Galileo/Worldspan Integration Team announced.

OK - So consider this my public humiliation and eating of the hat.

In early 2006 I said that Rakesh would be out of Worldspan and if not then I would be eating my hat if he was not gone by September. Seems I was right with the month - wrong with the year. So munch munch....

The team is pretty much as expected. With Galileo ranks depleted after the Blackstone acquisition it was only natural that the Worldspan team would be used to fill the spaces left. Interestingly Kevin Mooney is named Chief Commercial Officer filling in the combined role and the shoes of Ninan who follows Rakesh out the door with presumably a nice parachute.

Two interesting points emerge,

A) The HQ will remain in the UK. Gordon is not moving! However the commute from Atlanta to Langely shouldn't be too bad as long as the M25 behaves itself. The natural choice for the bulk of the operation will be Atlanta as the old Chicago UA/Apollo HQ in Rosemont was axed in the Cendant days. Parsippany may be in the Garden State but the location is not that good for the new organization. Hence our bet is that Atlanta will be named US HQ. Kansas City will probably be shuttered for good. At some time in the distant future after CITP is fully operational and United is housed in Munich - I think we can then see a rationalization of the mainframe locations. Remember no integration!!! Apollo will finally head into the sunset.

B) Bob Coggin comes in as the Vice Chairman. For him it must seem like old home week. He is very familiar with Worldspan coming from his long stint at Delta. He brings a wealth of experience and a canny mind. Congrats Bob!

The business faces one very big challenge. What to do about the PSS side of the business (aka Airline Hosting). With challenges integrating at least 2 platforms and a number of black eyes for the new IBS based AiRes solution, we expect to see the Travelport business make some moves on this in the next 12 months.

Best of luck chaps

Cheers
Timothy

Last call for paper tickets - the end of the line for paper?

With much fanfare IATA announced that it was placing its last call for paper tickets.

However let us be a bit of a naysayer here. We see there are 2 issues.
A) will ALL the world world's airlines meet the deadline?
B) is the absence of paper tickets really a savings to the airlines?

The answer to A is definitely NO. There will be (and I will eat something vile in public if anyone can prove to me that all airlines meet the May 2008 deadline). Specifically Airlines in Asia, Latin America, Africa and the Middle East are struggling with this deadline. Some are just accepting that they will be cut off come the end of May. We believe that IATA needs to arrange some accommodation for these (typically smaller and less financially able) carriers. We are concerned that there will be a new class division of "Have" vs. "Have Not" airlines which will last for some time. Be careful IATA what you wish for.....

The issue of B is more interesting. Having spent years involved in the revenue accounting, ticketing and financial fulfillment side of air transportation - we can assure our dear readers that the processes are less than exemplary. The designs and solutions that have been implemented are rather arcane in their design and in some cases diabolical in their complexity of implementation. It is here that the LCCs have provided a lesson and a model to the rest of the Industry. Ticketless - IE a completely different approach that eliminates the need for even a notional ticket (as e-tickets do) - is a far better solution for simplification and reduction in paperwork and administration. We believe that after May 2008 - and independently of IATA - we will see a greater move away from the e-ticket idea to a pure ticketless implementation.

Of course this begs the question - if we have pure ticketless - should IATA have any say or even sponsorship of such systems as BSPs? Given the removal of anti-trust immunity and the general improvement in commercial conditions worldwide, we believe now is a good time to start to think of a Non-BSP world. If IATA was really keen to reduce the complexity of the business then they should set a date (2010 sounds nice) when they sunset BSP.

OK Mr. Bisignani, why not consider this for the future? Why not drive this home. It would result in a far better solution for the world and a significant savings for the world's airlines not to mention a reduction in your own organization which in turn would result in savings to your members.

Sabre and Amadeus head for full investigation of proposed JV

The EU has just announced that it has deemed that the competition issue between these two behemoths deserves full investigation:

Origial Case Number 2007/c 190.
http://eur-lex.europa.eu/LexUriServ/site/en/oj/2007/c_190/c_19020070815en00090009.pdf

However in typical EC style you still have only until the 12th September to comment.

Any concentration of GDS type power even at this JV level is in our view likely to result in reduced competition. While we applaud the need for the market to have a better way of processing hotel transactions - we remain skeptical on the value of these two players providing it.

Airlines adjust after Summer of discontent

Great piece in the (still) independent WSJ. http://online.wsj.com/article/the_middle_seat.html?mod=djemseat

The airlines opine that they have been hit by a triple whammy: High Load factors (duh!!!) ATC delays (if all else fails blame the government), The weather (act of God). They can apparently handle 2 out of 3 but not all 3. Apparently Airlines cannot make bad decisions that contribute to the problem…

As a result they are going to operate differently and hold back seats (read this as still overbook just not as badly), use spare aircraft and add flex into the timing.

OK Chaps (Mr. and Mrs. Airline) - I have a suggestion for you. How about using less SMALLER aircraft and bite the bullet on capacity constraints. The overuse of RJs is the fundamental root cause of the increase in aircraft system resources without a corresponding increase in passenger capability or a pricing model that accommodates this significant upsurge in traffic without necessarily increasing the system capacity for passengers.

I have a further suggestion for the FAA. Guys is this a wakeup call for VLJs? If you were to reprice the usage of the scarce airport tarmac, and flight pathways - then this problem can be ameliorated BEFORE it hits us.

But perhaps its just better to blame the Government and the weather than actually doing the right thing.

One day Congress will wake up to the problem and boot in a quick fix.

Jim leaves DL - A job well done + NW/DL

The quiet half of the Jim and Gerry show at DL has finally announced his exit with a generous severance package. Entirely deserved in our opinion. While Gerry was very much the public face, Jim slaved away at the detail. Incoming CEO Richard Anderson has big shoes to fill. But its a clean break and whether or not the oft quoted NW/DL merger of champions comes about, at least it will be based on a clear and open state of play.

From our perspective we believe that a merger of DL and NW will not serve the 2 companies shareholders nor the market in general well. Both players are still reeling from several years in protection and have a difficult enough road to follow without the distraction of such a merger. CVG and MEM would be the immediate victims but while the stockmarket in general may applaud fortress hubs in MSP, DTW and SLC all of them including JFK and ATL are under attack from smaller more nimble players.

Hey Mr Anderson - just say no

Brace yourselves - 787 delay story coming

Boeing is playing down rumours (now fact in our opinion) that the 787 program is running behind schedule.

With May delivery dates looking increasingly shaky, the Boeing spin machine is in full force. On Wednesday the scheduled 787 quarterly briefing should be an interesting affair.

While we doubt we shall see 787s parked in Everett with concrete blocks instead of engines (like the 747 early stage program) there is a now a clear likelihood that the first customers will not be getting their full complement of planes on time.

The culprit(s) the process of reinstalling fasteners for the prototype and yes our old friend software integration are probably the candidates for the delay. We personally believe that the 787 will fly in 2007 Q4 with deliveries coming in before the start of the second half of 2008. Even so that is a very aggressive schedule.

Boeing is not infallible and this goes on to just show that launching a new aircraft is no trivial exercise. Airbus is probably not going to be able to take advantage of this situation. But at least they can take some comfort that they are not the only player to suffer. (No comments please on Embraer's recent melt down of its supply chain).

Coming up - likely that Boeing will shortly formally announce the 787-10 to compete with the higher end A350XWB. Boeing is not shy in letting the new aircraft cannibalize the market for the older model 777-200s.

Stay tuned people. Spin at its finest coming your way.

Back from Holiday... lots to chat about

Sorry we have been quiet during August but the team decided to take some tme off. We will be back in full production later this week as we review the current trends and provide some of our usual milquetoast intensive analysis.

Cheers

Midwest and AirTran - all over bar the shouting?

The inevitable is almost here. AirTran subject to a last minute stumble will finally be able to gobble up the smaller MidWest Express.

The Little Airline that started out as the Kleenex Express will likely cease to exist and Air Tran will have a new mid western hub in MKE.

We are suckers for the little guy but the economics of the airline biz does not allow a premium domestic service to operate in this manner. So the brave experiment will likely end early next year if not before

Will AirTran allow fresh cookies on board. I doubt it. Joe Leonard is trying to lose weight

Cheers

Timothy

Is Iberia worth it – or will the Spectre of Qantas still haunt?

Iberia is at the moment being poked and prodded like a contestant at a very ritzy beauty pageant. With only the Joint TPG/BA team allowed anywhere near the books – you can ask why anyone would want to pay for the company with one of the most bloated payrolls in Europe. Simple. 12 straight years of profit. Oh yes and add in the combined effect of the AF-KL deal as a model and you have an interesting cocktail that someone clearly thinks is worth it.

So what do we think?

Without touching the books and with only public reports to work with we feel it comes down to a certain amount of cojones and ego. BA is literally challenging or daring LH to come out and play. The latter has effectively grown by stealth through defusing competition and broadening its base while at the same time building a set of vassal states to feed its dual hubs in FRA and MUC.

Effectively we are neutral on it. We can’t see the large scale synergies emerging because the London Madrid Axis has been in place for many years. Unlike AF KL who were in different leagues and therefore could engage in joint value, BA and IB wont achieve anything like that. Sure BA will have a growth opportunity in LATAM (one of the bright growth spots in international inter-regional travel) but it is still a small base. IB won’t benefit because it is a mature market and there isn’t the value proposition to move to BA's core markets such as Africa and the orient. So the only other reason for doing it is defense. While there are some short term gains – long term value is far from assured.

Risk factors abound:

Open skies on the transatlantic
Premium niche carriers
LCCs especially Ryanair, Easyjet and Air Berlin
Etc

So we remain ambivalent to the deal. We think that it’s necessary but fundamentally we don’t like the match up.

Cheers

Timothy

Battle lines drawn Big Airlines vs Big wigs Corporate Plane toys

Here at T2 we have been a big critic of the current "market" based system for allocating Air Space resources such as ATC.

The big airlines have launched into this using a somewhat lame metaphor. Welcome to the party boys! A new website has been launched http://www.smartskies.org/ which aims to put the blame for ATC gridlock at the door of Corporate Jet users.

Not so fast everyone. Surely Delta and others are just as conflicted. Since Delta's Elite service is actually part of the enemy of this community. http://www.airelite.com/ So is Delta speaking out of 2 sides of its mouth. You betcha. But lets not stop here. One of our other gripes with the US Airlines is their diversion of resources by using more smaller planes (IE less Air Space efficient) aircraft to service domestic points. We have a raft of studies that show the air traffic (measured in aircraft movements) is increasing much more rapidly vs total passengers (RPMs). Yes Delta - your mainline fleet reassignment has resulted in more planes in the air which are less efficient. I am just picking on Delta because they are being a particular hypocrite in this debate.

Moral of the story - let he that is innocent cast the first stone.

But the real urgent issue is a full and open debate on the true cost of the Air Space. For that I believe the smartskies.org website is a useful forum for the debate. So everyone - lets have a full and sane (that means rational) debate and come to a long term solution. The old devil worship of General Aviation should not be sacrificed at the alter of public opinion. The FAA needs to fix what is broken and to use a rational pricing mechanism that recognizes the true cost of the Air Space, the runway space and the bits in between.

Cheers

Timothy

Watch out Europe - here comes Virgin

Great article today in WSJ on interview with Steve Ridgeway MD of Virgin Atlantic.
http://online.wsj.com/article/SB118575235393381736.html?mod=hps_us_editors_picks

One critical element is what VS will be doing to combat the loss of its oligopoly position at LHR. We believe that VS will be taking on weak carriers and uncompetitive premium product airlines. Watch out all of you EU carriers with a slightly inferior product (AZ you have been warned) because Virgin has you in their sights. Air France's legendary surly flight attendants better go to charm school now! Also watch out for additional markets with high premium traffic and low transatlantic lift. Specifically look at markets like DC, Seattle, Denver and Vancouver. As a clue look at the coming route map for Virgin America.

Worth the read - interesting battle. VS will be battling (like BA who is similarly affected) the peer and above crowd (Read BA and LH) and now the niche carriers such as L'Avion, Maxjet etc.

Competition is definitely out there. Long may it rear its pretty head

Cheers

BCD fights for rationality in Global Distribution

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

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

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

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

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

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

Wrath of Kahn - what is his legacy

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

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

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

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

There are no excuses. The numbers do not lie.

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

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

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

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

Cheers

Pricing Power hits - er India?

The headline is not a mistake.

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

Expedia Trips... Stock drops

Big drop today!

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

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

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

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

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

Of course tomorrow it could all change.

Cheers

Timothy

Air Space Control Systems - A Manifesto for ATC.

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

Principals:

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

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

Specifics:

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

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

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

Examples of issues:

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

A global stakeholder effort is required to address the overall issues

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

Time line:

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

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

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

Sincerely



Timothy J O'Neil-Dunne

Managing Partner - T2Impact Ltd
Global Travel eBusiness
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Concorde Gone... and now forgotton - The market for Premium Seats

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

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

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

Thats a healthy bit of competition.

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

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

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

Good questions all - stay tuned

Cheers

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

Scaled Composites Succumbs - Big Defense Takes Over

One of the sad footnotes to the Space Face is that the big guys are likely to win. With EADS already announcing its Astrium's Division project for a CTOL (Conventional Take Off and Landing) based Space Plane for Space Tourism, it wasn’t long before one of the big 3 US Contractors decided that this was something they wanted into.

Northrop Grumman Corp agreed July 5th and announced July 20th the agreed purchase of the remaining shares it didn’t own. According to news reports the share holding rose from 20% to 100% with (subject to US government approval) final effect from August 2007. Quietly the other players have been evaluating the market. It is well known that Boeing has been cooperating with the Russians in this area for some time. Lockheed Martin is keeping Mum on the subject. I believe that we will see a small further number of these projects seeing the light of day. Who is to say that Textron (owner of Cessna Aircraft) will not be entering the race. Not to mention Bombardier (Owner of Canadair and Learjet). Indeed the latter's Learjet 25 is the basis for a low cost entry by Rocketplane Ltd based in Oklahoma State.

The obvious impact is that competition will drive down the pricing to reasonable levels from the current astronomical $30-$40 million (For Space Adventures trips to the ISS) to $180,000 for a flight on SpaceShip 2 with reservations maxed out for approximately the first 5 years of service. Most of these reservations are backed by 100% prepayment. The first time there is an accident of course people will be heading for the hills, but in the mean time this is the equivalent of the Concorde Travel experience.

I might just sign up

Cheers

Timothy

Is the EC trying some wizardry to appease Amadeus?

On the eve of the release of the Harry Potter final installment - perhaps we are seeing some signs and clues as to how the EC will define its long awaited changes to the GDS regulations. Up until now we have all assumed that the focus would be on the relaxation of the rules along the lines of the US deregulation of the GDS marketplace. But no - it would appear the bureaucrats in Brussels have other plans in store for us. The final chapter in this saga looks like it is going to have a few interesting plot twists and in the end The GDS/Harry character may not be killed off.

The issue it seems in the somewhat single tasking mode of the EC is that they are responding to some obvious pressure from the Amadeus lobbying efforts. They are now opening the door to the definition of "Parent" carrier. The origins of the "Parent" carrier term come from the 1980s when the battle was initially between the "Have" airlines - i.e. those who owned a part of a GDS vs. the "Have Not" carriers. Since this was clear at the time no one needed to have much definition. All EU based major airlines were all by definition "Parent" carriers by dint of the ownership stakes in either Galileo or Amadeus.

Fast forward to today and with the major airlines in the Galileo group all now non "Parent" carriers and even SAS is not an owner - then in Euro speak the definition is moot.

But I offer two other thoughts for consideration. The definitions of "Control" and "Distribution" should also be on the table for interpretation. Why?

Let’s start with "Distribution" the lines are now clearly drawn differently as we have fragmented distribution. With Amadeus focus now on airline IT it is not hard to see that actually distribution control can be effectively managed through the Airlines' PSS (Passenger Sales and Service aka internal Res Systems). So PSS systems are today doing much of what the GDS did before. If PSS systems were added into the loose definition of GDS in a redefined term of Distribution Platform then Amadeus would fail in my opinion the test of dominant control. Specifically we believe at T2 that the System User agreement should be examined in the same context as the "neutral" GDS agreements.

Now let’s consider the term "Control". The 3 participating owner carriers (and I choose my words carefully hear) are indeed much stronger than they were in the late 1980s and 1990s when the regulations were drawn up. Further the US share of the Transatlantic market has fallen significantly in actual passenger counts. The concentration of control among the 3 is pretty compelling.

However take both terms together - Control AND Distribution - and add ALL system users, CTP (Star Alliance - Common Technology Platform) users, all ALTEA users in the EU together and there is clearly a dominance and concentration of market power the likes of which we have NEVER seen before.

It was our hope that the EC would enact the new legislation for the protection of the consumer and the smaller EC airlines to prevent abuse of the monopolistic power concentration that can occur in situations such as these. Unlike the US market - the EC has the power of judge jury and executioner. They can both write and implement legislation. There is no check of the legislature at this level. Appeal to the judiciary is such a laborious process that it is effectively mute in all but the most high profile of cases. AND it takes many years of significant expense to challenge.

The story is not yet over and there will be many more plot twists. The EC has been known for using some of the Black Arts to conjure up dark forces cloaked in respectability. Let’s hope that
Olivier Onidi doesn’t turn out to be the real Voldermort.

For further reading we recommend going to the EC's Transportation section, Air Transport Portal: http://ec.europa.eu/transport/air_portal/index_en.htm.%20Specifically look a the comments on "Possible revision of Regulation 2299/89 on a Code of Conduct for computerized reservation systems (CRS)" http://ec.europa.eu/transport/air_portal/consultation/2007_04_27_en.htm
Note that the EC uses the older term CRS Computer Reservation System - rather than the more common GDS, Global Distribution System. Perhaps this different wording has an impact on the actual spells used.

OK so I carried the Harry Potter metaphor a bit far but my comments are valid. You have been warned. I have experienced first hand the power of the EC in this regard and how they listen to the "home team" of Amadeus lobbyists.

Other resources I suggest are to go to the BTC's website. http://businesstravelcoalition.com/

Cheers

Timothy

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
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Southwest jumps onto Paypal bandwagon

So the ball is SLOWLY rolling but definitely there is momentum

We have been advocating the use of non-credit card financial fulfilment for some time. We believe that there are considerable savings in various areas such as cross border payments and reduced credit card fees that can be garnered if the merchant is prepared to "shop" around.

With Visa now experiencing Debit card rates of more than 50% the time is right for the use of alternative solutions such as eBay's Paypal and Google's Checkout services.

Well done WN - any more takers?

cheers

Timothy

Sao Paulo's Congonhas airport - comment

Having flown into this airport frequently (and its corresponding short runway counterpart in Rio) I can personally attest to the scary nature of the experience. The airport is tiny in comparison to other facilities. Given the significant daily traffic not just on the Rio - Sao Paolo run but also flights from there to many other places the location was a major factor in this tragic accident.

I will also however suggest partial culpability at several doors.

Whatever the actual reason for the accident we can say without a doubt that there is more than one issue at stake here. Due to the nature of the Brazilian market it is unlikely that this will ever come out as part of any official investigation.

1. The airport which sits on a small plateau is surrounded by dense population. This would not be tolerated in many other cities. Some of the housing may not be legal. A slum in Brazil (Favella) is not the same as we might expect, speaking from a Non-Brazilian point of view. Hundreds of thousands of people live in these makeshift cities in both Rio and Sao Paolo.
2. The only way to land is to slam the aircraft down on the runway and full thrust reversers and braking to slow the aircraft down. For a fully loaded A320 this is no small feat. Even 737s (Gol and Varig) and F100s (TAM) (the other jets that use the airport) have a hard time with this. There is little to no margin for error.
2. The pilots who fly the shuttle routes are highly competent and used to the "normal" conditions. This was far from normal having been one of the wettest winters in memory.
3. The runway had been repaved but not re-grooved
4. There had been a court case in which a judge had ruled that the airport was safe under pressure from the official bodies.
5. At least once in the preceding months since the runway re-surfacing had a pilot complained of the danger in the runway condition
6. Infraero - the former military organization charged with the infrastructure of the airports in Brazil and its counterpart ANAC http://www.infraero.gov.br/, http://www.anac.gov.br/ respectively are both politically influenced organizations.
7. TAM has been aggressively growing (as has GOL and others) without much check. The aggressive expansion has occurred at a time when the former national carrier VARIG went into deep decline (now only handling less than 3% of the total traffic) and when the air traffic control system was shown to be severely lacking. (See GOL midair collision).
8. TAM has had a poor record of safety particularly with its F100 aircraft. Even Wikipedia doesn’t log all of the accidents. In addition its hero Rolim Amaro was himself killed in a TAM Helicopter crash.

Enough guilt and blame to go round. Our thoughts and prayers are for the victims and their families. Let’s hope that this is a catalyst to cause reform and better oversight by the authorities. Brazil is a great country. its people are some of the nicest you can hope to meet. Let’s hope for the best for them

Cheers
Timothy
Timothy J O'Neil-Dunne
Managing Partner - T2Impact Ltd
Global Travel eBusiness
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Our thoughts and prayers go

FINALLY a deal on EU-US Data

OK so it was inevitable but its at least good to know that you (and me) can go to Europe after July 31st after an 11th hour agreement between the US and the EC on the handing over of data for US Homeland Security.

http://online.wsj.com/article/BT-CO-20070713-705251.html?mod=dist_smartbrief

The DoHS is still somewhat in disarray and still have not resolved many of the grand plans they announced but cannot implement post 9/11 but this is a small step.

I have no sympathy for the airlines in this case who are complaining that it will squeeze existing tight profit margins. What do they expect - largesse?

Now we have this deal in place all is at peace between the US and its transatlantic counterparts. So now perhaps we can get on with the business of a full and true open skies and a free market across the pond

Cheers

Timothy

Statement of Authenticity - Blog Policy for this site

Every once is a while it is important to understand the perspective and authority of the source. So for the benefit of the loyal readers out there (and even if you are only an occasional reader) - I would like to layout our policy for this blog.

We promise to write only accurate information
We promise to try and separate information from opinion
We promise to try and cite accurately the source material if there is a reference.

That's it.

I am the chief writer for this blog but we do have occasional guest writers. So the opinions expressed are those of T2Impact not of anyone else unless specifically so stated. If we screw up we take full responsibility for it. And if this happens we will print a retraction or correction.

If you ever want to comment - please feel free. If you wish to contact me you can reach me on skype - timothyo or via email: timothyo@t2impact.com

Thanks for reading

Cheers


Timothy O'Neil-Dunne
Managing Partner
T2Impact Ltd
+1 302 351 6119

Fragmentation - The importance of Tribal Context

One of the more interesting by-products of the Web Life Style has been the fragmentation of the user communities.

Traditionally we have ascribed physical characteristics when we describe people and users. Definitions by:
Race,
Sexual Preference,
Creed
Gender
Economic Profile
etc etc

Traditional media then tried to ascribe people by their media usage characteristics. What DMA you live in, what daypart you belong in etc etc. Even today we see that the long held view of metrics on the web of page views (heck remember when we measured in hits!!!) has been abandoned by none other than Nielsen.

But this traditional characterization no longer applies. Humans have a wonderful habit of constantly evolving. The rate of change has done nothing but accelerate.

Many people can easily scoff at Social Networking as either a flash in the pan or at worst a fad. However we believe that there has been a fundamental shift in thinking and more importantly in behavior that affects consumption and in particular travel.

The characteristics of the users needs a label. Heck we love labels. But in trying to discover a term that correctly defines what we see - we have had to resort to creating our own. We call this new behavior "Tribal Context"

Tribal because the user communities are coming together in a more fluid set of relationships without pattern, these are tribes rather than hard groups They change constantly. Context is much more important because it is no longer mono-cultural - rather the context is dynamic at all levels: Time, Location, Mood, Whim, etc etc. Capturing this constantly evolving elements has created massive challenges for the advertising and marketing chaps attempting to reach these consumers. Past Behavior is no longer any proxy for current or future behavior.

So no matter what side of the game you are on - a user. consumer, supplier, content source indeed any stakeholder, understanding Tribal Context is essential.

Good luck - I am off to pull my hair out to understand how to make it work for our business and our clients...

Cheers
timothy

I was REALLY hoping the iPhoney would be a solution

Usable device.

Sadly it tries to be jack of all trade and master of none.

Everything it does it does OK. Some better than others. Everything together makes for a complicated result that will not necessarily provide for a better experience overall.

While I am not a Luddite - I am somewhat peturbed by sheer number of times I am asked (make that told) to learn a new UI/UE. iPhone is probably the worst so far.

OK so I am not a Mac head (I own one) there are 4 iPods in my house. However having worked with the device for a full day - almost full time - I have to concur with Tom Yager's analysis at Infoworld. http://www.infoworld.com/article/07/07/10/28TCiphone_1.html

I was REALLY hoping to reduce my number of devices. But this doesnt quite cut it. Even though I am already an AT&T user. Thanks I will stick to my Blackberry (8700) and the seperate Sony W810 phone. It has superior call quality and is a great MP3 player. I cant wait to get my hands on the W900 series which should do the trick.

Using a single 4GB chip I get as much music as the base iPhone. All for an extra $37. So at this point I am going to pass on the iPhone. They are cute but not that usable

Cheers

Timothy

Bidets and Airplanes make a good mix?

I have restrained myself from writing this entry for over 6 months since I first heard that Boeing had put Bidet's on the options list for the 787. Originally I understood it was just for the BBJ version of the aircraft. But no lesser authority than the WSJ: http://online.wsj.com/article/SB118411594813562792-search.html?KEYWORDS=bidet&COLLECTION=wsjie/6month
has confirmed that yes this has in fact been ADOPTED by the two Japanese airlines ANA (launch customer) and JAL. It only remains for Virgin (pardon the pun) to adopt this for it to become a standard accoutrement of all operators.

So all manner of concepts spring to mind. So here are just a few potential PA announcements for you to consider:

1. Use in Turbulence - "Please return to your seat and refrain from using the Bidet while the Seatbelt sign is illuminated"
2. Prior to Landing - "Please return your Tray Tables and Seatbacks to their full and upright positions and refrain from leaving the Bidet on during landing
3. After Boarding before take off - " This aircraft is equipped with escape path Bidets please read the pamphlet in your seat back and familiarize your self with this feature.
4. The return of the gender specific announcement - "Male passengers are requested to kindly remove their shoes before using the Bidet and your accurate aim is highly appreciated

we have a series of illustrations to go with this but as this may be viewed by sensitive folks we will refrain from publishing them

Cheers

Timothy

Mr O'leary - you do have a point. EC logic failure

While the ever ebullient Mr O'Leary can hardly be described as the most diplomatic of folks, he certainly does have a point over the EC's recent ruling on the moribund EI/FR merger.

The EC has been considerably adroit at avoiding a formal confrontation on the aid issues to "sick" European airlines. Particularly Alitalia and Olympic (whatever it’s called this week). But it goes back further to Sabena, Air France TAP and others. To disallow the valid merger between the two certainly goes totally against the grain of the EC's stated and legislated policies.
As this is a family blog I will not repeat some of the more colorful statements of Mr O’Leary on the subject but you have to admit there is a significant logic disconnect going on here.

I believe the merger was a non-starter due to the Irish Government's blocking shareholding and the Union's opposition. But in the next down turn, this is a dangerous precedent of the EC reacting to member state pressure. However when you are judge, jury and executioner (as is the EC's rights in law) then I guess you can do whatever the heck you like.

Personally I think the Commission has done itself a huge disservice and should be publically flogged.

Cheers
Timothy

Will Worldspan exit with a whimper?

The powers that be in the USA have given their tentative approval to Worldspan's "merger" into Galileo. Still subject to the EC approval process which is under review this is likely to drag on for at least another 4 months.

Significant challenges remain - like how do you explain the value without merging the 2 platforms. Sorry guys I just dont buy your logic at the moment. However I am open to hearing a good story.

So the once great Worldspan will likely fade into the sunset rather than go out with a bang.

Cheers

Timothy

You never had it so good - Just ask Delta

There are probably a lot of people out there who have signed up for Delta's weekly email fares notifications. Well at least twice in the last month - they have sent out a spectacular email with... no special airfares.

So one can conclude that either those nice people in the ATLHQ are getting lazy or life is just too good for words. I am actually in the latter camp. For the last year (I keep a log of all the emails I get from each carrier) i have actually had only 5 specials from my home town.

Here is the exact text from their email of today...

Below are your Weekly Fare Specials. All fares require a Saturday departure and return travel on either Monday or Tuesday. Take advantage of these exclusive online offers listed below and earn miles with Delta.
Looks like we're not running any special fares for you this week but maybe you will see a great deal for your family or friends. Take a look and let them know.

Looks like things are good at the moment for the airlines – we all know how miserable it is for the passengers (yes even I had to spend the night on the floor in ATL) ..... But will it last.

Cheers
Timothy

UI/UE debate on WIWIH

Max Starkov and co are running a Hospitality website called WIWIH. http://www.wiwih.com/

Fairly typical of different hotel discussion groups. However one debate caught my eye - UI.

The topic is: WIWIH Poll - Do you think that One-Screen/Flash booking engines (e.g. iStay-iHotelier) are better than the traditional step-by-step booking engines (e.g. Expedia's, Marriott's, SynXis')? I have a passionate belief that the end of the life cycle of the current explicit User Experience is in sight. Whether of course it is adopted remains to be seen. Sadly the whole advent of Mashups and Web2.0 technologies (if you can call them that) has actually done a dis-service to the market by prolonging the lifespan of the current metaphors. IE you can get away with continuing with the same old clunky back ends because there is a few bolt on extras and some nice lipstick for the old pigs. Check out the debate. (Sorry you have to sign up)

http://www.wiwih.com/topic/36000539.html

I do hope that people are listening/reading - because this is something that is the pachyderm on the table. We do need new engines and the current UI/UE metaphor is going to go away. Of course I don’t have to pay for this - but doesn’t mean I am not going to push for it.

Cheers

Timothy

Tear Down the Wall: IATA Block Exemption is cancelled

The EC in its infinite wisdom has chosen not to renew the Block Exemption it gave last year to the IATA Passenger Tariff Conference.

For once this is a good thing as it slowly breaks down the barriers to normal behavior by the airlines. For many years the IATA carriers (now numbering approx 250) have benefitted from operating under supra national rules. In the years before GATT and with certain strange legal mechanisms that actively worked against global trade this was understandable. With GATT and better legal frameworks for international trade, these protections are not nearly as relevant. Perhaps the biggest most telling argument is that there is now a significantly larger non-IATA component to air travel - at least regionally within each Traffic Conference. The second component of this is the alliances which means a single ticket and carrier listing even if the metal is from another airline. According to the EC now less than 5% of travel within EU (defined as EC to non-EC countries) is interlined. This therefore negates the need for the exemption.

We are encouraged by this move to make the airline world more competitive. Perhaps now IATA can go back to being an association of talkers.

Man of the (half) Year 2007

Now we have 6 months under our belts - we would like to nominate the person who we believe exemplifies the best there is in the Aviation, Travel and Tourism sectors. Our nominee from a large field of possible candidates rose head and shoulders above everyone.

Gerald Grinstein deserves the title.

Successfully piloting Delta into, through and now out of Chapter 11 he managed to turn the oil tanker around without creating too much disturbance and disruption amongst the key stakeholders - Customers, Staff and the financial community.

Specifically he tried much harder than his counterparts at UAL and NWA to preserve the base before finally stepping into Chapter 11 when there was no real option but to do it. He is to be commended for trying not to destroy too much of the shareholders equity.

He managed to fend off the unwitting advances of AWA/US Airways which despite looking good on paper would have been a complete disaster. At the same time he also managed to hold off TPG's advances.

While in Chapter 11 his team reformed the airline from the inside out. Not only shedding costs but also changing business practices and processes for better customer experience at a lower cost. While the pillow removal may have galvanized a lot of attention underneath DL really did change the way it did business and has emerged much more competitive.

Finally from a personal integrity point of view while he fellow CEOs were gouging themselves in stock and cash incentives (for doing their job) Jerry took home a modest $300K for his efforts.

Time will be the ultimate judge of his legacy at Delta. As the article in the WSJ http://online.wsj.com/article/SB118307487060552233-search.html?KEYWORDS=United+Airlines+UAL&COLLECTION=wsjie/6month on UAL's progress shows that it can stall pretty quickly DL has a long road ahead. We believe that UAL and NWA remain pretty sick and have many issues to contend with. DL itself has some significant customer service issues (as my forced overnight in the ATL airport last week attests). Lets hope they keep getting it right.

His long service at both Western and Delta should be recognized. We believe he is a solid example to which many of us should aspire.

To Jerry - we salute you

TravelClick 2006 Stats show wide variance in Hotel Yield by Channel

Sorry folks i have had this one to write for some time now. Finally getting round to it.

The TravelClick 2006 stats show a huge discrepancy between bookings made via GDS backed web sites and those via GDS/Travel Agencies. For 2006 the number is 41%. This variance has existed for some time. For example in 2004 the ADR difference was a similar 26%. In order to understand the difference you have to consider the source. We consider the TravelClick numbers to be skewed due to the source of the tracking and the lack of broad reach of the numbers. Its based on GDS based sales. Thus there is always a higher skew of bookings from Travel Agents as is clear. Since this occurs the comparison is fair but it is like comparing apples from the same tree rather than between trees or even different varieties.

Formally they are issuing a caution that this discrepancy is unsustainable. DUH!!!! The web is about transparency. The next gen hotel systems currently being designed (such as 2nd Travel and Pegasus GuestClick) will remove much of the need for a discrepancy.

Here is the full PR release but you can get it off the TravelClick website

Cheers


PR Release Follows:

Press Releases
Worldwide Electronic Hotel Revenue Up 19.3 Percent in Q4 2006
TravelCLICK's eMonitor Reports Annual Growth for Room Nights at 8.4 Percent, ADR at 7.4 Percent
PRNewswireCHICAGO
CHICAGO, April 25 /PRNewswire/ -- TravelCLICK's quarterly eMonitor results indicate continued robust health for the hotel industry based on electronic distribution performance for the fourth quarter of 2006. The data shows that worldwide electronic hotel revenue from the Global Distribution Systems (GDS) and key Internet sites increased 19.3 percent over the fourth quarter of 2005. The number of electronic room nights booked for the fourth quarter increased 7.7 percent over the same time last year, while the Average Daily Rate (ADR) increased by 10.8 percent. The average length of stay for the fourth quarter 2006 was 2.06 nights, nearly the same as last year.
eMonitor results are compiled from TravelCLICK's comprehensive proprietary database, which is the exclusive source of hotel industry electronic distribution data from the Amadeus, Galileo, Sabre and Worldspan GDS. The database of electronic distribution performance provides a comprehensive foundation for data analysis and trend forecasting that is used by the global hospitality industry in the development of integrated distribution strategy.
Observations for the market based on this latest data include:

-- Hotel bookings through the GDS continue steady sustainable growth on a
large base of more than 50MM.
-- In 2006, ADR for room nights booked through travel agents was
41 percent higher than ADR booked through consumer Internet.
-- In nearly every segment and top destination market, ADR continues its
strong year-over-year growth.
"Within the GDS, there is a sustainable trend of much higher ADR business opportunity when compared to other online distribution channels," said John Hach, Vice President of eMarketing Products at TravelCLICK. "The ADR variance of 41 percent provides compelling evidence regarding the need for hoteliers to reach travel agents during their primary point of customer interaction."
Travel Agent Component
Travel agent bookings represented 79.3 percent of total room nights. The travel agent component of GDS bookings had an 11.5 percent increase in ADR and an 18.5 percent increase in revenue versus the fourth quarter of 2005. Travel agents also continued to be a key source of higher rate business for hotels. The average rate for room nights booked through travel agents for the fourth quarter of 2006 was 43.6 percent higher than the average rate for room nights booked via the Internet for the same period last year.
Year-to-date for 2006, travel agent hotel room nights via the GDS were up 6.3 percent, driving an 8.4 percent growth in ADR from the same period in 2005.
Internet Component
Internet room nights, sourced from consumer online transactions on third-party websites powered by the GDS and Online Distribution Database (ODD), showed a gain of 13.6 percent compared to the fourth quarter of 2005. ADR was up 9.2 percent for Internet bookings; revenue was up 24.1 percent compared to the same period last year.
Fourth Quarter 2006

Room Nights %Change ADR %Change
Total GDS and ODD Hotel eCommerce 31,786,682 7.7% $149.52 10.8%
Travel Agent Component 25,200,589 6.3% $159.56 11.5%
Consumer Internet Component 6,586,093 13.6% $111.08 9.2%


Year-to-Date 2006

Room Nights %Change ADR %Change
Total GDS and ODD Hotel eCommerce 131,127,784 8.4% $142.83 7.4%
Travel Agent Component 103,468,230 6.3% $152.17 8.4%
Consumer Internet Component 27,659,554 17.2% $107.89 5.5%


GDS Performance by Market Segment
Results for the fourth quarter of 2006 by market segment are shown below for GDS bookings only. All market segments showed increases in both room nights and ADR compared to the fourth quarter of 2005.
Fourth Quarter 2006

Market Segment Room Nights %Change ADR %Change
Luxury 927,508 13.6% $363.66 12.4%
Upscale 9,887,664 4.2% $191.08 11.1%
Mid-Scale 11,160,152 6.1% $121.67 11.9%
Economy 2,135,983 6.9% $81.51 8.9%


Year-to-Date 2006

Market Segment Room Nights %Change ADR %Change
Luxury 3,636,512 12.2% $345.94 8.6%
Upscale 40,244,398 2.4% $181.79 8.6%
Mid-Scale 46,615,608 5.2% $117.94 8.9%
Economy 9,453,732 7.8% $81.46 7.9%


Top Destination Markets
The top 10 worldwide destination markets in room nights for GDS and ODD-powered third-party websites, in order, were:
Fourth Quarter 2006

Top Destination Markets Room Nights %Change ADR %Change
New York 1,481,273 6.3% $299.00 10.2%
London 1,471,575 27.7% $213.04 12.5%
Los Angeles 1,015,225 4.2% $149.49 9.5%
San Francisco/Oakland/San Jose 941,533 7.7% $154.34 9.0%
Washington/Baltimore 870,787 -1.0% $177.92 7.6%
Chicago 804,459 6.5% $164.28 11.7%
Dallas 558,285 0.4% $119.26 10.1%
Atlanta 495,656 -1.7% $122.27 6.7%
Boston 465,155 3.3% $168.68 8.4%
Houston 437,893 4.0% $124.37 7.4%
To receive a free listing of fourth quarter results by top 50 cities worldwide in electronic bookings, please email emonitor@travelclick.net. GDS hotel booking summaries by individual local market also are available at http://www.travelclick.net/.
Sign up to receive TravelCLICK news by email or through RSS distribution at http://travelclick.mediaroom.com/.
About TravelCLICK
TravelCLICK (http://www.travelclick.net/) is the leading provider of hotel business process management (BPM) solutions that drive long-term profitability. TravelCLICK helps hotels maximize asset ROI by combining innovative market analysis and proven industry best practices with advanced technology to develop and implement high-return strategies. The company offers a full set of solutions including reservations and distribution management, market intelligence-based decision support, and marketing services. Serving the hospitality industry since 1996 and headquartered in the Chicago area, TravelCLICK has more than 12,000 customers in 140 countries.
SOURCE: TravelCLICK

Insane TSA proposal for Biometrics run by the airlines

Those wonderful mad cap keystone cops (aka the Dept of Homeland Security) are at it again. This time they are demanding that the Airlines install and manage the biometrics System.

This one will definitely run for a while. Given the current fiasco over passports – the TSA/DHS boffins have no clue about people processing. I think this stems from the last time they had to seriously think about it IE Ellis Island.

A brief aside here. I go through Security on average 2x a week. I can assure you the TSA is behind almost any other service in the world.

So considering all things that the airline have to deal with today for security – it is understandable why the TSA would like to shift the responsibility of the biometric tracking to the airlines for handling. But the TSA wants its cake and eat it. They wont share the results nor will they provide an instant alert scheme for the airlines.

Here is the full article. You be the judge – but one thing is for sure – this issue will not be going away.

Despite protests, DHS biometric data plan moving forward (06/07/2007)
VANCOUVER -- The U.S. Dept. of Homeland Security is sticking to its proposal to require airlines to collect fingerprints at check-in from departing travelers on international flights, in spite of vehement protests from U.S. carriers that the mandate would be costly and time-consuming and create longer check-in lines, and should instead be handled by the Transportation Security Administration.

Michael Jackson, the DHS' deputy secretary, attending the International Air Transport Association's Annual General Meeting and World Air Transport Summit here June 5, said the department still plans to issue a Notice of Proposed Rulemaking with the requirement soon.

"It's the only model that we can figure out that will work," he said, while insisting it would not create long check-in lines.

"People's dwell time at a check-in point is vastly longer than the one or two seconds it will take to simply put your finger on a fingerprint reader," he said. "I think it's going to be easy, iteratively, over time, to integrate this into the business model that the aviation industry has for doing its work, which is to make it easy for passengers to come through an airport and not have a burdensome delay."

Jackson, who wants the process in place by 2008, did make one concession: he said the DHS is willing to provide airlines with fingerprint readers for use at the check-in counters, and help them connect it to their passport card readers. He also said the department is willing to let airlines move the process to self-service check-in kiosks equipped with fingerprint readers and passport readers.

The proposed requirement stems from a DHS effort to beef up a 3-year-old pilot program called US-VISIT, which collects biometric data from foreign visitors.

Under that program, inbound visitors at U.S. airports and other points of entry are digitally photographed and fingerprinted at special kiosks. The resulting data are later matched against DHS' own database to verify international travelers' identity. Digital fingerprints are also collected when the traveler exits the U.S.

However, travelers are asked to provide the data on a volunteer basis.

Consequently, the DHS said, while the US-VISIT biometric technology "works," there has been a "low traveler-compliance" rate. It believes integrating the process into check-in would boost the rate.

Shock Horror, LHR Owner admits its "Old and Dirty"

In a by line from the Gaurdian Newspaper of today - 29 Jun 2007
Ferrovial, the Spanish construction group that owns BAA, claims the Civil Aviation Authority is not doing enough to incentivise it to invest in Heathrow Airport.

Those of you who follow some of our personal trials and tribulations of travel through the world's busiest international gateway, know full well what we think of LHR. It is a disgrace. Check out this clip on YouTube: http://www.youtube.com/watch?v=zwB4G7XxyRI

Attempting to deflect the mounting customer and user criticsm the new owner of LHR operator BAA is trying to push the blame onto the HM Government. Sorry - but no dice here. BAA you have milked this cash cow for way too long. Now you have to pay the price.

There is a great article in this month's ATW on the subject: http://www.atwonline.com/magazine/article.html?articleID=1959

Having an Airport Operators License doesnt mean you can rape the customers.

Perhaps Mr O'Leary will get a little credit for his battle with Aer Rianta (operator of Dublin's airport).

Cheers

Timothy

NWA - First to cross the barrier wi9th Paypal

Not that we are against the credit card companies in any way - but we have been a long believer that the next major cost battle in airline distribution cost reduction would come in credit card fees. With Google Checkout our dark horse bet - we believe that the airlines stand to gain significant bottom line benefits in enabling non-credit card financial fulfilment from such players as Paypal and Google.

NWA finally becomes the first airline (by our understanding) to announce such a deal. It is even offering bonus worldperks miles to anyone who uses the service.

The leverage that this gains as well as the additional customers it enables is a win win for the airline. We are particularly encouraged about the impact in non-traditional (and therefore emerging) financial markets such as across Asia Africa and Latin America.

Pay attention boys and girls - this is a big shift

Now is the summer of our discontent...

Well our worst nightmare has actually come to pass. This summer - the US domestic air transportation system (if you can call it that) will grind to a halt or at least a series of significant outages.

I can attest to this personally. During the past week (W/C June 25 2007) I have been to the airport everyday. Each time I have been there the flights that i was involved in - picking people up, dropping them off or flying was at least 2 hours late. On Thursday a delay of 3 hours bumped me in Atlanta. But it gets better. There were no more hotel rooms available. To get to someone to actually talk too takes hours. All of the airlines have been similarly affected and while some handle it better than others it is clear that the massive cutbacks in staff are now beginning to bite. They are just unprepared for even minor problems. The system is SO fragile that it breaks at the slightest provocation.

I have seen families waiting for 24hours plus. People in Wheelchairs abandoned. Groups displaced and split up.

It is unpleasant and will only get worse during the summer.

I do believe (changing my position) that a passengers' Bill of Rights is now a must. I strongly urge the US to adopt the European model. But govern this and tie it to the role of the TSA so that there is a clear shared sense of responsibility with Government and Private Enterprise.

Southwest Hits Wall, Ryanair Next?

For some time we have been saying to our investor clients that the problem of growth would eventually reach the point of good old diminishing marginal returns. Southwest has finally admitted that this has happened to them. The core problem is one faced by other sectors – such as Microsoft – in that the ROI starts to decline over time due to effective saturation. For WN this means that they will now have to address the issue head on.

What we find curious is that WN doesn’t want to hit the competition head on. So the slowdown in growth is an acknowledgement of this. However WN has one ace up its sleeve. That is its planes. WN can fly the longest commercial routes in the county (eg SEA-MIA) with its 737-700s.

For WN we shall see them looking hard at Revenue opportunities and only dealing with the ones that make sense.

There is a lesson here for other LCCs. Chaps – sooner or later you will hit the wall. AirTran and JetBlue – I hope you are listening. Fortunately for Mr O’Leary – this problem is several years away. Long after he has left the CEO slot at FR.

Cheers
Timothy

Aeroflot drops out of AZ Bidding

Sounding the deathknell of the current auction - SU has dropped out leaving only the local Italian Airline left. Aeroflot said it was withdrawing because its advisers had not been given access to what it called critical information on Alitalia’s business. Almost identical to the owrds that Joint bidders Mattelin Patterson and TPG used. This leaves a single bidder that will hardly wash with the government. So once more the sickest airline in Europe is back on the deathwatch list

Airlines - So you think you are doing OK - 2006 Numbers

Accoding to ICAO the airlines FINALLY made a profit in 2006. $2.7Bn give or take the odd lost bag. Well how does that stack up against hotels? No so good... about 11% of hotels' profits give or take the odd missing bathrobe. For hotels; revenues increased by 8.7% from the $122.7 billion generated in 2005 and profits increased 17.9%, up from $22.6 billion last year.

For exact details see:

ICAO - http://www.icao.int/cgi/goto_m.pl?icao/en/nr/2007/pio200703_e.pdf
For STR - http://www.hotelnewsresource.com/article28028.html

TSK... TSK... there needs to be a better ROI.

Cheers

Timothy

Expedia's Stock at 52 week high

So Expedia's stock is riding high. Should you buy in or is this the peak.

Here is our take on the current run-up. Given how bad things have been lately over there in Bellevue - we were wondering for some time how long Dara would last. But since he has the confidence of Chairman Barry he will be around for a while. Having been caught off guard by the TPG/Sabre and then Blackstone/Travelport, Expedia should be making solid progress on a wide variety of fronts in order to show it is maintaining momentum. And there has been progress. Probably more of the "not-so-bad" variety rather than than a great performance.

Expedia just might go private. The current price is too high. But if there is a significant dip in the price over the next few months I think we can see more buybacks or an offer to take it private.
The long tail wont affect Expedia for a few years yet. The critical metrics are to look at the performance of the international divisions - particularly China, Germany and UK - and the value of TripAdvisor which could probably be hived off at a premium. Especially given certain analysts hype of Travel 2.0.

The suppliers are sitting pretty. The Hotel Industry just reported another record year with profits that probably exceed the total profits ever recorded by the airline industry. As long as this is the situation - then Expedia will be constrained. If (as we expect) we see a softening of the market in 2008/9, then Expedia's yields should pick up. So now would be a good time to go private IF the prices was right.

Stay tuned folks

Cheers

DL and CO - Do you REALLY want LHR? Check this out.

For some time now this blog has ranted about the 3rd world nature of LHR and its symbiotic partner BA. Both of whom are providing a pretty piss-poor service. With Open Skies now a reality and many US carriers climbing over themselves to get slots at LHR. Here is something to make you pause and wonder.

This summer - I really do not recommend you even setting foot in the place.

Check this blog entry from Tim Hughes at THE BOOT. http://tims-boot.blogspot.com/2007/06/500-miles-of-security-queue-at-london.html

I know LHR pretty well from both the in/out as well as the changing planes there. With T5 still 10 months away this is just appalling. This is for T2 passengers. Trust me it isnt much better for T1, 3 or 4.

Cheers

BA not for sale... probably with good reason.

Service deteriorates at World's Favourite Airline

BA's Willie Walsh has put the NOT FOR SALE sign up outside Waterside. Despite his buddies over at Goldman Sachs wanting to make another packet now is probably not quite the right time. There just isn’t enough support although there are (as we have noted before) some great numbers to look at - not least of which is the free cash flow.

Now the reason for the run up in stock (for those talking it up) was the great numbers in the front cabin. well so far so good but that is not a long term thing. Having just experienced again the airline's less than stellar service I hope you will indulge my rant here.

BA's premium traffic has increased but not the staff to handle them. As a result LHR is a giant mess - both in and out bound. This week inbound traffic to Terminal 4 suffered yet another baggage meltdown due to "...Insufficient Allocation of Resources", and no I am not making this stuff up. this was the official reason given by BA over the Tannoy (they don’t use a more modern PA system trust me on this) why bags were "15 mins later than normal baggage wait times". I checked with several other passengers especially Flight BA 288 (from PHX) and BA242 (from MEX) both of whom endured waits for over 2 hours. My flight BA52 from Seattle had bags show up 90 minutes late.

Leaving on Sunday to go from Terminal 1 to Moscow I witnessed yet another example of how bad things are: the Zone R (premium travellers) area took over 40 minutes to go through to "Bag Drop". Zone R vs Qatar Airways Premium Terminal in Doha. No contest. I do hope someone from BA has actually TAKEN one of these flights.

Couple this significant fall off in service with BAA/UK government's crippled one on board bag policy and you get a recipe for meltdown's like this. But BA must shoulder the lion's share of the blame. For some time I have been hyper-critical of their baggage policy and handling at LHR. This is a management problem caused by the ill-fated decision to outsource baggage management to a thoroughly incompetent group.

BA may be taking advantage of an increase in premium traffic but it will be short lived. When the US airlines start arriving at LHR in greater numbers expect to see real competition. With significantly better service from the GCC based airlines allowing you to bypass LHR AND with easier connection services in AMS, CDG even MAD you can easily see that things are going to get a lot worse before they get better. Having flown BA's new Club Class service, I can attest to its improvement over the existing 1st generation service. But VS has nothing to fear and the plans by AA and in particular DL to offer premium C/J services will be a real fight. BA could easily lose its self adopted crown.

Are you listening Mr Walsh?

I hope so...

Cheers

Timothy
www.t2impact.com

Delta Quietly Dumps Expedia

Delta has quietly dumped its most recent hotel and car partner Expedia WWTC.
It is now directing traffic to its "friends".

Car rental for Avis and Budget go to www.carrental.com (the joint booking engine for Avis group) and Hotels go to Hiltons master reservations sites.

The search for additional revenues via the website are become more intense and the competition for traffic has once again become a hot topic.

I am sure there will be more changes. If you are not currently evaluating your options you are likely to be loosing out in this intense battle for customers.

Cheers

Timothy

Expedia has largest share by far of online hotels in South Florida

According to Travel Weekly's Travel Technology Newsletter MIAMI-DADE COUNTY QUIETLY NOTIFIED ONLINE TRAVEL COMPANIES in February that it would commence tax audits related to unremitted 6% hotel bed taxes. In March it sent them estimated tax assessments totaling almost $10 million for the past five years.

What is interesting is the market share of each of these players.

If we just use the tax numbers and assume an equal average daily rate then the share of business for hotels in South Florida is quite startling.

Expedia: 60.1%
Travelport: 14.1%
Priceline: 11.1%
Travelocity 8.3%
Others 5.8%

After 5 years activity this represents quite a significant share. However the total numbers are not that great. if we assume about $120 per ADR then it only represents a total of approx 800 rooms per night occupied and sourced by the OTAs' guests in South Florida. Just about enough to fill the Fontainbleu twice over.

So still lots of room for growth.

Now I wonder if the hotels are also feeling the heat from offering some of their stuff online.

Any clues anyone?

Cheers

Timothy

SQ Biting off more than it can chew with China Eastern?

Already the industry analysts are wagging tongues at the SQ investment into MU. One of the weakest of the big China Airline companies MU has not had a great track record since it became one of the designated major National and International carriers from China.

SQ has had a good record as a passive investor (think Tamasek) in Silk Air (its own subsidiary) and Tiger Airways. That is close to home. However its forays further afield have been somewhat of a mixed bag. It has its significant holding in Virgin Atlantic (not any of the other Virgin group airlines) which has not shown a significant impact although both parties are happy with the deal. But then we can look at the Air New Zealand episode that frankly many at SINHQ would rather forget. Much has been speculated as to what MIGHT have happened if SQ had followed through and bailed out Ansett. My wouldn't the world be a different place!

So its going to be worth following to see what role SQ management takes in the running of MU. There is clearly potential value on both sides. Similarly Air China is doing all it can to fuse some knowledge learned from CX in improving its product and bottom line. China Southern has not yet seen much out of its DL match up.

But the night as they say is yet young and we all know China plays for the long haul - and for keeps. As long time China watchers - we recommend paying attention to how this shakes out for the long game. China is determined not to allow any embarrassment occur prior to the 2008 Games. After that we see a loosening of the reins and a significant expansionist pursuit by many of the players. There is room for many victors.
Cheers

Don't worry - Be happy apart. Galileo and Worldspan to remain Seperate

Forget synergies - its all about making a buck. So what if you have 2 sets of infrastructure to support the "Full service" suites of both now isolated systems, Blackstone led Travelport has announced that it will keep the 2 GDS apart rather than go through the enormous pain and cost of a single platform.

On the one hand we applaud the rationality of the argument not to go through with the very painful exercise (Ed: I have done it twice!). However we believe that there will be a significant amount of confusion amongst the respective customer bases. we just hope that Travelport has some good integration strategies up its sleeve or else the sheer cost of supporting 2 data centers and two product lines has got to be a Controller's nightmare.

Rest assured your trusty team at ITK will be on the case watching the situation and reporting back from the field including customer reaction and some insider news.

Travelport - we wish you success. Please make it clear what you are really going to be doing. We would like to have a clear story to present to the world.

Cheers

ITK Team

Did BA put itself in play? Goldman Sachs thinks so or...

Talk about a tangled web. So follow the story if you can. BA owns about 10% of Iberia. BA used to own a sizable chunk of Qantas. TPG has failed in its bid as APA to get control of Qantas. BA joined the TPG based consortium bidding for IB. IB's advisers are Goldman Sachs. Goldman raised its ownership in BA to over 5% making it the 4th largest shareholder in BA.

Got it?

OK so if we read the tealeaves (something we love to do at T2 although personally I think hot caffeine based drinks are over-rated) then there is something going on.

BA has been the target of some speculation of a PE based bid (in the old days we used to call these LBOs). Why? its that juicy cash flow - GBP 800 million a year. (That's $1.6 Billion in greenbacks). With Private Equity cash chasing just about anything that moves - BA is a good target. However its institutional investors in the City would likely harrumph a lot at this.

But you have to think that that there is some truth in all of this to BA being really in play.

Cheers

Timothy

Virgin Oz - Splits 4 ways

Following in the footsteps of its arch rival Qantas - Virgin Blue is now the uber-brand for the Ozzie carrier. As it has slowly and relentlessly moved upmarket with its primary brand going after the corporate market - Virgin has seen its low cost roots (and routes) usurped by the upstart part of the Qantas group - Jetstar. With Tiger airways a mere few months away from starting domestic Oz routes - Virgin is not sitting still.

The company will now have 4 main brands:

Virgin Blue will be the premium branded service for Domestic routes.
Pacific Blue will be APAC regional routes including TransTasman services already in operation. The two newcomers will be the Long Haul (initially Trans Pacific) 777 service and the even sooner to be launched LCC player.
Commenting to Travel Weekly Australia at the Australia Tourism Exchange on Monday May 29th, Brett Godfrey, Virgin Blue CEO said "As we already have an Aircraft Operators Certificate (AOC), we can be up and running almost immediately". This pits Virgin Blue firmly against its rival. With some variation!

We believe that now the ownership issue is long resolved the company has been planning this expansion strategy for some time.

With Qantas itself in somewhat disarray following the recent debacle of the APA aborted tender and the subsequent resignation of 2 board members, we can see that there is life in the old dogs yet. Now why didn’t Ansett do this???? Answers on a postcard or email to me asap....

Cheers

Timothy

timothyo@t2impact.com

For Airbus - what is the compensation for the delay of the Whaleliner?

Disclaimer - this blog entry is pure speculation on our part. However we believe the numbers to be accurate for the aircraft concerned.

For some time we have been trying to assess the likely impact to Airbus customer airlines for the delays. We now believe that the offer is pretty clear. It is a 5% free off IF a further aircraft is purchased. Rather a kind of buy one get one free to the affected airlines. We know that Virgin has opted to take a delay with a small compensation. However for the major players this translates into bolstering the order book. As a result We estimate that a total of 18 aircraft will be added to the production order book as a result of this special offer. Not quite compensation for the cancellations of the Freighter version of which 20 were ordered but then cancelled by UPS and Fedex.

T2 estimates that the current order book changes (prior to the Paris Airshow) will be as follows:
EK +4 (announced), AF +2 (announced) QF +8 (of which 2 will be compensation - announced), We believe that ILFC and SQ will announce 2 additional orders each. LH will add 3 with one a piece going to KE, TG and MH. A possibility exists that QR and EY will vie to order at least one a piece. However it is wrapped up into whether the orders for A350s will be made permenant. We dont think the (at least 1) private A380 will actually be taking up the twofer deal. Total cost at book value to Airbus in these special deals will be over 2.2 Billion Euros.

Airbus is planning some blockbuster announcements for Paris. Some of those orders will be part of these deals we believe. Boeing will be low key as they have been having a lot of basking in the sun at Airbus' expense of late.

Stay tuned. This could be fun

Cheers

Timothy

Why Iberia? Can BA capitalize?

Flanking the Skyteam Alliance anchored around 2 Northern European airports (CDG and AMS) has been a goal of BA. Of late BA has been feeling the heat with the infrastructure failures at LHR which has resulted in generally a loss of connecting traffic at the world's busiest international airport. As someone who connects frequently through the major EU hubs I can assure you they are usually pretty bad. But AMS is still the champ at this. I am sure many of my fellow travellers can recite tales of horror from FRA (the furthest A gates) LHR (the staircase to heaven or the escalators to hell), or CDG (the bus rides around Northern France). The new Madrid airport terminal feels like a positive dream. BA is hoping its new T5 will be just as terrific and give them the edge against all its new competitors.

BA desperately needs another platform to retain its dominance. Wednesday's (May 23) article in the WSJ was a good overview of the motivations. But BA has been either very lucky (financially from its 2 major investments) or very unlucky (less than fulfillment of traffic potential) in its alliances. This time its hoping for success on both accounts.

BA's failures have been when it meddles in other people's markets. The US Air investment and involvement was unhappy for all concerned. But Qantas worked out just fine. Because Ayling and his successors wisely left them alone. TPG's team is not a group of hands off players. So we can be prepared for some fireworks in execution if the team wins. Right now they are the only game in town. With 35% of the shares locked up - anyone else hoping for a look in will be hard pressed. Let’s just hope there isn’t a repeat of the APA debacle.

Cheers

Is Boeing Fudging on 787 Delays?

Boeing has committed in very public pronouncements on the roll out for the 787 on july 8 07. A huge embarassemtn for them if they miss it. But they wont. Flying it will be a different matter.

The delivery of several important components are not all coming together at quite the right time. So there will be some parts that are going to be late. Specifically sources tell us - the wiring wont be ready and they will be installing this long after the actual roll out.

We wish Boeing ALL the luck with 787. Having seen and actually touched a test subject - I can assure you that it is going to be a great aircraft. However it is ground breaking and there are many aggressive new components that make up this ambitions design. Comparing sections side by side with a conventional metal based fuselage shows just how different it is. Across the airport not more than a mile or two away from where the 787 is being assembled there is a fine example of what can go wrong. Volunteers mostly from Boeing are nearing the end of their 11 year restoration of a Comet (a 4C originally delivered to Mexicana). Lets just hope that Boeing hasnt made the same mistakes that De Havilland did with the original Comet 1.

Still lets see if they make an early first flight with the 787. If there is a screw up on the dates and significant slack time is taken up - it could make for some bad press for Boeing and bad news for the current high flying stock.

Cheers

Timothy

Will Willie make a run at Iberia?

So far Willie Walsh's tenure at the head of the World's Favorite Airline has been a bit of a dud. While vowing to clean house he has been relatively low profile and not a heck of a lot seems to be going on at Waterside these days. Not quite what the Board wanted in a CEO after kicking out Ayling and having the able Rod Eddington stabilize the business.

But this is about to change. Frustrated with the pace of change and now faced with the impending loss of Bermuda II rights at LHR - BA needs to make its move on to the continent and soon.

Iberia is a perfect candidate - already a strategic investment vehicle for BA and a OneWorld member there is little overlap between the airlines. But with OpenSkies coming within the next 12 months the time to build up alliances is not something that happens overnight. For success to happen now - BA needs also to benefit from a loosening of the leash on its relationship with AA. The argument is there already. If DL and AF and their sub-partners can have a nice a tight alignment there is no longer a reason to restrain BA and AA. It will just depend on how far the US DoJ and the EU can come to terms in fairness and openness on the Transatlantic.

If BA does not push the issue then we can be pretty sure that they have received the word that such a boost in the alliance would be frowned on and result in a somewhat pyrrhic victory - with BA being forced to surrender slots at LHR. Something right now it doesn't want to do.

Interestingly this would be a coming together of Spanish and UK interests hard on the heels of last year's takeover of BAA by the Spaniards. Sir Francis Drake must be spinning in his grave.

Cheers

Timothy

Did we call it right? QF Chairwoman to resign

From our May 7th Blog entry:

"The Flying Kangeroo is somewhat therefore in limbo. The senior management find themselves in a quandry because unless APA or either partner makes a bid very soon - then at least the Chairwoman's head must roll."

From todays ATW News"
"....At the same time, Chairman Margaret Jackson, who backed APA's effort, reportedly announced her intention not to seek reelection at November's annual meeting."

Chaps get real here - the deal was dodgy at best and TPG does not have enough bandwidth to go after all of these deals at the same time when there are so many other "worthy" causes closer to home with greater value.

So the Kangeroo continues to fly solo. As it should in our humble opinion.

Cheers

Timothy

GDS 3.1 - The model evolves

The news that Southwest is going back into Galileo will probably send shockwaves around the globe. But as the smoke clears we can start to evaluate some of the realities of the situation.

GDS need new content to remain relevant. They face attack from all sides: Falling Yields, bypass, deregulation, consolidation, etc etc. Over the last 5 years according to figures from ASTA, Travel Agents in the USA have lowered their use of GDS from effectively 100% down to just over 80%. This fall is likely to accelerate as the GNEs come online and as the incentive payments dip. At the same time US agents have increasingly started to use Supplier direct websites. That Gordian knot seems to have been broken and the fragmentation trend continues.

At T2 we believe that this is a natural evolution. We believe that the fundamental forces are going to continue to drive diversity in the GDS – definitely we see that there will be less homogenization of the GDS players.

Southwest is interesting at this juncture. You may ask why did they choose Travelport/Galileo now and what was their rationale. We believe that the deal has been in the works for some time. There were some not inconsiderable technical hurdles to overcome but the writing on the wall has been there for quite some time. SHHHHH don’t say anything to anyone but Southwest is beginning to reach Saturation with the current model. For the past 6 months or so – Southwest has been sounding more and more like a network carrier. In reality it is reaching the HVC – Hybrid Value Carrier model we have been predicting for some time. With the true LCC model just about played out for Southwest – there is no where else to go but – well up. Thus they need to expand their distribution and their model. Thus Galileo fits nicely. Why? They are already available in Sabre but Galileo represents a black hole. Thus the opportunity to reach the #2 corporate agency booking system makes perfect sense. Don’t be surprised if the work does not stop here. Look for GNEs to appear soon with that capability. SWABiz has not been a massive success and the efforts behind it seem to have been somewhat half hearted. The final catalyst has probably been two key factors – both competitive in nature. Firstly the US domestic market is already showing signs of weakness. Just last week WN reported having to revisit its projections for 2008. Secondly jetBlue has shown a remarkable uptick in sales as a result of going back into the GDS. WN cannot afford to ignore these facts.

But why not Amadeus? Simple – Amadeus in the USA is a Leisure system- that is well handled by the direct website. However herein lies a message for the other Hybrid Value Carriers. In other markets HVCs are now eyeing the situation of saturation or at least parity with network carriers and looking for ways to be fully competitive. I think the floodgates could open when Easyjet and Air Berlin look back at being in the GDS. But here is some hope for Amadeus North America – since it has none of the “evil” OTAs on its system here – it may just be OK for Southwest. And Worldspan? By the time the system is ready WSP will be owned by Travelport so the issue is somewhat moot – at least commercially.

Cheers

Timothy

Airlines - The Ides of September are coming

In the boom to bust cycle of airlines - the tradition has always been buy at the top and sell at the bottom... not exactly what even your local stock broker would tell you was a smart thing. If you are a student of history you know that Airlines are highly cyclical. Yet many forget that in times of boom. But will this cycle be any different?

Many would argue that this is the top of the cycle and we are approaching the peak of the airlines' net earning capability. Barring a catastrophe - of either an economic or socio-political variety, the airlines as a group should be very profitable this year. But the dynamics are very different this time around. Why?At T2Impact we believe that we are headed for a long term fundamental shift in the structure of the airline system.

Here are some pointers to monitor.

1. We are approaching practical capacity constraints in certain key junction points within the system. For example - The US system is already crowded at peak times yet the investment in ATC infrastructure by successive Administrations has been laughable.
2. Barriers to entry are much higher than they have been - witness the number of new airlines starting in the US market has dwindled to a trickle. In Europe there is a surfeit of LCC startups. Even the robust growth markets of GCC and Asia Pacific are not experiencing a growth of new players.
3. The massive savings gained over the last 10 years in labor cost cuts, distribution cost reductions have been offset by massive increases in fuel. Frankly there are no more major cost cutting areas left.
4. Yields are at historical highs.
5. There is going to be significant labor unrest due to the afore-mentioned labor reductions. is it time for payback? AMR's AA pilots think so with an opening round request for 30% pay increases.So what are the airlines doing with the cash?Plowing it into service improvementsStill off-loading unprofitable marginal routes to affiliate partners.Buying new planes.Etc.

What worries us is that there is no fundamental effort to address the core issues. Neither is there a regulatory mechanism for addressing the true scarcity value of the whole trip and the attendant resources consumed.We believe that a future airline sin tax regime will be introduced. If for no other reason than the usual sin tax revenues on cigarettes (for example) are starting to wane.

Our belief is that the Government bodies - both national and pan-national - and the Industry should be working on improving the efficiency of the system. A fair user fee basis of regulatory payments needs to replace the outmoded and clearly now unworkable 1944 Chicago Convention.

Finally - how about a rainy day fund?In the coming months we will explore different ways that the airlines should be responding to the future. With our new partner InTheKno (http://www.inthekno.com/) we will be examining business models for airlines and the impact on the whole of the Travel and Tourism sector. For airlines – the sky is quite sunny at the moment. But we see storm clouds a-coming.

The Domestic USA market growth is slowing and already we are seeing indicators of a softening of traffic in other markets too. Those high fares are beginning to bite. Once we get past September and we see winter sales coming in at low fares – we will see a pull back and competition for the consumer will again emerge. Round about September 15th.

You have been warned!

Cheers

Timothy