Disclosure Of Fees and Charges - Ancillary Revenues

Heads up everyone - the bun fight has started.

last month in Washington - Mr Oberstar held hearings on the subject of Airline Fees.

There are several issues - taxes charged, the amount of fees and the type, the manner of charge and exceptions etc etc.

What some want - such as Kevin Mitchell - is a full disclosure and an easy way to buy the products and services equally in all channels. This challenges the core precept that airline pricing is designed to be as complex and obfuscated as possible.

This seems to have been lost in the warring factions.

In my view the way that a product is charged should be at the decision of the person who sells the product subject to things like lying and dishonesty.

At stake is a lot of money but there is clearly a set of influences at work.

So here is my view on the subject. I feel strongly that the consumer should be able to see what he is buying. But in travel he has been lied to for so long as to what the product is and what the price really is as to have been accepted as being clear.

So what do you think?

Cheers

Here It Comes - Spanish Fly

OK so the headline is a bit hokey but BA and Iberia have had their merger blessed. So now we have definitely have airlines in Europe who are part of a cabal and have not airlines who are - well have not players.

The big 3 groupings of legacy carriers are the expected players -

BA (OneWorld)
AF (Skyteam)
LH (Star)

Their partners cover almost all of Europe. However and in my view this is a good thing - the total pie they control is much less than say in the USA. Ryanair, Easyjet Air Berlin and Wizz all represent a sizeable chunk of the EU market. With North America pretty much aligned and Europe the same - there really is little opportunity for choice amongst consumers other than from just 3 group choices.

In my view this is going to finally dawn on the consumer that he has only 3 options plus a few minor ones when ever he is looking to buy airline seats.

did someone say pork?

Cheers

Millenials Turn Away From Facebook

Lately as regular readers of this blog will know - I have been spending time with younger users. Millenials who will represent the next generation of users. Their parents are my generation and some of them are both colleagues and students.

In speaking particularly to teachers I have found that there is a greater awareness of the lack of attention with the distractions available to teens and recent adults. I am not criticizing them in any way. This is a fact of life. This will have a major impact on their interaction with the products and services we create in Travel.

eMarketer cites several studies in a recent piece on defections. What is particularly worrying as to how many just find it boring with generally the high abandonment rates.We are approaching a problem I have long suspected exists. We actually have too many shiny objects to cope with. As a result we lose interest and move onto the next thing. And if we - (in my case as a Boomer) - lose interest quickly just think how difficult it is to maintain the interest of a Millenial?

In my opinion we need to start to engage differently with the emerging user generation(s). That means we have to do a better job of providing access to the services.

Key amongst these will be:

A social component.
Individual content
more implicit interaction (ie a direct opposite to the current explicit interaction required).
Engaging and maintaining interest by constant refreshing.

it is the last one that makes me cringe because keeping things fresh is always hard. For the travel industry - that has been assumed to be fresh content - new products and promotions. But in my view it has to be deeper. Don't please ask me how yet - I am just coming to grips with the issue.

I do know however that if we don't then the abandonment rates for travel products and services on the web will rise. And travel sites will become as yesterday's news as Second Life and Myspace.

Cheers

"Who Do You Love?" Or Trust...

That old Bo Diddly song was stuck in my head the other day. Actually the Geoerge Thorogood version. And I have been thinking more and more about the essence of Trust. It just amazes me in Travel how much consumers are expected to trust and are constantly let down.

And then I read two stories from emarketer. Both related to Trust. The first one related to consumers perspectives with regard to trusting Facebook. Interestingly they were more concerned with the commercialization than the abuse of their personal data.

The second item from the same day by emarketer was on the acceptance of mobile marketing messages. Today we are bombarded with the "year of the mobile" messages from interested parties. Yet the first truly mobile commerce generate - the Millenials are none to happy about being marketed/spammed via their mobile devices.

This doesn't bode well for people expecting to make squillions of dollars by sending messages (unsolicited) to mobiles - smart or dumb.

So dear friends - think very carefully about what you are doing before you go down that path...

Cheers

Apple to Face EU Probe

Seems like its the Government's turn to focus a little this week. It also seems like someone was listening or they are just plain smart. I will take either!

The EU is going to launch a probe into Apple’s iPhone business practices. Specifically they are going to investigate two of the 4 revenue streams and possibly the others as well.

The App Store is one, the other is the interoperability of iPhone and other phone systems. This is likely to extend into the Admob/iPhone dispute.

For a detailed read – go here:

Click here to read full story...

Cheers

What Level of Scrutiny on Google + ITA, (aka Troogle)?

This was not going to be a quick and short post as I could use all my Professor skills to analyze the issue. However in starting to do some research on the subject I went back and visited some of my old posts on the subject. I have long felt that Google was already a monopoly in Travel before the acquisition. Troogle has a hot topic in 2008 and 2009. Then the chatter died down. So I reprint here for your edification and reading pleasure a post I did last year on the subject on what I think the Obama Administration is planning to use as a frame of reference on Google’s activities in travel.

Here are a few salient points.

1. I believe that the review time will take more than Admob. In the case of Admob – there are a large number of different options and it is a nascent business too early in its cycle to say that there will be a single business who can dominate.
2. Travel is a more defined category and the tentacles of the dark side that Google has become stretch far and deep and wide.
3. US law will prevail and US law is very specific in this area of what defines monopoly and how it can impact the transaction. (see below)

But – I want to be clear that I do not necessarily believe that Troogle will be bad for the industry. There are now clear winners and losers who will be impacted by the transaction. The world of GDS dominated distribution for one is probably headed for the sunset. The cost structure of meta-search on both the supply side and the seller side will be seriously impacted to the point where meta search may become irrelevant.

So what do you think? Let me know directly or privately.

Cheers

REPRINT POST August 31st 2009:

[Professor Sabena's Blog] 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:

http://t2impact.blogspot.com/2006/10/that-giant-sucking-sound-is-google.html
http://t2impact.blogspot.com/2009/08/is-google-new-evil-face-of-it.html

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.

http://seattletimes.nwsource.com/html/editorials/2009766680_edit31google.html

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?

Cheers

--
Posted By Professor Sabena to Professor Sabena's Blog at 8/31/2009 12:36:00 PM

Why Troogle Google?

With the Google + ITA acquisition now public, we can now evaluate how this will impact the world of travel. As I wrote in the 3 part series on search,(INSERT LINKS HERE) I have long felt that search was akin to an unnatural act and one that left the customer un-satisfied. I also opined that failure of the travel industry in its own right to address its deficiencies in search would open the world to Google coming in and changing the way search is addressed. But I regarded that while not necessarily as a bad thing for the consumer – it would change the dynamics of the Travel Industry Sector.

In the 3 part series I wanted to evangelize the concept of natural search. This did not mean that navigation to specific elements of travel was a bad thing, but the overly explicit nature of search in travel has long been too constrained by – in my opinion – a GDS like constrained process.

In my view the convergence of some key factors would drive change in from conventional search to natural search.

• The consumer-facing conventions make it possible
• Loosely coupled technology through mash-ups breaks the bonds of the supply controllers who held sway far too long over travel
• It also makes it far easier to make everything work – less dependency on making sure the tightly choreographed ballet of interlocking pieces actually function. Banish the word “seamlessly”. But don’t drop the word fast.
• Geo-location – mapping is finally ubiquitous.
• The line between mobile and fixed position makes the definition between the two largely irrelevant
• The supply side has better infrastructure and processes (not to mention better technology) to support Natural Search.
• The Cult of Individualism is a natural state and a natural act.

Over time the GDS based model has shown itself to be a false profit for the consumer’s need for access to information. As a result the GDS imposed workflows in search/shop became the highly constrained standard because it was necessary in order to get access to the final mile of the transaction namely the price/book/ticket.

Search and Shop outside of the GDS model suffered from a lack of trust. The various attempts by Meta search companies such as Kayak etc resulted in a permanent time delay of salient information. Thus you, the consumer could never shop in a trusted mode. And suppliers wondered why consumers didn’t have loyalty and trust??? With Troogle there are now several of these elements consistent and the results can be very different and trustworthy. This in my view is what the Google management team meant when they said they were “… building something that the industry has never seen before."

At WIT this year – I will expound on this subject and illustrate what I believe will be a way to address this.

But I think I made it abundantly clear that if Google had a mind to they would use some of their clout (and considerable cash pile) to address the subject and hurry the process along.

Commercially you have to ask why would Google plonk down $700 million in cash for ITA.
• Could it be for their revenue and commercial basis? If that was the case then the transaction would be up there with Sabre’s purchase of GetThere at $757 million at the height of the Internet Boom. So no not that alone – but over time Sabre was able to dominate a sector.
• If it was for the technology alone – I am sure that someone could replicate this for a lot less money. And indeed in my opinion at least one company has.
• Could it be for their Intellectual Property? ITA has a considerable number of important patents that I have previously stated could be very tough for the industry to challenge. Not that they should not be challenged but that the clout of Google and its legal team would make the relative minnows in travel hard to stomp up the cash for a protracted legal challenge.
• Could it be for their Hotel and/or Needlebase technology? Hardly try and play with it. It’s nice but hardly makes a dent in $1-2 million let alone that number of zeros.
• Could it be for their customer base? Very important – but not perhaps in the way you may think. ITA provides assured access backed by both technical and commercial service agreements that ensure that the data they provide is current. With Virgin Atlantic now joining the group of QPX users – the spread of Full Service carriers is broadening considerably. Yes there is a nice value to this one.
• Could it be the value of disintermediating several players in travel? Ah now you are talking. Consider the annual revenues for legacy GDSs and that number is big and very fat and ripe for diverting Google’s way.
• Could it be for eliminating meta search players with better solutions? This is an obvious answer. Yes but not the prime one.
• Could it be for filling the holes in some Machiavellian plan to dominate the Travel Industry? Hmmmm time will tell the answer to that question. Does it match Google’s vision of the world. Absolutely!

But are these enough? The correct answer is of course all of the above, and many more I have not outlined here.

Now the challenge is how to deal with the whole notion of the travel process from ideation through to sale. The world just changed and you and I have to change with it.


Cheers

Did You Miss This - Woot

I love Woot. It is a hark back to the glorious days of a single but extremely focused application.

One product each day. It is addictive to watch it. Surprising then is that Amazon has plonked down a bunch of cash to acquire the irreverent site.

Check out their sarcastic comments here

Now just imagine for Travel that there was a singular "Best Deals" site.

Now that's a thought.

Cheers

What Level of Scrutiny on Google+ITA (aka Troogle)?

This was not going to be a quick and short post as I could use all my Professor skills to analyze the issue. However in starting to do some research on the subject I went back and visited some of my old posts on the subject. I have long felt that Google was already a monopoly in Travel before the acquisition. Troogle has a hot topic in 2008 and 2009. Then the chatter died down. So I reprint here for your edification and reading pleasure a post I did last year on the subject on what I think the Obama Administration is planning to use as a frame of reference on Google’s activities in travel.

Here are a few salient points.

1. I believe that the review time will take more than Admob. In the case of Admob – there are a large number of different options and it is a nascent business too early in its cycle to say that there will be a single business who can dominate.
2. Travel is a more defined category and the tentacles of the dark side that Google has become stretch far and deep and wide.
3. US law will prevail and US law is very specific in this area of what defines monopoly and how it can impact the transaction. (see below)

But – I want to be clear that I do not necessarily believe that Troogle will be bad for the industry. There are now clear winners and losers who will be impacted by the transaction. The world of GDS dominated distribution for one is probably headed for the sunset. The cost structure of meta-search on both the supply side and the seller side will be seriously impacted to the point where meta search may become irrelevant.

So what do you think? Let me know directly or privately.

Cheers

POST August 31st 2009:

[Professor Sabena's Blog] 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:

http://t2impact.blogspot.com/2006/10/that-giant-sucking-sound-is-google.html
http://t2impact.blogspot.com/2009/08/is-google-new-evil-face-of-it.html

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.

http://seattletimes.nwsource.com/html/editorials/2009766680_edit31google.html

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?

Cheers

--
Posted By Professor Sabena to Professor Sabena's Blog at 8/31/2009 12:36:00 PM

Occasional Flashes of Brilliance... and Fear

Today was not a good day for the South American Football Teams. The passion and the sheer drive of the Latins were sadly no match for the methodical onslaught of the Europeans. Well at least that's how the German's played - wearing down Maradonna's mob.

And so it would seem to be for some of the traditional power houses of travel. Google's onslaught puts them now in a very commanding position in sector that will be hard to unseat them - or avoid the long shadow they now cast. As I noted in the TNooz panel - the ITA purchase puts them in a commanding position in many facets of the travel ideation through purchase.

As PhocusWright noted "they claim to be building something that the industry has never seen before." And this is because they are now in a commanding position with more fingers in more pies than any other player - end to end.

But perhaps one of the biggest elements as far as I am concerned is that they have the ability to fundamentally change the rules as far as data quality and assured price offers. The veneer of "its good enough" has now changed and this is where the the old model will expire in the face of better technology as well as a solid business model.

So let me leave you with one thought. If you examine who has been making more money out of travel over the past 5 years 0 the fattest cats are the GDSs. Followed closely by Google. Those large EBITDAs quoted for Amadeus are now in the cross hairs of the boy wonders.

If anyone doubts that the GDS revenue stream was not one of the driving forces for Google - then they are clearly naive. So correctly the meta search players - as distinct from those who are active in real search and the legacy GDS players are to me the most vulnerable.

The formation of the OpenAxis group and the announcement of its formation on the day that Google announced its acquisition of ITA can hardly be seen as disconnected.

Be afraid - be very afraid if that is the game you are in.

Cheers

So Apple Steps up and Acknowledges Too Fast Too Soon... But....

The iPhone has suffered what could be seen as a pretty hefty hit to its credibility. And for once the Professor didn’t have to harp on about it.

The complexity of the system integration causes it to – well become pretty useless as a device for which its primary purpose is – er – communication. I have been somewhat aghast at the poor quality of Smart Phones. I am a Crackberry user but in general do not like using the device as a phone. My preferred mobile is very much a phone but the swapping of sim cards and having to be very careful about how I use it drives me nuts.

In Apple’s case it’s highly oiled black turtle necked spin machine could not stop the huge groundswell about the set of problems that users had with the new device. As one new (and very unhappy) user told me – it was an interesting small desktop computer.

If it’s all the same to you – I will pass.

Cheers

Greece Finds a Home For the A340s

Having been parked somewhat forlornly at ATH, the Greek Government is due to receive a large reward for its patience. Greece expects US$122 million from sale of four ex-Olympic Airlines A340-300s.It acquired them as part of the overall deal when it sold off Olympic to a banker.
These aircraft have been parted for the better part of a year at ATH. See the picture captured by the Professor last month
Now what to do with those 737s and the ATRs.

Will the States Get Greedy And Use New Legislation to Tax Ancillary Services?

Just as a new standards group called OpenAxis emerges from the group aligned with Farelogix - there are a few clouds on the horizon.

The first was the hissy fit that Mike Premo of ARC had earlier this week on the slow adoption of EMD.

The other is the looming issue of taxation.

A new bill has just been introduced into the US Congress. The “Main Street Fairness Act” was formally introduced in the U.S. House of Representatives on July 1st 2010. If passed into law, it would require e-commerce companies to collect sales taxes, and thereby undoing judicial rulings and previous Administrations promises that exempted Internet and catalog retailers from collecting sales taxes in states where they do not have a physical presence. Sponsored by Massachusetts Congressman William Delahunt, the legislation ostensibly is in response to increasing pressure from state and local governments to increase tax revenues. As Ancillary Revenues are clearly subject to such taxation regimes it would cement the how a local jurisdictions could indeed demand tax.
If it is enacted, i expect a ripple out effect. The vast majority of e-commerce sites will begin collecting sales taxes, thereby reducing the perceived price advantage of shopping online.
Legislation would require sales tax collections on B2C Internet sales that are not exempt or otherwise accounted for.. The proposed legislation would require almost all online retailers to collect sales taxes in the states that adopt the Streamlined Sales Tax Project, an effort to simplify disparate tax laws and ease compliance. However it is safe to assume that there will be a period of time for adoption and their eminences (the judiciary ) will want to exert some form of stamp on this.

Interesting twist… stay tuned

Now Will FIFA Reform?

Earlier this year the FIFA mafia came down hard on the South African Airline Kulula. For a tongue in cheek advert.

All through the World Cup so far - FIFA has presented itself as the holier than though position. After the appalling decisions of the referee, Uruguayan Jorge Larrionda. The mistake by the officials will heighten the demand for goal-line technology – an ideology currently opposed by FIFA president Sepp Blatter. There is no way that nationality and history do not play a part. Perhaps it would have been more appropriate for FIFA to conveniently forget history and appoint such an official. Why not a Mexican or Brazilian official?

Now is the time for the entire FIFA KGB like organization to be frog marched off and replaced by a more modern open management. At the very least they should be transparent. So let's talk about Mr Blatter. According to Wikipedia (yes friends I dont make this stuff up)... "Blatter was elected president of the World Society of Friends of Suspenders, an organisation who tried to stop women replacing suspender belts with pantyhose".

Sure Germany was the better side in the end but to deny England its moment is surely something that will haunt the country for another 4 years at least.

Your disgustedly...

Monetizing Social Media

OK I admit it – the Professor is decidedly skeptical when it comes to the economic value of Social Media. I have a hard time figuring out if there is anything actually good about Social Media other than it is the ultimate thief of time. Sucking out our lifeblood like a leech – a resource that is unrecoverable. Somehow on my holiday here in Greece where I am writing this post – no one among the locals seem to care about Social Media. I haven’t heard one Greek talk about Facebook. Actually other than the odd smattering of Brits and French few have been talking about it. Even under probing – few here in this little Cretan village seems to care.

So I was pleasantly surprised that someone has actually tried to put a value on this phenomena. Digital consulting firm Syncapse and research company Hotspex have come up with an empirical formula that puts an average value of $136.38 on the Facebook fans of the site’s 20 biggest corporate brands. I feel very uncomfortable about becoming a “fan” of anything. According to one of the online dictionaries a fan is” An ardent devotee; an enthusiast” Sorry but I don’t think I buy the whole “ardent “thing here.

Here are the results as presented by eMarketer.

Do I really think this is a valid formula – well I will keep my sense of skepticism for now thank you. For now I will just say that we are too early in the cycle to say if this will be the ultimate trend. I definitely think that one doesn’t need research to tell you some common sense things like the ground is hard. Monetizing the value of “loyalty” for example is a far harder thing to quantify. I would say consistently that is impossible.

Still this is pointing to some interesting ways we can evaluate things. But for now let me just say – I am happy being unquantified. Pass the Raki!

Cheers

Growth in UAE and EK in particular starts to worry some.

Today (June 27th) the world’s newest airport opens. Dubai World Central-Al Maktoum International. Last week Dubai World had its first test flight. An Emirates 777 Freighter conducted the first flight of a commercial type operation into the new facility.

The statistics are staggering:

Phase 1 of the airport will feature one A380 capable runway, 64 remote stands, one cargo terminal with annual capacity for 250,000 tonnes of cargo and a passenger terminal building designed to accommodate five million passengers per year.

When completed, Dubai World Central-Al Maktoum International will be the largest airport in the world with five runways, four terminal buildings and capacity for 160 million passengers and 12 million tonnes of cargo.

In the short term Dubai World Central-Al Maktoum International will increase the airport capacity of Dubai to accommodate the 48% increase in cargo volumes from 1.9 million to the 3 million tonnes anticipated by 2015.

In the long term it will serve as a multi-modal logistics hub for 12 million tonnes of freight and a global gateway for the 150 million passengers per annum that are expected to pass through Dubai by 2030.

So now you know how EK is going to support the ground portion of that nice fat order of planes becomes obvious.

But don’t expect things to be smooth sailing. A number of airlines are getting restless and so too are their governments. If EK starts to capture significant traffic then we can expect governments to also get involved. Already we are hearing noises from the French. The new UK government should be paying a lot of attention to their actions. With the 3rd runway cancelled at LHR, the 2nd runways at LGW and STN non-starters for a long while, that just means the UK’s loss will be Dubai’s gain.

Cheers

Air Asia – Winners and Losers in the Seats.

Air Asia X is on a roll. Publicizing its new “lie flat seats” (I say that because perhaps the seats are not horizontal) it is really a great move. But let me just throw a little cold water on all the enthusiasm. The new seat configuration reduces the number of premium seats from 30 to 16. It might be seen that this lowers gross revenue because to pay for this change – the airline would have to raise revenues in premium class by a similar amount. But let’s look at the back of the bus. The new configuration adds a total 53 seats. That makes a whopping 21% increase in Y seat capacity – very cosy. Overall the total number of seats on the A340 configuration goes from 286 to 327 for altogether an increase of 14%..

Cheers

About that A380 Order

It was a mega surprise of a mega order. But scratch beneath the surface and you start to see that the EK order is rational.

No doubt EK got a sweetheart of a deal. But have a look at the numbers. EK’s current fleet sits at 141 aircraft. It has almost the same number (168) on order through the end of 2017. By my calculation that is 84 months. Effectively 2 aircraft a month without a surge in capacity would seem to be a prudent process. Some of those aircraft will undoubtedly replace earlier models. The A350s will add growth as well as replace the A340s, the A330s and some smaller 777s. The 777-300ERs will be churning out replacing the earlier models as well as growth. The A380s can be used to replace smaller double dip flights but that strategy doesn’t necessarily play well. Frequency always trumps size for the passenger.

So what of the other possibilities – The GCC market is not necessarily built on the best economics. EK does seem to make money – its fellows in the region don’t fare as well. For Airbus they can now point to a full order book for the biggest pax plane and that can actually help them cover more sales. It’s a big blow to Boeing who thought that they could persuade the Dubai based carrier to load up on the 787-I. Bang there goes that market. It also means that Boeing will be trying to get a substantial sale to a GCC carrier. Saudi Arabian must be on the cards as their trump airline given their size and previous propensity for the aircraft and the fact that they don’t have the A380 on their order books.

Still – the EK order was definitely an eye opener. I wonder if anyone on Atlanta, Singapore, London, or Frankfurt or indeed any other major home city for the world’s airlines are thinking along the same lines. They should be. And did I say anything about Cargo? I think we can bet that a portion of those planes will be Cargo specific thus reviving the A380F that was cancelled by Fedex and UPS earlier.

Cheers

Can They Survive Without Merging?

Travel Weekly USA posited in Friday June 25th email that the fate of the merger hung on survivability. The recent hearings in Washington DC over the proposed merger are showing a harder time for the parties than the Delta/Northwest merger had under the Bush Administration. There are lots of reasons for this but there was a less than veiled threat put out by the airlines themselves which is – Let us merge or we fail and cause havoc. The dilemma was succinctly outlined in the Senate version of the hearings by its Chairman: "If this merger is approved, our passenger aviation system will have one less global network carrier, and I am not certain if this is good or bad, but it is increasingly clear that the current structure is not financially sustainable," Senate Commerce, Science and Transportation Committee Chairman Jay Rockefeller (D-W.V.) said at the start of his committee’s hearing earlier this month on the merger.

This is potentially true, but only part of the story.

As far as the overall ability of the two airlines to better compete – there is little duplication. For United Airlines the situation is more precarious than Continental. UA has mortgaged just about everything including some of its international routes. Its planes are old and even the announced order of 787 and A350s wont be on the flight line pool for many years. For what was for many years the largest US airline (indeed the largest by pax and flown miles worldwide for a while), the situation is not that great. For CO the situation is not precarious. It is healthy and so regarded on Wall Street. It has a relatively young fleet. It has good labour relations and a sensible route structure.

The labour relations have not started out well. The two Pilot Unions have failed to come to terms on “non-monetary” issues. Most likely seniority. The UA guys are so old that they would trump CO’s guys. The issue of seniority among pilots has been messy before. It still is over at US Airways with HP and US pilots still battling it out in court. I have flown more than a few DL flights this year where the crews have thanked me for “Flying Northwest”

But where I have the most trouble is in the competition area. The DoT seems hell bent on supporting the merger because they buy the argument of survival. The DoJ seems not to agree. The doctrine of bigger is better is not in the consumer’s best interests. As I have raised before the argument of “too big to fail” seems to be creating a monster no matter what the underlying arguments might be. Is that in the best interests of the US government which in essence would be agreeing to underwrite the ultimate commercial viability of the nation’s possibly soon to be largest airline. I think it comes down to the consumer’s best interests. In the more than 30 years of deregulation in the USA – the consumer on the whole has benefitted. It is not the government’s responsibility to police the stupidity of investors and managers. To return to a controlled oligopoly market either through mergers or regulation that must ensue, in my opinion, is not in the interests of the consumer. The basic economic argument points to a significant rising price to the consumer.

The better question is probably – do we need New United? If we take the worst case scenario that current UA fails, the impact across the board would be that the industry could accommodate such a failure. But both carriers are arguing they are vulnerable. CO’s Smisek and UA’s Tilton said, as standalone carriers they would not be able to weather the next big economic or industry "shock." The argument that one or both carriers could end up in Chapter 11 is being trumpeted. A new entrant however would possibly (I would say likely)emerge to challenge the status quo and offer low cost services domestically. The other carriers would be the stronger for it.

A challenging question. So what do you think?

Cheers

Verdict on iPhone 4

I cannot take credit for this...

"Great if you hold it right"

This is from the UK Daily Mail.

I just had to share....

Cheers

How To Strike Greek Style

The Professor is on holiday in Greece. Its a great country but it seems to be plagued by strikes. The Greeks strike for every reason you can think of and some of the ones that you cant.

Today the Ferries are on strike, yesterday was the Government workers.

Great... can't send snail mail...

But as an example of the absurdity of it all - the Greek National Television Network NET1 - the Sports Commentators were on strike. So you had the rather strange situation of watching the entire match with just the Vuvuzela as sound.

Cheers