THE PASSING SEEN (AND HEARD)
By Joe Brancatelli
June 5, 2008 -- Some week, eh? The Big Six are busy ripping the heart out of their operations. (So much for those painful but necessary post-9/11 restructurings they recently completed.) The Democrats found themselves a Presidential nominee. (Don't tell Hillary because she thinks it depends on what your definition of "over" is.) Oil and the stock market are yo-yoing up and down. (Thank the lord my money is in my mattress.) The NBA Finals start tonight. (I know someone out there must be paying attention.)
With all that stuff going on, I'll forgive you if you missed all of the stuff below. Besides, I got your back. That's what I'm here for.
CHICKEN, EGGS, FARES, TIPPING POINTS AND PUNDITS
Pundits are arguing about whether this year's much-heralded fare increases have finally driven travelers to the metaphoric tipping point where they stop flying. And they're babbling pedantically about whether capacity cuts will drive up fares because fewer seats mean the existing demand will compete for the reduced supply. May's traffic figures, released during the week, don't necessarily add any clarity. American, United and Continental's traffic was down, and down more than they cut capacity, thus meaning load factors (the number of seats filled) also fell. A few other carriers were essentially flat or up marginally.
But most of these arguments are chicken-and-egg things. If a previous period of oil-driven instability is any guide (and that would be from Iraq's invasion of Kuwait in 1990 to about 1995), traffic is going to fall much faster than airlines can cut capacity. That means the effective average price paid won't really rise and may actually decline. And as to whether raising fares will lower demand, let me suggest the obvious: Fares don't matter much when business travelers are cutting back on flying because their own businesses are slumping and leisure travelers are cutting back because they're spending their available funds on essentials like milk, mortgages and a few gallons of gasoline. You can't raise the price of travel for people who've already decided to stop flying.
DEATH TO TED
It shouldn't shock you to learn that United Airlines is killing Ted, its woebegone "boutique" airline that really was nothing more than a badly marketed collection of crappy old planes with no first-class seats. And if you've been around long enough, you'll know that these sub-brands at the Big Six never work. Before Ted, United had United Shuttle. Delta has tried twice, too, with Delta Express and Song, a putative JetBlue Airways fighter that was a miserable, costly failure. Continental once had Continental Lite and US Airways (don't ask me which one) had something called MetroJet. But what you may not know is that both Song and Ted were the misbegotten children of the same post-9/11 business plan. McKinsey, the consultants, sold the concept, then code-named Starfish, to the Bobsey Twins: Leo Mullin, former Delta chief, and his BFF, United chief executive Glenn Tilton.
WHY NYLON MATTERS
There's lots of fallout on the New-York London route. All three all-business carriers on the so-called NyLon run have now folded (Maxjet last December, Eos in April, SilverJet last week). American Airlines is dumping its New York/Kennedy-London/Stansted route and the fares paid on the remaining service from the British (Virgin Atlantic and British Airways) and U.S. carriers (American, Delta and Continental) are dropping. Of course, if you don't travel between New York and London, you might wonder what all the hubbub is about. Well, here's what it is about: According to Britain's civil aviation authorities, about 1.4 million passengers flew between the United States and the United Kingdom in March. Almost 25 percent of them (349,000) flew between New York's two airports (Kennedy and Newark) and London's three facilities (Heathrow, Gatwick and Luton). With that amount of market concentration, it's no wonder everyone obsesses over NyLon.
ABOUT THOSE FARES THAT AIRLINES CAN'T INCREASE…
If you've read a newspaper business section or flipped to a cable-TV news network in the last week or so, you've undoubtedly heard the apologists for the Big Six whine that they just can't increase fares fast enough to cover the rising price of oil.
I have just one question about that theory: What fare are we talking about? If you want to fly New York-Los Angeles tomorrow, the one-way walk-up fare is $1,005.50. Is that the fare we're talking about? Or is it the $394 roundtrip advance-purchase fare you buy?
Oh, and I guess I actually have a second question: Why aren't the Big Six better hedged? Southwest Airlines is 70 percent hedged at $51 a barrel this year and 55 percent hedged at $51 a barrel next year. Continental is 5 percent hedged in the second quarter and no other Big Six carrier is more than one-third hedged at much higher prices than Southwest.
So maybe it's not that we don't want the airlines passing along the higher oil costs. Maybe it's just that we hate giving more money to airline idiots who already charge us five times more than anyone else on the plane and were too dumb to realize that oil prices were going up.
OH, YEAH, THE OTHER IDIOTS…
The Department of Homeland Security (DHS) has another brilliant idea. It's going to require that anyone visiting the United States from a visa-free country file an online entry request. And then they have to get DHS approval before they can fly to America. You can get more details on this hare-brained scheme here. And while you're shuddering because you realize this insane policy will soon be imposed on us when we try to visit some other country, consider this: The DHS has once again told Congress that it is "unrealistic" to screen all of the cargo that arrives in the United States on passenger jets. No matter that Congress has been demanding DHS do this since 9/11. DHS says it can't and to hell with the law.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
THE FINE PRINT All of the opinions and material in this column are the sole property and responsibility of Joe Brancatelli. This material may not be reproduced in any form without his express written permission.
This column is Copyright © 2008 by Joe Brancatelli. JoeSentMe.com is Copyright © 2008 by Joe Brancatelli. All rights reserved.