Tuesday, May 17, 2011

Lower fuel prices? For how long?

Just two weeks ago, I wrote about the high price of oil and predicted that fuel was going to be pricey for as long as we would care to imagine. Here it is, fifteen days later, and oil has dropped from $114 per barrel to barely $96.

Does that mean that I was wrong? Yes... obviously. ;-)

But I don't think that I'm going to be wrong for long. While this latest speculator bubble was popped in part by a rising dollar (which makes it more expensive to short dollars and buy oil priced in dollars, a common way for financial wizards to manufacture money) and in part by higher margin standards (which made those wizards put up more cash to cover their bets), the idea that the world economy will do as badly as is suddenly forecast today is as silly as the idea that it was going to do as magnificently well as it was suddenly forecast a month ago.

Look, jet fuel is made from oil, and oil is controlled by governments that are almost universally oppressive. Long-term stability in oil-producing countries has never been likely and is even less so now that the so-called "Arab Spring" is occurring. Instability doesn't actually cause shortages these days, because we never get that far, but speculators do place bets on assumed future shortages and drive up the prices as if the oil is already running out. It's a game, and we're the losers.

Today is a good day. Oil is lower. Gasoline and jet fuel prices are dropping. Enjoy it while it lasts, because it never does.

Smartphone Boarding

Last week, on a trip to Vegas, I had my first opportunity to use a boarding pass sent to and displayed on my Droid 2 Global. Having been underwhelmed by the idea of printing my own boarding pass at home, I expected to be equally disenchanted with this new technological solution.

Wow. I was wrong; electronic boarding passes are awesome!

For one thing, you can't lose an electronic boarding pass (unless you lose your phone, which is reasonably difficult for the average traveler). You can bring it up and see the details at any time.

Then there's the convenience of not having to wave your boarding pass as you go through security screening. Once you've been checked, it goes in the bin, and that's it.

Maybe the best part, though, is that you can check in while on the road, get your boarding pass wirelessly, and head straight to the gate if you don't have a carry-on (which, as my Vegas trip was a single-day affair, I did not). That's really convenient, especially if you're running late (which, as my flight left at 6:00 a.m., I was).

I'm sold on electronic boarding passes. This is the future.

Red Carpet Club versus Presidents Club: Closer, still not equal,

I'm heading out to Rome in about two hours, passing the time in the Red Carpet Club at Washington-Dulles International Airport. Back when I used to fly United all of the time, I was here... well, pretty much all of the time.

I haven't been around nearly as much since moving to Continental, as I fly out of Washington-Reagan instead. Since I was last here, though, a few changes have come about in light of the United-Continental merger.

First, Wi-Fi is now free to Presidents Club members. It's always been free for RCC members, but for a while, United wasn't giving daypass cards to PC members. Since United uses T-Mobile for its Wi-Fi, anyone without a card has to buy a daypass for $7.99. Not cool.

Getting the cards for free is cool, but it's still a hassle. Why not just make Wi-Fi open use for anyone in the Club? In a Presidents Club, there's no card or silly login prompt. A user just selects the Continental network, and poof! Online. I like that model better.

Drinks are free too, sort of. Continental has had complimentary drinks in its Clubs for as long as I've been flying with them. They did recently add a "premium" wine selection, but that was a step up from what used to be available (and the house wines are still available). Spirits and beers are all free in the Presidents Club.

United, on the other hand, used to charge $5 in the Red Carpet Club for any alcoholic beverage: wine, beer, or liquor, it didn't matter. Post-merger, they adopted a stance similar to their new partner. Members and guests can get beer, wine, or liquor for free -- but it's a limited selection. Thus, when I first ordered a Bacardi and Diet here, I was cautioned that it would be $7.50; I opted instead for the "house" rum, which was free.

The drink is fine. I mean, rum mixed with soda only has so much nuance. But she forgot my lime, and she didn't put down a napkin. Does that matter? Only if you compare the two clubs, and that's my point.

The Red Carpet Club has improved. Post-merger, it's closer to its Continental counterpart. But they're still not equal.

Monday, May 2, 2011

Fares, Fees, and Consolidation

These last few weeks have been eventful, but I haven't had inspiration for anything to say.  Today, though, three things happened that I decided needed to be given at least a brief mention:
  1. Osama bin Laden was killed.  This has nothing to do with travel.  People seemed to think it would, though: oil prices dropped by about $2 in the early morning, and airline stocks surged higher.  Then the airline stocks stalled, and oil surged back to where it had been.

    Travellers like us need to be clear: no gimmick or feel-good event is going to change the course of oil.  High prices are being driven higher by a degree of legitimate supply-and-demand anticipation, a whole lot of speculation underwritten by free Federal Reserve loans, and a weak dollar.  Higher fuel prices are going to be the norm for a long time.

    As for security, don't imagine that one terrorist killed diminishes the threat of terrorism.  We always need to be aware of our surroundings, especially when traveling.

  2. Southwest bought AirTran.  The deal was announced months ago, but today is the day that the merger became official.  This is big news because it enshrines Southwest as the biggest discounter probably for years to come, and gives the combined carrier a presence in ultra-busy Atlanta -- the centerpiece of Delta's East Coast network.

    Southwest has much lower labor costs than other big airlines.  Whatever else happens in the industry -- bag fees, attempted fare hikes -- it's always there to act as a spoiler.  Now, it's bigger, and as it consolidates its operations with AirTran, you can expect more downward pressure on the other carriers in terms of ticket prices for domestic routes.  Even now, we're waiting to see if Southwest will go along with the United-Continental fare hike attempted on Friday.

    The airlines face enormous cost pressure because of fuel (see #1).  If they can't pass that along because of competition with Southwest, we're likely to see a return to losses.  We might also see further consolidation, though the only tie-up that seems likely would be a U.S. Airways-American deal down the road.

  3. Europe got more expensive.  I mentioned fuel surcharges in my last post, but since March, these have really gone through the roof.  As CNN Money reports, fuel surcharges for international routes are now 25% higher than they were in 2008 -- when oil was trading at $144/barrel instead of the current $114.

    The reason is simple enough: airlines lost so much money in 2007-2008 that they didn't have any cash to lock in low fuel prices during the Great Recession, so they have to buy a lot of their fuel on the spot market.  That means most of their fuel is actually priced off of the $114 figure, where before it wasn't. 

    Domestically, airlines can only do so much to combat fuel prices due to competition (see #2).  Internationally, there aren't as many low-cost carriers, and there aren't any to and from the United States.  Surcharges and fees can add as much as $500 (!) to the cost of an international airfare to, say, Paris.

Keep looking for the low fares at sites like Kayak and Vayama.  Do your research with a site like Orbitz, where you can put together itineraries that favor particular alliances as well as airlines.  Do your booking directly with the airline whenever possible, though, because they guarantee the lowest fares.

And remember, travel isn't just about flying.  Those big cruise ships take as much fuel to move with or without a particular cabin filled, and trains don't use nearly as much energy to get around as cars do.  High airfares just give you a chance to try new things.