an increasing number of transactions - then this statement is true. As capacity shrinks in the USA (the most mature market for Online Travel) the hunt seats intensifies. This is actually causing an increase in visits to all sites. Further the proliferation of search sites and meta crawling engines is raising traffic but not raising sales. Internationally non-US speaking there are still better growth rates on OTA sites for transactions.
3. Travel agencies are experiencing a resurgence as travelers return to traditional purchasing channels.
UNTRUE. Wow who started this myth. Someone out of their tree. There is no need for much debate on this issue - numbers of agents are WAY down. However there is a degree of flight to quality. Again as it gets harder to search due to shortage of inventory the noise (web traffic) increases. There is a stubborn hard core of people who refuse to switch for either looking or buying. But in general NAH!!!
Myth #4. The next generation of travelers prefers to do everything online.
TRUE. Actually this is part of the obfuscation of reports like this. The difference between traffic and transactions. Again looking at the USA market there is a considerable amount of traffic that cannot be purchased online STILL. However we believe that if there was a general universe that the preference for Millenials and GenY would be to use an online tool for search and transaction.
Myth #5. Social networks and travel reviews have the greatest influence on travel decision-making.
UNTRUE. Your friends and relatives have greater influence. However there is a lot of study on this topic that shows that Social media - call them user reviews because that is what they mostly are - have a considerable influence. What we see here is that there is a real concentration around the Expedia owned Trip Advisor businesses that stand clearly above everyone else. Further NOT having a user review section for your site actually makes your site less appealing. If you were to change the statement to Social networks and travel reviews have SIGNIFICANT influence on travel decision-making, then I would rate this as a true.
Myth #6. Online travel markets need high credit card and Internet penetration to succeed.
DRAW. This is an "it depends" answer. With all due respect to Philip and Ram - India is not a proxy for the rest of the world. Germany too has low credit card penetration (less than 40% yet it is a thriving market - albeit with lower penetration). The problems of credit cards with fraud and cardholder protection allows significant rates of fraud to exist to the detriment of the merchant. Developing multi-channel strategies is critical to success. There are very few markets where pure online works - but there are still a large number of markets where travel agents still work. Financial Fulfillment is a critical element of defining this. But a credit card is not the exclusive answer and sub-networks including non-internet ones, do work for Travel.
So how did we do on the test?
Interestingly there are 3 UNTRUES, 2 TRUES and a DRAW. I am favoring the UNTRUES due to the actual wording of the statements in PCW's myths.
Perhaps we should run a Travel Mythbusters for Travel and have Adam and Jamie replicated to go through the 6 Myths.
Let me know if you want to take up that challenge.
The Perils of Hedging
Two players admitted goofing up on their fuel hedges. As far as common characteristics, you could not have two more diametrically opposed airlines.
United will take a half billion charge. It got it wrong by not hedging in the swift run up in price that peaked at $147 per barrel in the summer. Now it is going to have to cover the cost of fuel that it did hedge at too high a price.
Unlike the many other things that Ryanair gets right - it seem as that Fuel Hedging is not one of them. So I will retract an earlier statement that Ryanair was good at Hedging. They are not. However at least despite them saying how much they had committed no more than a few weeks ago for the fall and Q1 2009 periods all at prices well over the $120 mark, it seems that either they have got out of them or they have managed to mitigate them.
So far only Southwest seems to have got this delicate dance right.
Cheers
United will take a half billion charge. It got it wrong by not hedging in the swift run up in price that peaked at $147 per barrel in the summer. Now it is going to have to cover the cost of fuel that it did hedge at too high a price.
Unlike the many other things that Ryanair gets right - it seem as that Fuel Hedging is not one of them. So I will retract an earlier statement that Ryanair was good at Hedging. They are not. However at least despite them saying how much they had committed no more than a few weeks ago for the fall and Q1 2009 periods all at prices well over the $120 mark, it seems that either they have got out of them or they have managed to mitigate them.
So far only Southwest seems to have got this delicate dance right.
Cheers
No Peace for Alitalia - this maybe its last stand
The start realities facing the surviving shipmates of fools at the ailing carrier are now that the airline is but hours away from collapse.
So what is going to happen next. What follows is pure speculation on my part.
We can anticipate a weekend of hand waving and recriminations but no resolution. Come Monday the CEO must do the dead man walking routine and advise ENAC that they do not have a rescue plan and of course no union approval. At which point it is likely that ENAC will issue a final ultimatum and start the process of an orderly shut down of the airline. This will be accompanied by mass protests and I suspect more than a little violence as the Union Brotherhoods start taking it out on each other. Each night aircraft will be watched by security guards and when the moment comes - ILFC, GECAS, AWAS, BCI, CIT and anyone else will jump in their jetpacks and get their planes back. Then fuellers and airports will start seizing the airbus and MD80s that are largely owned by Alitalia thought mortgaged so the banks will go for those.
Then there will be protests and it will die down until a white night emerges
Actually - its really simple. Take the Pantheon option or take the Swissair Option.
Either way - it will be a much smaller version.
And who said that people could be smart???
So what is going to happen next. What follows is pure speculation on my part.
We can anticipate a weekend of hand waving and recriminations but no resolution. Come Monday the CEO must do the dead man walking routine and advise ENAC that they do not have a rescue plan and of course no union approval. At which point it is likely that ENAC will issue a final ultimatum and start the process of an orderly shut down of the airline. This will be accompanied by mass protests and I suspect more than a little violence as the Union Brotherhoods start taking it out on each other. Each night aircraft will be watched by security guards and when the moment comes - ILFC, GECAS, AWAS, BCI, CIT and anyone else will jump in their jetpacks and get their planes back. Then fuellers and airports will start seizing the airbus and MD80s that are largely owned by Alitalia thought mortgaged so the banks will go for those.
Then there will be protests and it will die down until a white night emerges
Actually - its really simple. Take the Pantheon option or take the Swissair Option.
Either way - it will be a much smaller version.
And who said that people could be smart???
EU Definition of Parenting for GDS Geeks
Funny headline but a serious subject.
I am republishing this note from the BTC group. I urge you to at least understand the issue as it does reflect on the competitiveness of the market worldwide.
To call a spade a spade - there is both theory and practice in this debate. The practical issue is that only a single GDS - AMADEUS has airline owners. The logic however could be applied to undue influence further down the line with what happens due to GDS ownership or parentage of a distribution service such as a Travel Agency or OTA.
Here is the text: Read it - the issue is quite real.
Dear Travel Industry Colleague,
The recently missed opportunity to bring legislative clarity to the European CRS Code of Conduct is proof of how the interests of 380 million European consumers can be undermined. The time is now for travel suppliers, distributors, corporate buyers and industry groups to insist that the Commission clarify beyond any reasonable doubt the critical “parent carrier” language in its promised Interpretive Notice to assure that the three CRS-owning and board-sitting airlines are bound by parent carrier obligations.
I invite you to join a Signatory Industry Letter to the Commissioners of the Directorate-General for Health and Consumer Affairs (DG SANCO) and the Directorate-General for Energy and Transport (DG TREN). The proposed letter is pasted in below for your review. If you can lend your signature to this letter, please go to http://tinyurl.com/4tndnl by COB on Friday 26 September and so indicate.
Please consider sending this email invitation to your colleagues, customers or members who participate in the European travel marketplace. We seek the support of the entire travel and tourism industry on this issue of structural significance and strategic importance to the travel industry.
Thank you,
Kevin Mitchell
Chairman, Business Travel Coalition
+++
+++
SIGNATORY LETTER
Thu Sep 18 15:58:24 2008
Mr Antonio Tajani
European Commissioner for Transport
B-1049 Brussels
Ms Meglena Kuneva
European Commissioner for Consumers
B-1049 Brussels
Dear Commissioners Tajani and Kuneva,
We the undersigned travel industry consumers and representatives write to express our deep concerns regarding the current revision of the computer reservation system (CRS) Code of Conduct.
You will be aware that Parliament voted on 4th September 2008 to amend the CRS Code of Conduct as part of a compromise with the French Presidency. Given the significance of this legislation for consumers, and the wider travel industry, we have serious concerns about its effectiveness.
We would like to request a meeting with you to discuss which airlines will be considered “parent carriers” and thus, obligated under the revised Code’s restrictions on abusive parent carrier behavior.
As you know, parent carriers are forbidden from restricting the flow of air and rail fare information and booking functionality to competitive distribution services. These restrictions are necessary because of the historical fact that airlines that own or control CRSs have the means and the incentive to undermine airline, rail and distribution competition to the detriment of consumers. The recently missed opportunity to bring legislative clarity to the Code is positive proof of how the interests of 380 million European consumers can be undermined.
Despite the fact that Parliament’s Transport Committee overwhelmingly approved a set of amendments on 29 May 2008 providing a clear definition of parent carrier, a flawed plenary amendment was tabled as a result of a compromise with the French Presidency. Consumer groups actively sought clarification of this amended parent carrier definition due to the insertion of a dangerously ambiguous “decisive influence” test for parent carrier status. A large number of MEPs were concerned that this insertion rendered the code ineffective, and voted to delete the problematic decisive influence text in order to safeguard consumers. Unfortunately they lost a razor-thin vote (305 to 291) to remove this language from the legislation.
Europe’s consumers now look to DG TREN and DG SANCO to cooperate closely and bring forth an interpretative notice on the definition of parent carrier as promised by the European Commission during the recent plenary. This notice should serve to protect consumers’ interests by clarifying the notion of “decisive influence” in such a way as to ensure that three CRS-owning and board-sitting airlines--Air France, Lufthansa, Iberia--are bound by parent carrier obligations.
Assuring transparency is the only way to avoid regulation that works against consumer interests. The Commission has worked hard through its online ticketing investigations to provide price transparency for the purchase of airline tickets. Full disclosure of all airfare charges and fees codified in this CRS regulation is rendered meaningless if the consumer does not have visibility to the airfare offering in the first place.
We would be grateful if you could take the time to meet with us, as soon as schedules permit, in order to discuss the issues at stake in a timely manner, and to gain a better understanding of how you intend to proceed with protecting consumer interests. A representative of our group will contact your office to see when a meeting with you might be held.
Sincerely,
[signatory]
[signatory]
[signatory]
Note: This communication will be addressed to each Commissioner as an individual letter.
-
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I am republishing this note from the BTC group. I urge you to at least understand the issue as it does reflect on the competitiveness of the market worldwide.
To call a spade a spade - there is both theory and practice in this debate. The practical issue is that only a single GDS - AMADEUS has airline owners. The logic however could be applied to undue influence further down the line with what happens due to GDS ownership or parentage of a distribution service such as a Travel Agency or OTA.
Here is the text: Read it - the issue is quite real.
Dear Travel Industry Colleague,
The recently missed opportunity to bring legislative clarity to the European CRS Code of Conduct is proof of how the interests of 380 million European consumers can be undermined. The time is now for travel suppliers, distributors, corporate buyers and industry groups to insist that the Commission clarify beyond any reasonable doubt the critical “parent carrier” language in its promised Interpretive Notice to assure that the three CRS-owning and board-sitting airlines are bound by parent carrier obligations.
I invite you to join a Signatory Industry Letter to the Commissioners of the Directorate-General for Health and Consumer Affairs (DG SANCO) and the Directorate-General for Energy and Transport (DG TREN). The proposed letter is pasted in below for your review. If you can lend your signature to this letter, please go to http://tinyurl.com/4tndnl by COB on Friday 26 September and so indicate.
Please consider sending this email invitation to your colleagues, customers or members who participate in the European travel marketplace. We seek the support of the entire travel and tourism industry on this issue of structural significance and strategic importance to the travel industry.
Thank you,
Kevin Mitchell
Chairman, Business Travel Coalition
+++
+++
SIGNATORY LETTER
Thu Sep 18 15:58:24 2008
Mr Antonio Tajani
European Commissioner for Transport
B-1049 Brussels
Ms Meglena Kuneva
European Commissioner for Consumers
B-1049 Brussels
Dear Commissioners Tajani and Kuneva,
We the undersigned travel industry consumers and representatives write to express our deep concerns regarding the current revision of the computer reservation system (CRS) Code of Conduct.
You will be aware that Parliament voted on 4th September 2008 to amend the CRS Code of Conduct as part of a compromise with the French Presidency. Given the significance of this legislation for consumers, and the wider travel industry, we have serious concerns about its effectiveness.
We would like to request a meeting with you to discuss which airlines will be considered “parent carriers” and thus, obligated under the revised Code’s restrictions on abusive parent carrier behavior.
As you know, parent carriers are forbidden from restricting the flow of air and rail fare information and booking functionality to competitive distribution services. These restrictions are necessary because of the historical fact that airlines that own or control CRSs have the means and the incentive to undermine airline, rail and distribution competition to the detriment of consumers. The recently missed opportunity to bring legislative clarity to the Code is positive proof of how the interests of 380 million European consumers can be undermined.
Despite the fact that Parliament’s Transport Committee overwhelmingly approved a set of amendments on 29 May 2008 providing a clear definition of parent carrier, a flawed plenary amendment was tabled as a result of a compromise with the French Presidency. Consumer groups actively sought clarification of this amended parent carrier definition due to the insertion of a dangerously ambiguous “decisive influence” test for parent carrier status. A large number of MEPs were concerned that this insertion rendered the code ineffective, and voted to delete the problematic decisive influence text in order to safeguard consumers. Unfortunately they lost a razor-thin vote (305 to 291) to remove this language from the legislation.
Europe’s consumers now look to DG TREN and DG SANCO to cooperate closely and bring forth an interpretative notice on the definition of parent carrier as promised by the European Commission during the recent plenary. This notice should serve to protect consumers’ interests by clarifying the notion of “decisive influence” in such a way as to ensure that three CRS-owning and board-sitting airlines--Air France, Lufthansa, Iberia--are bound by parent carrier obligations.
Assuring transparency is the only way to avoid regulation that works against consumer interests. The Commission has worked hard through its online ticketing investigations to provide price transparency for the purchase of airline tickets. Full disclosure of all airfare charges and fees codified in this CRS regulation is rendered meaningless if the consumer does not have visibility to the airfare offering in the first place.
We would be grateful if you could take the time to meet with us, as soon as schedules permit, in order to discuss the issues at stake in a timely manner, and to gain a better understanding of how you intend to proceed with protecting consumer interests. A representative of our group will contact your office to see when a meeting with you might be held.
Sincerely,
[signatory]
[signatory]
[signatory]
Note: This communication will be addressed to each Commissioner as an individual letter.
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Air Canada: Money for Nothing and 2nd Bag for Free
The Canadians are all aglow as their national airline - Air Canada - has responded to lower fuel costs by eliminating the second bag fee AND incorporating the fuel surcharge into the base fare.
Alleluja - thanks to Professor John for the tip and Professor Jared for actually blogging this first.
But wait a second... this is not a freebie. Actually it is in SOME cases a stealth fare increase. We checked a few city pairs and found that the previous price was actually INCREASED as a result of this new lowering of fees... (Isn't cached availability and pricing a wonderful thing!)
Tell me you didn't really believe that an airline would actually GIVE back money.
So Air Canada gets today's Sultan of Swing award for bravely changing the game. Bravo chaps. Being the somewhat cynical person that I am - I suspect that there are many advantages to this for Air Canada and I suspect that more than one legislative body wanted to look into this. Remember that the European Community demands transparency for full costs of a ticket from the end of this year. Finally as Air Canada has a very convoluted pricing system, simplifying it is good. If you would like to see just how complex - compare on the respective airlines websites a Vancouver-Toronto flight display on AC compares to a display for Southwest from Houston to Los Angeles.
Now if we could only do something about free chicks...
(This is a joke and so please don't flame me for making a sexist remark, it is a quote from the Dire Straits song. No I am not putting lipstick on ANY pigs or any other animal either)
Cheers
Timothy
Alleluja - thanks to Professor John for the tip and Professor Jared for actually blogging this first.
But wait a second... this is not a freebie. Actually it is in SOME cases a stealth fare increase. We checked a few city pairs and found that the previous price was actually INCREASED as a result of this new lowering of fees... (Isn't cached availability and pricing a wonderful thing!)
Tell me you didn't really believe that an airline would actually GIVE back money.
So Air Canada gets today's Sultan of Swing award for bravely changing the game. Bravo chaps. Being the somewhat cynical person that I am - I suspect that there are many advantages to this for Air Canada and I suspect that more than one legislative body wanted to look into this. Remember that the European Community demands transparency for full costs of a ticket from the end of this year. Finally as Air Canada has a very convoluted pricing system, simplifying it is good. If you would like to see just how complex - compare on the respective airlines websites a Vancouver-Toronto flight display on AC compares to a display for Southwest from Houston to Los Angeles.
Now if we could only do something about free chicks...
(This is a joke and so please don't flame me for making a sexist remark, it is a quote from the Dire Straits song. No I am not putting lipstick on ANY pigs or any other animal either)
Cheers
Timothy
17 September 2008
BAA - as usual a day late and a dollar short
Its a bit like bolting the door after the horse has bolted. BAA finally agrees to sell LGW after two of its most important tenants have left. First it was American this year and now Continental announced this week its intention to exit.
Sadly we cant een blame the Spanish owners for this situation of affairs. This is just SOP for BAA.
Thank goodness I managed to sell my stock ling ago.
Cheers
Sadly we cant een blame the Spanish owners for this situation of affairs. This is just SOP for BAA.
Thank goodness I managed to sell my stock ling ago.
Cheers
Airways or Airlines, looks like settlement for Olympic
So the saga of Olympic looks like drawing to a close. Today it was agreed that the matter can close and on October 26th 2008 a new company Pantheon Airways will take to the skies with the assets and brand name of the old Olympic Airlines - itself successor to Olympic Airways.
The Greek Government can now sell the airline for what ever it wants to whom ever it wants as long as it is not itself. However either Olympic Airways or Olympic Airlines legal entity must payback to the Greek Government 850 million euros in illegal Greek Aid.
So some one write a rubber check and we are done.
The European Commission had already ordered Olympic Airlines -- the result of restructuring Olympic Airways in 2003 -- to repay hundreds of millions of euros in illegal payments.
"The Olympic Airways and Olympic Airlines cases have been a source of contention between the Commission and Greece since 1994," said Sr Tajani - the new Italian EU Transportation Commissioner. This is probably how he will rule in the "if it ever happens" restructuring of Alitalia.
The new private company has the rights to the Olympic name and trade makes. It will be called Pantheon Airways but trade as Olympic.
The deal calls for a restructuring of about 50% reduction but retaining the essential services to the Islands. Further the EU demanded a greater reduction but will probably be happy with this.
So we shall see.... Thanks to Professor Nick our man on the spot as it were.
The Greek Government can now sell the airline for what ever it wants to whom ever it wants as long as it is not itself. However either Olympic Airways or Olympic Airlines legal entity must payback to the Greek Government 850 million euros in illegal Greek Aid.
So some one write a rubber check and we are done.
The European Commission had already ordered Olympic Airlines -- the result of restructuring Olympic Airways in 2003 -- to repay hundreds of millions of euros in illegal payments.
"The Olympic Airways and Olympic Airlines cases have been a source of contention between the Commission and Greece since 1994," said Sr Tajani - the new Italian EU Transportation Commissioner. This is probably how he will rule in the "if it ever happens" restructuring of Alitalia.
The new private company has the rights to the Olympic name and trade makes. It will be called Pantheon Airways but trade as Olympic.
The deal calls for a restructuring of about 50% reduction but retaining the essential services to the Islands. Further the EU demanded a greater reduction but will probably be happy with this.
So we shall see.... Thanks to Professor Nick our man on the spot as it were.
Dark Days on Wall Street - Podcast
So whether it was Sacrificial Sunday (for Lehman), Meltdown Monday (for all) and Tumultuous Tuesday (for AIG) - today might be wild Wednesday.
Listen to the podcast hosted by Addison Schonland and featuring the Professor and Ted Reed - the airline analyst for THESTREET.COM. We focused on the near future and the impact of oil and 2009.
http://iagblog.podomatic.com/entry/2008-09-17T09_22_00-07_00
Strangely enough the Professor is the bear.
Listen - its a good set
Cheers
Listen to the podcast hosted by Addison Schonland and featuring the Professor and Ted Reed - the airline analyst for THESTREET.COM. We focused on the near future and the impact of oil and 2009.
http://iagblog.podomatic.com/entry/2008-09-17T09_22_00-07_00
Strangely enough the Professor is the bear.
Listen - its a good set
Cheers
So which 2009 Forecast do you believe?
We have been looking at different 2009 forecasts for airline passenger traffic. Not giving away the whole store here but if we look at the 3 conventional reporters - their numbers are all over the map.
So here are the numbers as publicly reported:
IATA - +2.9%
Innovata (not reporting)
Air4Casts - +2.0%
OAG - Capacity Minus 7% for 2008Q4 and thereafter growth limited in 2009.
So far we are seeing greater numbers of losses for Q4 than are predicted here. We are predicting a loss of passengers originating in the USA market to exceed 10%, Europe/EMEA also down 6% and Asia Pacific flat. Based on Y/Y 2008 vs 2007
Remember that our numbers are based on passengers not RPKs/RPMs.
We really hope our numbers are overly pessimistic.
Cheers
So here are the numbers as publicly reported:
IATA - +2.9%
Innovata (not reporting)
Air4Casts - +2.0%
OAG - Capacity Minus 7% for 2008Q4 and thereafter growth limited in 2009.
So far we are seeing greater numbers of losses for Q4 than are predicted here. We are predicting a loss of passengers originating in the USA market to exceed 10%, Europe/EMEA also down 6% and Asia Pacific flat. Based on Y/Y 2008 vs 2007
Remember that our numbers are based on passengers not RPKs/RPMs.
We really hope our numbers are overly pessimistic.
Cheers
Ancillary Revenue - The New Poison Pill?
We are being bombarded with messages that Ancillary Revenue is good for all that ails the airline industry. Not content with spreading this far and wide in that sector now we see the behavior showing up in many different places ranging from Hotels to GDS providers.
But is this really a good thing.
On the face of it - yes. squeezing as much cash out of your existing customers has a lower cost of customer acquisition and a higher yield. Michael O'Leary's oft quoted statement of flying passengers for free and getting revenue from them in so many ways is still a mantra for many cash and revenue strapped businesses.
But what of the consumer? What do they think and are they happy about this? Well someone actually set out to ask a group of consumers this question.
SAS asked those who signed up for their News and Offers programme and they received 500 responses. So a pretty good representative sample of a typical SAS customer. Overwhelmingly the research found that 92% were frustrated by such ancillary revenue based fees. More than half (52%) cited checked baggage fees as the most infuriating hidden charge, followed by fees for using credit cards (23%) and for seat allocation (17%).
One respondent commented: ‘I am really angered by all add-ons to the price. I want one price which is the true price, all included.’
A note of caution - SAS is a full service network carrier who used to charge a one price fee. Like many others they are charging some form of revenue generating fees for services.
From our vantage point we worry that this is diluting the brand equity that Airlines have held so dear. Our position is simple and I repeat: Every touch point, every time - putting out your hand and asking for money is not good for building positive brand equity.
This is a classic short term benefit vs long term gain. For a low cost carrier again quoting MOL - Its a bus operation. I am sure that Lord King would be devastated if the same appellation was applied to BA.
So what do you think? is this a poison pill that has to be swallowed to survive or is the current logic of hiding the true consumer cost acceptable behavior? Don't forget come the end of 2008 the EC will require that all fees are quoted up front.
If you read my piece yesterday on taxation, you will know that I believe some of the behavior there is darn right bad.
Cheers
But is this really a good thing.
On the face of it - yes. squeezing as much cash out of your existing customers has a lower cost of customer acquisition and a higher yield. Michael O'Leary's oft quoted statement of flying passengers for free and getting revenue from them in so many ways is still a mantra for many cash and revenue strapped businesses.
But what of the consumer? What do they think and are they happy about this? Well someone actually set out to ask a group of consumers this question.
SAS asked those who signed up for their News and Offers programme and they received 500 responses. So a pretty good representative sample of a typical SAS customer. Overwhelmingly the research found that 92% were frustrated by such ancillary revenue based fees. More than half (52%) cited checked baggage fees as the most infuriating hidden charge, followed by fees for using credit cards (23%) and for seat allocation (17%).
One respondent commented: ‘I am really angered by all add-ons to the price. I want one price which is the true price, all included.’
A note of caution - SAS is a full service network carrier who used to charge a one price fee. Like many others they are charging some form of revenue generating fees for services.
From our vantage point we worry that this is diluting the brand equity that Airlines have held so dear. Our position is simple and I repeat: Every touch point, every time - putting out your hand and asking for money is not good for building positive brand equity.
This is a classic short term benefit vs long term gain. For a low cost carrier again quoting MOL - Its a bus operation. I am sure that Lord King would be devastated if the same appellation was applied to BA.
So what do you think? is this a poison pill that has to be swallowed to survive or is the current logic of hiding the true consumer cost acceptable behavior? Don't forget come the end of 2008 the EC will require that all fees are quoted up front.
If you read my piece yesterday on taxation, you will know that I believe some of the behavior there is darn right bad.
Cheers
16 September 2008
The Downturn - where will it hurt next?
We have been looking at some of the more interesting fall out of the downturn in Air Travel and its likely impact.
I firmly believe that the downturn in domestic US travel is going to be in excess of 15% by Q4 2008. The likely impact on the US Lodging industry will be dramatic with spot losses in a large number of places. Combined with a reduction in non-air traffic and we are likely to see reductions of between 7 and 10% in occupancy rates across the country. Las Vegas just reported a perfect down turn for every month this year through the end of July.
There is an axiom of lodging that above a certain level pricing goes inelastic (upwards) and below a certain occupancy level it goes inelastic downwards. From the mid 2006 time frame until the first quarter of this year we were in the north territory. Now chaps we are in the variable level. On September 1 we go into free-fall. The Galileo/Travelport numbers as reported a few weeks ago if extrapolated to lodging for the last 4 months of 2008 make for some very stark reading. Worse the rates docent seem to be doing a thing as the ADRs fall so does occupancy. Hoteliers according to PKF will be looking at a revenue drop in excess of $4 bn. Ouch!
But what of international. We are seeing a significant softening in the European market. This translates into a number of interesting issues. The European biz sector who power premium traffic are WAY off. This will hurt the big boys like AF-KL, LH and BA. LH’s traffic numbers for July are already off as a result of the ongoing industrial action which has a truce but no permanent solution. BA’s Terminal 5 troubles have translated into a total reduction in LHR traffic. While Ryanair and other LCCs are still growing nicely thank you – this winter they are going to reduce the total number of seats available and park aircraft.
Even Asia is catching a cold. The Beijing Olympics have not brought the blockbuster revenues that were expected. Other markets are no doing real well other.
The only areas growing are Brazil, Russia and the GCC and a few spot markets. I am being very bearish on the overall situation and its not getting better any time soon. So cosmetic changes and tweaks are not the way out of here. Dramatic efforts to cut costs are urgently required. If you have not already done so – your September is going to be rather ugly.
Cheers
I firmly believe that the downturn in domestic US travel is going to be in excess of 15% by Q4 2008. The likely impact on the US Lodging industry will be dramatic with spot losses in a large number of places. Combined with a reduction in non-air traffic and we are likely to see reductions of between 7 and 10% in occupancy rates across the country. Las Vegas just reported a perfect down turn for every month this year through the end of July.
There is an axiom of lodging that above a certain level pricing goes inelastic (upwards) and below a certain occupancy level it goes inelastic downwards. From the mid 2006 time frame until the first quarter of this year we were in the north territory. Now chaps we are in the variable level. On September 1 we go into free-fall. The Galileo/Travelport numbers as reported a few weeks ago if extrapolated to lodging for the last 4 months of 2008 make for some very stark reading. Worse the rates docent seem to be doing a thing as the ADRs fall so does occupancy. Hoteliers according to PKF will be looking at a revenue drop in excess of $4 bn. Ouch!
But what of international. We are seeing a significant softening in the European market. This translates into a number of interesting issues. The European biz sector who power premium traffic are WAY off. This will hurt the big boys like AF-KL, LH and BA. LH’s traffic numbers for July are already off as a result of the ongoing industrial action which has a truce but no permanent solution. BA’s Terminal 5 troubles have translated into a total reduction in LHR traffic. While Ryanair and other LCCs are still growing nicely thank you – this winter they are going to reduce the total number of seats available and park aircraft.
Even Asia is catching a cold. The Beijing Olympics have not brought the blockbuster revenues that were expected. Other markets are no doing real well other.
The only areas growing are Brazil, Russia and the GCC and a few spot markets. I am being very bearish on the overall situation and its not getting better any time soon. So cosmetic changes and tweaks are not the way out of here. Dramatic efforts to cut costs are urgently required. If you have not already done so – your September is going to be rather ugly.
Cheers
Trickery, Obfuscation? Is This Politics? No Just Another Day of Airline Pricing
The Professor is mad, very mad. I am spitting blood. I have been seething over this for a very long time. Now I cannot contain my anger any more. I am SICK AND TIRED of the way that airfares are presented. To illustrate my point here are some simple charts.
Firstly to show my point I created an entry in Orbitz to request availability from Seattle (SEA) to London. I left the defaults. This is the lowest diagram.
Looks straight forward enough. Except perhaps the information needs a little examination.
Why all the different prices and totals.
So I took this information and created a chart based on the info. Firstly I dissected the amount of tax to be paid. The resulting chart looks like this. Each notation represents an airline using its IATA 2 letter code. The number signifies the number of connections. YY is multiple airlines. This is the middle diagram
Fair enough and so far so good.
The cluster looks good for most flights with a few aberrations. However now look more carefully at the nature of the taxes. It seems to vary a lot. True… here is the chart showing the percentage of taxes as compared to the base fare.
Now I think you see what gets me angry.
So I looked at this issue and found this is not necessarily an aberration. I first noticed this about 4 years ago when I was trying to locate a frequent flyer ticket across the Atlantic. Then I dismissed it as a directional thing. BA’s charges for taxes on a “Free” ticket were $500+ Delta’s was only $45. I wrote to BA to complain. No response.
It really continued to bother me but felt it was just me being an ornery chap. However this year – I was speaking at NBTA and found that I was NOT alone. The travel managers were also very ticked off about this. And they wanted changes. So too it would seem does the European Community who has enacted legislation which demands that by the end of the year all websites selling air travel must prominently display the total ticket price INCLUSIVE of taxes and service fees.
And here in lies part of the problem. There is no standard for the application of taxes and there display. Sadly to the point – it is not getting better it is getting MUCH worse.
To illustrate my point of the misapplication of taxes – consider if you go to a restaurant. You add 15% to the bill as a tip. Some people do this from the total (like me) and round it. Others are a little more precise and take the BASE amount and then add the tip to that. So what is the problem?
There are several and here is a partial list:
1. Misapplication of the taxes. Taxes are not uniformly applied and the different taxes are not applied in some cases at all. This will result in both UNDER COLLECTION and OVER COLLECTION. Since there is no formal audit process for this with a consistent set of rules this happens a lot.
2. The ORDER of the taxes. Since this is left open to the seller – they can charge what they will in whatever order. Thus putting some taxes in different orders will change the calculation of the total taxes. Some charge taxes on top of items correctly some charge taxes on taxes incorrectly. So thus Sabre might charge a tax first then a PFC next. Others the reverse way.
3. The merging of taxes. ATPCo is supposed to be one of the arbiters of this and because the GDS and PSS systems cannot display all taxes at the granular level in the same manner they merge them together. This logic is applied inconsistently from the same data sources. So s Sabre display might use the same logic (Sabre’s way) but Amadeus does it differently. Same rule, same data, different result.
4. Misapplication of a tax. In some cases a tax is to be INCLUDED with the base fare in others it is not. This is left up to the seller. So clearly some airlines are using different logic to display taxes.
5. Even within a carrier the invocation of a tax may be different.
6. The same flight code share might have a different logic applied to it
I illustrate my point by looking at the chart below.
Now lets through in a further complication. Fees.
Seller and Airline imposed fees might also change the display. For example In Europe (Germany, Switzerland, Austria and Luxemburg not to forget Liechtenstein) all have a new fee charged by Lufthansa to any Amadeus generated booking of 4.50 Euros. Amadeus is eating this charge for now but it changes the structure of the fare total paid to the airline. Re-sellers can charge what they like and you wont know what they are until you have the final screen in front of you.
Before I make my recommendation on what to do about this, I do want to defend the rights of any player to charge any fare at any price with whatever fee they feel is appropriate. So If Ryanair chooses to charge one fare and add fees – they can do it, as long as they do so clearly.
My formal recommendation on this subject is that I believe the cause is a variety of factors – not directly as a result of malfeasance (at least I hope not) but a need by the airlines to hide their real costs from the consumers – obfuscation!!! Further poor government enforcement of taxes and the sheer volume of them charged without consideration must be addressed. So a simple solution must be made.
1. Airlines must clearly show their total charges for the ticket related fees in one. Must charge fees such as check-in, and baggage must be added to the base ticket. Optional fees must be enabled for advance purchase with a ticket and must be clearly offered to the consumer.
2. Optional Seller fees – service charges related to the same must be clearly displayed and charged consistently
3. Taxation must be clearly displayed and a benchmark created for the display and invocation of any taxes. The correct order of the taxes should be as follows:
a. International taxes
b. International security fees
c. State Taxes
d. State charges such as agricultural and security
e. Local market specific charges (eg airport related PFC)s
f. Specific ECO charges and fees
4. All taxes should follow a set of rules
a. Taxes should not be directional IE a person starting out in Country A going to Country B should not have to pay more than a person starting out in country B going to Country A.
b. All taxes should be charged on the basis of the hierarchy above
c. No tax can be charged on another tax – each tax must be a single charge tax related to a specific identifiable charge.
d. All taxes should be ordered on departure point first, arrival point second and all intermediate points 3rd.
e. All taxes should be charged equally whether the user is going one way, multihop or basic round trip.
f. Standard connection rules apply. (So for example the tax must not penalize a connection due to a way point unless that charge is specifically applied to all residents/visitors)
g. All service fee taxes must relate to their charges not the whole.
h. Either the Chicago Convention is upheld or it is scrapped altogether.
In the mean time we should be demanding government action and a class action lawsuit over the collection of too many taxes and fees unnecessarily. The excuse of one airline saying it is following the code and collecting the tax even if the money is transmitted to the government but misapplied should still keep the company open to liability for failing to interpret the law correctly.
Clear Enough…. I doubt it – but then airlines thrive on this sort of thing.
BTW if you would like to debate this issue – I am happy to do so via a podcast.
Cheers
Eurosharks - The Germano-Austro-Russo-Siberian Connection
So thanks to the other Professor Alex for this one. There are two and I will need to figure out a way to differentiate them. They are for the record both German!
So it seems that what is going on in Austria is far from a simple battle within our industry. it almost reads like an international spy novel. Take the explosive mix of the mega EuroShark Carriers (LH, AF-KL and BA) and the minnow S7 all in a fight for the carcass of Austrian Airlines. We know what is going on with the big chaps but if we scratch the surface we see that the "minnow" is not so small. It may actually be a great white in disguise. Read on...
Let's just ignore the hilarious attempt at participation by THY Turkish "oops not on time" Airlines who found out they did not have time to mount a serious effort to buy the Austrian carrier. Next time chaps call those nice people at T2Impact - they are very good at this sort of thing!
But S7 does appear to be serious. They have been running ads in the local Vienna papers extolling the benefits of the S7 deal and alluding to the fact that they have lots of energy cash to slosh around. Actually I have been impressed with the chaps at S7, they are not your average CIS carrier. Couple that with the fact that on their payroll they have a very interesting lobbyist.
So you thought the Germano-Austrian part was for LH. Not so my dear friends. This is in reference to the (said) powerful lobbyist one Mr Gerhard Schroeder. He is the chap who is engaged to fight for the inclusion in the party of S7 in the deal with the Austrian Government for their shares in Austrian Airlines. Still with me?
Hmmm but what about the Russo part? Well guess who Mr Schroeder's real employer is? It turns out to be Gazprom OAO, THE Russian Energy Company. Gazprom has a strong investment in S7. Of course most people were somewhat surprised when Schroeder left office and then announced he was going to work for Gazprom. He definitely caused a lot of consternation when he left the leadership of one of the west's largest democracies and headed to work for one of Mr Putin's friends.
I present for your further reading pleasure an article on the switch from none other than the Washington Post.
http://www.washingtonpost.com/wp-dyn/content/article/2005/12/12/AR2005121201060.html
So this sounds like a bit of a soap opera. The Austrians must on the one hand be very happy that they are going to off load their national airline to another poor sucker and that a bidding war has broken out but on the other they had better be careful what they wish for... it might just happen.
Cheers
Timothy
So it seems that what is going on in Austria is far from a simple battle within our industry. it almost reads like an international spy novel. Take the explosive mix of the mega EuroShark Carriers (LH, AF-KL and BA) and the minnow S7 all in a fight for the carcass of Austrian Airlines. We know what is going on with the big chaps but if we scratch the surface we see that the "minnow" is not so small. It may actually be a great white in disguise. Read on...
Let's just ignore the hilarious attempt at participation by THY Turkish "oops not on time" Airlines who found out they did not have time to mount a serious effort to buy the Austrian carrier. Next time chaps call those nice people at T2Impact - they are very good at this sort of thing!
But S7 does appear to be serious. They have been running ads in the local Vienna papers extolling the benefits of the S7 deal and alluding to the fact that they have lots of energy cash to slosh around. Actually I have been impressed with the chaps at S7, they are not your average CIS carrier. Couple that with the fact that on their payroll they have a very interesting lobbyist.
So you thought the Germano-Austrian part was for LH. Not so my dear friends. This is in reference to the (said) powerful lobbyist one Mr Gerhard Schroeder. He is the chap who is engaged to fight for the inclusion in the party of S7 in the deal with the Austrian Government for their shares in Austrian Airlines. Still with me?
Hmmm but what about the Russo part? Well guess who Mr Schroeder's real employer is? It turns out to be Gazprom OAO, THE Russian Energy Company. Gazprom has a strong investment in S7. Of course most people were somewhat surprised when Schroeder left office and then announced he was going to work for Gazprom. He definitely caused a lot of consternation when he left the leadership of one of the west's largest democracies and headed to work for one of Mr Putin's friends.
I present for your further reading pleasure an article on the switch from none other than the Washington Post.
http://www.washingtonpost.com/wp-dyn/content/article/2005/12/12/AR2005121201060.html
So this sounds like a bit of a soap opera. The Austrians must on the one hand be very happy that they are going to off load their national airline to another poor sucker and that a bidding war has broken out but on the other they had better be careful what they wish for... it might just happen.
Cheers
Timothy
Eurosharks - One Big Gulp United SwissAir and Sabena
Pure plagiarism although I do want a little credit for thinking this before someone else published it.
Lufthansa said Brussels Airlines agreed to be acquired by the Frankfurt based conglomerate.
Strangely enough this reunites SN (the former Sabena) and LX (the former CrossAir and Swissair).
Irony abounds here.
So looks like the German team is ahead in the game and we are still just into the first half. So far they are ahead in several races and have already acquired a chunk of JetBlue.
The French/Dutch and the British need to catch up if this game is going to be interesting.
I may just have to change my name to Professor Lufthansa... nope it just doesn't have the same ring to it.
Lufthansa said Brussels Airlines agreed to be acquired by the Frankfurt based conglomerate.
Strangely enough this reunites SN (the former Sabena) and LX (the former CrossAir and Swissair).
Irony abounds here.
So looks like the German team is ahead in the game and we are still just into the first half. So far they are ahead in several races and have already acquired a chunk of JetBlue.
The French/Dutch and the British need to catch up if this game is going to be interesting.
I may just have to change my name to Professor Lufthansa... nope it just doesn't have the same ring to it.
15 September 2008
The financial fall out could hit the airframe business
Call me an old cynic but I think we are going to see some major fall out from the current Wall Street calamities.
One of the next victims is likely to be AIG. Whether AIG survives or not is still in question. But its an almost certainty that its aircraft portfolio will move to a new home. I am talking about ILFC.
If I was a betting man (and I am not) I would put odds that right now the phone lines are burning up between the UAE and New York with an occasional 3 way call to include that nice building in Century City, California.
There are opportunities galore for bargain hunters from around the globe to pick at the bones of the carcass of Wall Street. Aviation is going to be a big one here. If DAC (Dubai Aerospace Corp) doesn't make a bid for ILFC - I will be surprised. They are one of the few groups who do not have liquidity issues and yet have an uncomplicated process for fast track decision making.
If DAC or another oil/property backed entity doesn't take a run at ILFC, then I fear a more conventional management and board will impose a tightening on the portfolio strings of the world's largest aircraft leasing company. The ripple out effect on the relatively loose market for airliners would then change. This could see a big collapse in the orders backlog at both Boeing and Airbus.
I hope someone is paying attention
One of the next victims is likely to be AIG. Whether AIG survives or not is still in question. But its an almost certainty that its aircraft portfolio will move to a new home. I am talking about ILFC.
If I was a betting man (and I am not) I would put odds that right now the phone lines are burning up between the UAE and New York with an occasional 3 way call to include that nice building in Century City, California.
There are opportunities galore for bargain hunters from around the globe to pick at the bones of the carcass of Wall Street. Aviation is going to be a big one here. If DAC (Dubai Aerospace Corp) doesn't make a bid for ILFC - I will be surprised. They are one of the few groups who do not have liquidity issues and yet have an uncomplicated process for fast track decision making.
If DAC or another oil/property backed entity doesn't take a run at ILFC, then I fear a more conventional management and board will impose a tightening on the portfolio strings of the world's largest aircraft leasing company. The ripple out effect on the relatively loose market for airliners would then change. This could see a big collapse in the orders backlog at both Boeing and Airbus.
I hope someone is paying attention
Ryanair Mathematics
I must have missed something here.
Ryanair states that as a result of the Boeing strike that will cause it to be short of the 2 aircraft it needs to launch Edinburgh services. It also states that it will push back the start of the Reus hub.
Yet at the same time Ryanair according to some reports - offered 2 aircraft to The UK's CAA (on a rightfully commercial basis) to repatriate some of the estimate stranded 30,000 to 85,000 XL passengers.
I guess I can't count and I am a professor....
Ryanair states that as a result of the Boeing strike that will cause it to be short of the 2 aircraft it needs to launch Edinburgh services. It also states that it will push back the start of the Reus hub.
Yet at the same time Ryanair according to some reports - offered 2 aircraft to The UK's CAA (on a rightfully commercial basis) to repatriate some of the estimate stranded 30,000 to 85,000 XL passengers.
I guess I can't count and I am a professor....
Eurosharks - and when the smoke cleared there were 4
For Austrian Airlines - not surprising to some - but perhaps a shock to others - the game of musical ownership shares/chairs now looks like this:
There are 4 declared short listed bidders for Austrian Airlines' publicly held shares. They are (drum roll please):
BA, AF/KL and LH plus a dark horse bid from S7.
This sets up the battle for the big boys to buy something. So the battle lines are drawn and everyone is going to battle for each and every one of the little/poorly guys. And dont count out the rich chaps. Austrian has no value to someone like Ryanair or Easyjet but dont expect them to sit on the sidelines when Sabena (excuse me I mean Brussels Airlines) comes on the block more formally.
Interestingly I was doing some filing over the weekend and came across an old copy of Air Transport World April 2008 entitled "SAS Alone" which was the cover story. Judging by the recent frenzy the task to reform SAS just got a WHOLE LOT harder.
All airlines are now keeping their heads down. I hear that many airlines are canceling participation in conferences. Now why do you think that? it can't just be that they dont want people to travel does it?
Do we hear any fat ladies warming up? I think I hear quite a few. Certainly the dogs around me are howling in anticipation of the final chorus
There are 4 declared short listed bidders for Austrian Airlines' publicly held shares. They are (drum roll please):
BA, AF/KL and LH plus a dark horse bid from S7.
This sets up the battle for the big boys to buy something. So the battle lines are drawn and everyone is going to battle for each and every one of the little/poorly guys. And dont count out the rich chaps. Austrian has no value to someone like Ryanair or Easyjet but dont expect them to sit on the sidelines when Sabena (excuse me I mean Brussels Airlines) comes on the block more formally.
Interestingly I was doing some filing over the weekend and came across an old copy of Air Transport World April 2008 entitled "SAS Alone" which was the cover story. Judging by the recent frenzy the task to reform SAS just got a WHOLE LOT harder.
All airlines are now keeping their heads down. I hear that many airlines are canceling participation in conferences. Now why do you think that? it can't just be that they dont want people to travel does it?
Do we hear any fat ladies warming up? I think I hear quite a few. Certainly the dogs around me are howling in anticipation of the final chorus
The last days of Alitalia or an 11th hour rescue?
It seems like this weekend would see the end of a lot of storied names. Bank of America swallowed Merril Lynch. Lehman Brothers declared Chapter 11 and Alitalia Unions decided that fighting was much more fun than working. So the carefully crafted Italian design of Berlusconi was doomed for nought or is it.
Officially it is still possible theoretically that Alitalia will survive but most of the betting pool says No.
The betting is 1-5 now on Alitalia going bankrupt first. Some of the other odds have also worsened.
However at the very last minute it seems that the impending threat of no fuel and canceled flights from today was JUST enough to nudge the first group of unions in the pool to agree to a deal which requires work rule changes, wage reductions and yes redundancies. Italy's four main union confederations -- CGIL, CISL, UIL and UGL -- agreed during overnight talks with the government and a business consortium offering to buy the carrier to the rough outline of a rescue plan that includes job cuts.
It is not over. And even if it is - there is still the hurdles of the EU to overcome.
Talks are now underway in Rome to put meat on the initial deal and to persuade the other 5 Union groups to join the agreement.
This is better than a soap opera.
Officially it is still possible theoretically that Alitalia will survive but most of the betting pool says No.
The betting is 1-5 now on Alitalia going bankrupt first. Some of the other odds have also worsened.
However at the very last minute it seems that the impending threat of no fuel and canceled flights from today was JUST enough to nudge the first group of unions in the pool to agree to a deal which requires work rule changes, wage reductions and yes redundancies. Italy's four main union confederations -- CGIL, CISL, UIL and UGL -- agreed during overnight talks with the government and a business consortium offering to buy the carrier to the rough outline of a rescue plan that includes job cuts.
It is not over. And even if it is - there is still the hurdles of the EU to overcome.
Talks are now underway in Rome to put meat on the initial deal and to persuade the other 5 Union groups to join the agreement.
This is better than a soap opera.
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