Budget cuts may axe Washington historic sites

As the Great Recession drags on, more and more state programs are feeling the pinch. This includes many sites of historic interest. In the latest budget announced by Washington Governor Chris Gregiore, the state’s three Historical Society museums will all have to close.

The State Capital Museum in the Lord Mansion in Olympia, and museums in Tacoma and Spokane, would all be affected. The governor has earmarked $2.4 million to maintain the sites and their archives, but it would cost twice as much to keep them open, The News Tribune reports.

The Lord Mansion is on the National Register of Historic Places and in addition to having a museum, it hosts many public events. The Washington State Historical Society Museum in Tacoma gets an average of 100,000 visitors a year.

To be fair to Governor Gregiore, she’s facing a serious problem. If she keeps the museums open, that means $2.4 million less for other programs, and then some non-travel-related blog would be complaining about her budget. But museums and historical societies are important parts of the community, not just for old-timers who want to reminisce and tourists interested in history, but newcomers who want some background on their surroundings. I’ve moved way too many times, and one thing I always do to get grounded is study the history of my new home.

I also do Civil War research, and that means I’ve seen the inner workings of many historical societies. One place you’ll often find me is the State Historical Society of Missouri. Once or twice a week my studies are interrupted by a crowd of schoolkids coming into the library to see the treasures of the archives. Some researchers grumble about this, but I’m always happy to see them come in. One object that always arouses interest is a long, thin map of the Mississippi River that unrolls like a scroll. Steamboat pilots used it to navigate the perilous waters of the river more than a century ago. The students are fascinated by it, not just because of its odd appearance but because of what it symbolizes. More than once I’ve overheard kids talking about what it would have been like to use the map to avoid sandbars, sunken logs, and dangerous currents just like Mark Twain did.

This historical society, like so many others, has had its share of budget cuts. They recently had to stop a theatrical series and a traveling lecture tour. Both were popular, but the society simply can’t afford them.

It would be a shame if they had to cut the tours. Missouri schoolkids wouldn’t get their imaginations fired by that map anymore.

[Photo courtesy Joe Mabel via Wikimedia Commons]

Which BIG airline just pulled out of three booking sites?

As you’ve read here on Gadling, the battle between airlines and online travel agencies is poised to heat up. For the past few years, a dismal economy has sent many bargain-hunters to online travel sites with the hopes of finding fantastic deals and minimizing the pain in their wallets. Yet, with the travel market and the broader economy showing signs of recovery, airlines‘ brand power will gain momentum, and customers with more cash at their disposal will favor convenience and recognition over saving a couple of dollars. A battle for your money and your loyalty is brewing.

And, it’s just intensified.

Last month, American Airlines and Orbitz tangled over fees and the booking process, with the airline threatening to yank its inventory from the travel site, a threat on which it made good. After a temporary restraining order was issued, a judge ruled yesterday that American could pull its inventory from the online travel agency and ordered Orbitz to stop selling American Airlines tickets and displaying its fares.

Now, Delta‘s getting in on the action.

The airline has yanked its inventory from a handful of smaller online travel agencies, Aviation Week reports, including CheapOair, OneTravel and Bookit as of last Friday. So, if you’re hunting for cheap tickets on these sites, you won’t run into Delta any more. Aviation Week observes that it appears to be “part of a partial shift in its distribution strategy,” and notes that it seems different from American’s move with Orbitz.For Delta, the decision looks like it’s part of an effort to consolidate around larger online travel agencies, while American is targeting agencies directly, rather than using an intermediary to reach another intermediary.

While the means may be different, the objective appears to be the same. With a shift in the economy, airlines have a bolstered position in the marketplace, and this is likely to give them a bit more weight in dealing with online travel agencies and in reaching consumers directly. For American, it seems like a play to reduce costs and increase efficiency – as it is for Delta (though through different means). Ultimately, however, Delta wants more direct action from consumers, which reduces its sales costs and increases profits, which is what differentiates its decision from that of American.

According to a statement by Delta in Aviation Week, “Delta is being more selective in our use of online travel sites in the future as we continually work to improve our online distribution strategy.” The company adds, “We continue to make significant investments in delta.com to make it an industry-leading travel site, and we believe that delta.com will become the preferred online site to book travel on Delta.”

A representative from CheapOair was not available for comment.

I asked Douglas Quinby, Sr. Director, Research, at travel industry research firm PhoCusWright, his thoughts on Delta’s decision, and his reply was pretty striaghtforward: “The only surprising thing about this move is that it has taken this long.” He explained, “U.S. airlines have impressively restrained their appetite for growth (i.e. capacity) on the back of a (more or less) recovering economy. With clear control of their inventory, airlines have already started rationalizing distribution, and the weakest links are first to get snipped. American may have jumped the gun a bit with Orbitz, but believe me – we ain’t see nothin’ yet!”

So, what’s the net effect of all this? Do the actions of Delta and American suggest that we’ll be paying higher fares in the future because of behavior that doesn’t benefit the consumer? My bet is that the average fare buyer won’t see a whole lot of difference, especially given the share of sales already owned by the airlines via their own websites. The infrequent leisure traveler, especially, is losing an alternative … though it’s one that won’t be as important in a recovering economy.

[photo by boeingdreamscape]

Extra airline fees could mean better service! This is the FUTURE

Soon, airlines could make all their profits on the extra fees you pay. Seriously. Yesterday, the Department of Transportation revealed that airlines have had their most profitable year since it started tracking the data back in 2002. And, a good chunk of revenue came from baggage fees, reservation change fees and ancillary fees. In the third quarter alone, it was good for more than $2 billion. So, the foundation is in place. All the airlines need to do is build on it.

And, it looks like some are trying to do that.

According to MSNBC, US Airways President Scott Kirby said that baggage fees and ancillary fees could add up to 100 percent of the airlines profits this year. We’re not talking about some future development, here. This is now. We’ve been talking for a while about how airlines are coming to rely on these fees. Last year, it was an issue of surviving the recession; this year, it’s been about driving profits. Regardless of prevailing economic conditions, it’s clear these fees aren’t going anywhere. It would stand to reason, therefore, that they’d become a larger part of airlines’ profits over time.

But, 100 percent? How would that work? Let’s take a look.First, think about the trend in reduced amenities, putting aside the weird stuff you read about this morning. Food isn’t free, and you’re paying for bags and premium coach seating (think exit row and bulkhead). This lowers airline costs on an available seat mile basis.

Now, what does it mean to lower costs? Well, it provides the elbow room to compete more effectively on fares – translation: cheaper tickets. So, in theory at least, this puts more butts in seats. The lower cost, however, erodes profit per available seat mile, because there isn’t as much revenue assigned to it.

This is where the fees come in.

If all you buy is a seat, you score! You’ll have the chance to get it for less than you would have paid otherwise. If you’re the kind of person who goes to the movies and sneaks in your own snacks, you’re all set. But, the minute you need something else, you’re going to have to pay. This is where the airlines can make their profits. Essentially, getting you into a seat becomes a marketing opportunity for everything you sell. Going back to the movie theater example, it’s equivalent to the previews you see that implore you to go out to the lobby and grab some popcorn. And, they can pump up the prices on food, liquor, bag-checking and so on to make up what they’re effectively giving away on a break-even seat.

Of course, this is a bit oversimplified, but you get the idea. The future of airlines may be to turn a cheap seat into an opportunity to up-sell you on everything else. Frankly, it isn’t a bad idea. In addition to making tickets cheaper, the flight attendants will need to sell in order to help the airline turn a profit. Sales without service is usually a fool’s errand, so a shift in strategy of this sort will lead to better passenger treatment. Maybe we’ll actually be treated like customers!

All these extra fees may not be such a bad idea after all. The airlines don’t realize this, but if they make all their money on the amenities, they’ll actually have to deliver an enjoyable experience.

Let’s pay less to pay extra and be treated like human beings in the process.

[photo by Augapfel via Flickr]

The death of cheap tickets? Four factors to watch!

Are the days of bargain pricing over? There’s a lot of pessimism around this issue. After getting smacked around in 2008 and 2009, this year has been a good one for air carriers, and USA Today reports: “Airfares are on the rise again and unlikely to fall again anytime soon.” Yet, a travel industry recovery comes with advantages, as more people want to fly, and they tend to be willing to stomach higher prices. So, what’s the deal? Are we going to pay more (happily), or will 2011 means continued a continued prowl for cheap tickets, particularly online?

There’s no doubt that the airlines are getting more of our wallets. The U.S. Department of Transportation says that the average domestic ticket surged 13 percent – from $301 to $341 – from the second quarter of 2009 to the second quarter of 2010. That’s the fourth quarter in a row domestic fares rose.

Now, airlines are price-takers, not price-setters. What does this mean? They respond to what consumers are willing to pay … they don’t set the tone for the market (e.g., the way a luxury goods manufacturer would). So, if fares are shooting up year over year, a consumer willingness to pay is certainly implied.

Individual airline fare increases are pretty interesting, with United Airlines up 25 percent on average for is period and discounter Southwest adding 15 percent, on average, to every ticket.

According to USA Today, airfares are climbing for three reasons:1. Tension between capacity and demand: during the recession, airlines cut capacity in an effort to lower operating expenses and keep their margins from getting throttled. Available seat miles plunged more than 12 percent from the fourth quarter of 2007 through the end of 2009, according to the Air Transport Association. But, travelers are coming back. Demand is up, and there isn’t as much supply on hand. That pushes prices higher, even as airlines scramble to add capacity. Yet, available seat miles are up only 1.5 percent over the past year.

Why?

Airlines have been burned by market forces before when adding capacity too quickly. USA Today explains:

Having learned a bitter lesson by adding back too much capacity, airlines are exercising greater caution and restraint this time around. Additionally, bankruptcies and consolidations during the past few years helped contain capacity. Brands like Aloha, EOS, MAXjet, Midwest, Northwest, Skybus and ATA Airlines have disappeared as a result of consolidation or financial calamity and AirTran and Continental Airlines will soon follow suit.

2. Oil won’t go down: oil has been on the rise for a decade, moving from below $20 a barrel to above $90 a barrel, some of which came from the 2008 market shock. Someone has to pay for this of course … and it isn’t necessarily you. That’s the problem with being a price-taker: you can’t pass along all your expected or unexpected price increases to consumers. Now that market pressures are being eased, airlines can start to recapture some of these expenses.

3. The business is changing: according to USA Today, “so called ‘low-cost’ airlines look more like network airlines every day” – as a result of carrier merger activity. And, the increase in maturity comes with higher expenses. For example, these airlines are “rapidly expanding into larger hub airports or building their own”: that cost cash. It has to come from somewhere. It can also come with long-term costs that aren’t always easy to forecast:

Hub airports are often plagued with congestion, resulting in increased flight delays which can wreak havoc on aircraft turnaround times and utilization schedules, further raising operating costs. In recent years, Southwest has expanded into some of the most congested airports in the country, like Boston Logan, New York LaGuardia and Washington Reagan National.

4. There’s more to spend: the fact that there are expense pressures on airlines doesn’t mean that you’re going to have to foot the bill. The oil price factor, for example, has been around for a while, and it wasn’t enough to protect carriers from price declines. The fact that you probably have more discretionary income – or at least less perceived employment risk – means that you aren’t going to wince when you see a higher price. You’ll book with less lead time. It’s easier for you to spend.

What will be interesting to see is the extent to which consumers will be more willing to open their wallets. Even though having more cash comes with a bit of comfort in using it, memories may not be as short following this recession as they were in previous economic downturns. The recession kicked off by the global financial crisis in 2008 hurt. A lot. Unemployment was severe – and continues to be. People may not be as willing to pay big fares as they were in the past. Does this leave more market opportunities for online discounts – such as those offered by online travel agencies? That remains to be seen.

What do you think? Leave a comment to let us know! There’s no crystal ball on this one, and I’d love to get your thoughts.

[photo by atomic taco via Flickr]

Airline profits may mean more elbow room for a little while

The airline industry wants to thank you. Last year, it was mired in despair. The post-financial crisis recession left the carriers beleaguered and desperate for a turn of fortune. Corporate and leisure travel had fallen precipitously, and doubling down on extra fees, though prudent for profits, alienated both those considering a flight and the passengers with little choice but to hit the road. The brutality of 2009 was evident, and it seemed as though all there was for 2010 was the hope for something better.

Well, hope paid off.

Three quarters into this year, money is again beginning to flow, as a result of (finally) climbing fares, additional fees and an increase in passenger traffic. United Continental, Southwest and JetBlue have reported strong profits for the third quarter using a variety of tactics, but an increase in sales and higher prices appear to be the universal driver. And, this may translate to a bit more elbow room for you.
According to the Associated Press, airlines are beginning to bring back some of the routes they cut last year, as indicated by decisions at Delta and American Airlines to hire more flight attendants. The challenge, however, will be to increase capacity (and thus headcount) without imperiling this year’ hard-won profits.

The business of satisfying pent-up demand isn’t easy for the airline sector. After all, capacity can’t be added one seat at a time. Restoring a route to handle more passengers comes with it the obligation to fill the plane (to the extent possible) each time, in accordance with revenue per available seat mile (RASM) targets.

Nonetheless, the carriers seem ready to rise to the challenge. JetBlue is amping up fourth quarter capacity by up to 10 percent, with Delta looking at an increase of 5 percent to 10 percent. This follows even faster growth in September, according to the Associated Press:

Still, most of the airlines saw traffic rise even faster than capacity in September suggesting they have enough business to support the additional flights. The only exception was Delta, which added capacity slightly faster than traffic rose.

The moves come in anticipation of a strong 2011, according to Ray Neidl, an analyst for Maxim Group. He tells the associated press that the growth in capacity “is a little more long-term,” adding that “[d]espite the lackluster economy, it’s going to be a big year for airlines, especially as consolidation kicks in.”

So, what does this mean for the flying public?

Well, you may not have to occupy that middle seat for a little while, and the odds that someone else will be in it may be improving. The increase in capacity necessarily precedes an increase in sufficient demand to make it profitable, so enjoy it while you can! If the airlines can’t fill those new seats, a return to austerity could send you back to sharing an armrest.

[photo by Joe Shlabotnik via Flickr]