The Brancatelli File



February 2, 2006 -- There is more business-travel news than you can shake a Cyberstick at this week, so it's best if I dispense with my normal brilliant opening patter and get right to the meat of the issues.

And I'm not sure, but I think a Brancatelli File without brilliant opening patter on February 2 means six more weeks of winter...

JetBlue Airways this week recorded its first quarterly loss since going public in 2002. The loss in 2005's fourth quarter wasn't big--about $42 million--and there are a rash of rational explanations for the red ink. Fuel prices continue to surge, fares have been remarkably low and the airline was whacked by the effects of last year's long hurricane season.

But, you know, I don't think it's a coincidence that the fourth quarter was also when JetBlue broke the cardinal rule of keep-it-simple airline management and introduced a second plane into its fleet. Ever since JetBlue launched six years ago this month, the Airbus A320 was the airline's only plane. Then last November it added the new, 100-seat Embraer 190. Boom! Here comes the first quarterly loss in the airline's publicly held history.

It's not just that the EMB-190 has had more than the normal number of operational glitches that plague any new aircraft. It's that the EMB-190 is just about the only thing that the folks at JetBlue have talked about during the last year. Ask about rising fuel prices--and JetBlue's less-than-aggressive fuel-hedging program--and they talk about how the 190 will obliterate the line between traditional and regional jets. Ask about the dreary on-time performance--JetBlue is down around 70 percent now--and they talk about how the 190 will allow the airline to go after smaller cities that could never support the 156-seat Airbus A320. Ask about the shockingly low fares on key routes--promotional transcon prices continue to be under $100 and Northeast-to-Florida fares always seem to be $89 or less--and they talk about how cost-efficient and comfortable the 190 can be.

Yeah, well, maybe. Until JetBlue can prove that a post-deregulation domestic airline can prosper with more than one plane type, I'm sticking with the lesson of Southwest Airlines: Reliable profits and consistent service come with fanatical devotion to making one aircraft fit all routes.

And JetBlue isn't making any of its friends and supporters happy when it also predicts that it will lose money in this year's first quarter and for all of 2006. That kind of bad news didn't happen to JetBlue when every plane it flew was an Airbus A320.

One of the hoariest clichés that the Big Six carriers use to alibi their consistently disastrous results is that they'd be competitive and profitable if only they had Southwest's low labor costs. That big lie was blown to bits this week thanks to a chart that appeared in Aviation Daily, which is sort of the newsletter of conventional airline wisdom.

Big Six labor expenses in last year's third quarter averaged 2.81 cents per available seat mile. ("Available seat miles" is the industry standard measurement of capacity.) By contrast, Southwest's third-quarter labor costs were 3.01 cents per available seat miles. More to the point, Southwest had higher labor costs than any of the Big Six except for Northwest Airlines. Labor costs there were 3.96 cents per mile. Since the third quarter of last year, however, Northwest has broken its mechanics union and outsourced most of the work to lower-cost third parties. It has also beaten new concessions from its flight attendants and pilots. Right now, Northwest's costs are probably lower than Southwest's labor costs, too.

And, needless to say, Southwest makes money and none of the Big Six do.

So, remember, fellow flyers, labor isn't the problem at the Big Six. It's management.

If you've read the Tactical Traveler recently, you could not help but notice the seemingly endless reorganization of the worldwide hotel industry. One of the subtexts is growth: Room rates and demand are at record highs, so there's a bull market for expansion. But another subtext is specialization: Hotel chains don't want to own hotel buildings anymore. In fact, the biggest ones don't even want to manage hotels anymore. They just want to franchise the brand name, set the brand standards and collect franchising fees.

But only some of that subtext explains this week's big hotel story: The purchase of Fairmont Hotels by Colony Capital and Kingdom Hotels. Colony is a low-profile, but very powerful, real-estate investment firm. Kingdom is the trust of a Saudi prince named Alwaleed bin Talal. Needless to say, these interests had enough money to snatch Fairmont away from Carl Icahn, the corporate raider who bid for Fairmont because he thought he could make a killing by selling off Fairmont's real estate.

Colony and Kingdom plan to merge Fairmont with Raffles, another hotel chain they own. And here's where it gets interesting. Fairmont and Raffles aren't two hotel chains, they are many. Fairmont, which was once just six deluxe hotels, is now an odd amalgam of interests, including former Canadian Pacific and Princess hotels. Raffles used to be just the famed Raffles hotel in Singapore, but now it includes the Swissôtel chain and trophy properties like the Vier Jahreszeiten in Hamburg and L'Ermitage in Beverly Hills.

Together the Fairmont-Raffles combination will consist of 120 properties around the world. No one--not even Colony and Kingdom--seems to know whether all these disparate hotels can be in one chain. And, wait, there's more. The sheik, through Kingdom, also owns big chunks of the Four Seasons and Movenpick chains. Colony owns the Costa Smeralda resort in Sardinia, the Hotel Guanahani in St. Barts and a lot of other snappy hotel real estate around the world.

The admirable but quixotic attempt of high-tech guru and privacy activist John Gilmore to board a plane without identification has probably ended. A three-judge panel of the 9th Circuit Court of Appeals--one of the nation's most liberal federal courts--has unanimously ruled against him. Gilmore claimed that requiring him to show I.D. before he boarded a plane violated his constitutional right to travel. The court ruled that "the Constitution does not guarantee the right to travel by any particular form of transportation." Gilmore has been fighting the case since two airlines refused to let him board planes without I.D. on July 4, 2002.

Copyright © 1993-2006 by Joe Brancatelli. All rights reserved.