Victor J. Cook, Jr.

http://www.freeman.tulane.edu/faculty/vitas/cook.htm

77 Comments

    • Express Luggage Services: Charting a Demand Curve With No Data [view article]
      Lea Ann,

      Several other services are available on a relatively small scale. The purpose of this post was to explore the demand curve that might result if a small company like LuggageForward.com were to partner with UPS in providing such service to a large carrier like Continental Airlines.

      For a detailed discussion of what that service might look like this see my post on seekingalpha.com/artic....

      The decision by AA to charge $15 per checked bag sure raises the level of interest in exploring this option. Even so if you read the comments on my posts in this series most think the idea is pretty speculative at this point.

      Thanks for your comment.

      ~V
      May 27 09:54 AM
    • U.S. Airline Stocks: Bargain-Hunters' Dream or Falling Knife? [view article]
      Interesting article, Mark. The price/revenue ratio is a great metric -- simple to compute with powerful implications.

      To place this metric in perspective you might what to see my paper "The Value/Revenue Ratio." In it I track that ratio over 56 years for all public companies. The long run expectation is about 1.0, but the semi-long run swings are even more interesting. See papers.ssrn.com/sol3/p...

      Vic       May 26 05:29 PM
    • Passengers, Packages: The Paradox of Air Transport [view article]
      Sallfham,

      “… only about 60% of all air passengers check their bags.” This is very useful statistic. Please give me reference.

      “… who is going to have to take responsibility for securing their luggage when it arrives?” You may be out of step with the times on this one. Here’s the latest information I could find on baggage security at airports:

      “Do you remember some airports before 9/11 had those “security” people who checked your luggage claim checks against the bags you were taking with you? Where are they now? Who is watching out for your luggage until you claim it at the carousel? The answer is NOONE is watching out for your luggage”

      “ … what makes you think that passenger airlines can easily fill their luggage compartments with profitable cargo?” A comment by a senior operations manager at a legacy carrier that I quoted in an earlier post in this series.

      “Just because Heathrow had day one problems, it doesn't mean that managing airport luggage sorting is beyond the reach of modern technology.” The Heathrow reference was just a lead in to my post on the problems with checked baggage, not a condemnation of modern technology.

      “The biggest obstacle to efficiency is the spot checking and scanning that Homeland Security now requires, not the coding and routing itself.” Exactly! That’s another reason to remove luggage from the passenger transport system.

      “Face it -- people want their luggage to travel with them.” I believe that you want your luggage to travel with you, but I’m not sure that you represent the traveling population.

      Thanks for your comments.

      ~V
      May 14 09:34 AM
    • Express Luggage Services: Charting a Demand Curve With No Data [view article]
      Hubogart1,

      Looks like The Luggage Club has pretty thin margins – unless they get that 37% first tier big shipper discount. Their price for next morning delivery of a 25 lb suitcase from New Orleans to Dallas is $146.31. That’s just a bit more then the $142.40 rack rate I got from UPS for my 30 lb package. But they don’t give you the option to pick either a delivery window (except morning) or a specific time.

      Thanks for the link.

      ~V
      May 13 06:06 PM
    • Passengers, Packages: The Paradox of Air Transport [view article]
      Cookie Monster,

      “People want to be pampered.”

      Yes, that’s my point. Let the box specialists move the boxes and the passenger specialists pamper the passengers!

      “While there are many air freight companies, there are really two powerhouses: FedEx and UPS.”

      Actually there are three: you forgot the biggest one of all DHL.

      “… anytime there seems to be a real chance of consolidating the airline industry down to 3 or four powerhouse carriers who might have a chance to become stable and profitable, there is a hue and cry from Washington about loss of service to remote areas and rising costs.”

      The package carriers did not consolidate down to 3 or four. They created the business to diminish the government monopoly and expanded up from 1 to 3 or 4 companies.

      “Passengers can't expect to pay air freight rates for their own transportation and then demand hot towels, lay-flat seats and hot fudge sundaes. Do you any idea of what air freight rates might be if the package carriers managed all the “free” checked baggage?”

      Well, that’s really good question! I try to shed a little light on the it in my latest post: Charting a Demand Curve Without Any Data." If you have some additional data to add that would be great!

      Thanks for your comments.

      ~V
      May 12 06:32 PM
    • Passengers, Packages: The Paradox of Air Transport [view article]
      Airline Pilot,

      Excellent points! Especially the requirement that passengers must plan ahead for what they'd be carrying with them and what would be shipped. I travel a lot too and you’re right, many travelers are unprepared.

      Planning ahead is a lot to ask of the ones who are unprepared. But there’s an upside that even the most careless traveler will notice: they don’t have to carry their bags to the airport, lug them into the check in line, then wait for them by the carrousel at their destination, lug them out to a vehicle, into their hotel and go through the whole thing on the return trip. Maybe the relief from these chores and knowing their bags would be picked up and returned to their home would be enough to it motivate careless travelers to plan ahead.

      Here’s another possibility. What about providing passengers with standardized, re-usable “air valise” containers in small, medium and large sizes to pack their belongings? This would remind travelers that they had to plan ahead. It would also make it a lot easier for package shippers to handle the cargo.

      Thanks for your comments.

      ~V       May 12 06:21 PM
    • Passengers, Packages: The Paradox of Air Transport [view article]
      Frequent Traveler,

      I wasn’t aware the Southwest Airlines used FEDEX to deliver late/delayed bags. You also make a good case for some of the advantages of express delivery of passenger luggage. Thanks for your comments.

      ~V       May 12 06:19 PM
    • Passengers, Packages: The Paradox of Air Transport [view article]
      JMike49,

      Actually you’re way off on the UPS average person shipping cost.

      I just priced a 30 lb. package on UPS. If I shipped it by regular Next Day Air from New Orleans to Dallas in a Large UPS box with a declared value of $300 it would cost me $142.50. Shipped by Next Day Super Saver with no declared value it would be $134.16.

      Can the difference between the single shipper UPS retail fares and the Amazon Prime cost of $3.99 be driven by volume discounts? Maybe. See my latest post.
      May 12 05:42 PM
    • Luggage Forward Flying: How to Restore Passenger Confidence and Carrier Profitability [view article]
      Concerned Traveler,

      Thanks for your tip on Baggage Quest (BQ). Since I was not aware of this option I checked out their website. I noticed that both services are private companies looking for investors.

      The front page of BQ looks just like Luggage Forward’s (LF). But, as you say, there are some important differences. For this reply to your comment I priced a one-way trip from ZIP 10023 to 33464 on April 30, 2008.

      Like you, I found the LF pricing screen confusing. I think the main reason for the confusion is that it gives me more options. BQ has no detailed pricing screen. They specify a Platinum Service next-day delivery date -- without a pick-up time -- for $280. On the other hand the Express Service in LF’s pricing screen lets you select between a standard two hour pick-up time (i.e. 1:00-3:00) for $259. In addition you can specify an exact time (i.e. 1:00) on pick-up date for an additional $45 – or a total of $296 .

      Currently both services are pretty pricey – several hundred bucks for same-day pick-up and next-day delivery. I’m sure these prices are a result of their relatively small scale of operations. See my latest SA post for a take on what next day service might cost in a large scale operation based on partnering with one or more major carriers.

      ~V

      Apr 28 11:23 AM
    • Passengers, Packages: The Paradox of Air Transport [view article]
      Sckarolek,

      Thanks for the reminder about the cost of Amazon Prime. I use the service so often it seems virtually free.

      Rolling the dice is in the nature of membership clubs. My son's monther in law belongs to Costco. When we go shopping she rolls out two baskets full of so much stuff it probably pays for her membership in a single trip.       Apr 28 10:27 AM
    • Luggage Forward Flying: How to Restore Passenger Confidence and Carrier Profitability [view article]
      real_world,

      Somehow you missed the underlying meaning of the LESS is more concept. And in doing so gave me an opportunity to clarify the issues. I’ll try to explain by beginning with the statement in JC’s book that jump-started this entire line of thinking about creating ‘power offers’ in air travel:

      ”For [passengers], less should mean that they get exactly what they need and nothing more, with no superfluous elements that create complexity and could destroy value (p.27).”

      Checking baggage is one of the “superfluous” elements in air travel that “creates complexity” through check-in and pick-up and “destroys value” through mishandling and loss. The passenger benefits of not checking baggage are outlined on the Luggage Forward website in the section titled …why forward luggage?

      … avoid carrying your luggage or sports equipment to and from the airport

      … bypass long check-in lines

      … don't pay excess baggage fees

      … eliminate the possibility of the airline losing your luggage

      … skip the wait at baggage claim

      … have your luggage waiting for you at your destination

      In a trip between Houston and Dallas these activities easily consume more time that the flight itself. Not to mention the hassles involved. By the way, if a Luggage Forward passenger's baggage shipped “within the United States is delayed, Luggage Forward will provide reimbursement of expenses of up to $200.00 per day per Item until the day the delayed Item arrives.” With this kind of luggage performance standard you can bet that very few LES travelers would be left “waiting for it” at their destination.

      Your comments skip right over these passenger benefits. It appears you want to make the reader believe the idea that “parallel” flights by an express shipper are both ridiculous and unnecessary. It’s not. In fact it’s one of the subtle virtues of the LES option: the specialization of labor kicks in.

      The shipment of packages compared with people make dramatically different demands on the carriers. FedEx, UPS and DHL specialize in packages. It’s obvious that package shipping is both easier to manage and more profitable than the shipping of people. A telling statistic is that in 2007 these top three express shippers generated $122.7 million in revenues per aircraft per year compared with nine air carriers’ $35.5 million. That’s 3.5 times more revenue for express shippers per plane per year. And packages are never “unhappy” about how tightly they are packed into the aircraft!

      On the other hand, airlines are in the business of moving people, not bags. According to the DOT scheduled U.S. airlines flew 18.7 million hours in 2007 with no passenger fatalities, but they mishandled more than 5.1 million bags.

      Finally, suppose your assertion that express shippers “currently rely on the airlines to support their overnight service …so, the luggage would wind up right back on the airline's planes” is correct. Here again, your comment overlooks a fundamental benefit of the LES is more option. That baggage winds up on the airlines’ planes as cargo, generating revenue at market rates based on weight and distance traveled.

      Even if your assertion is correct, passengers are free from the curse of checked baggage and the carrier earns money on the shipment! Actually, I suspect the top three express shippers use passenger carriers to supplement their own fleets only when capacity is pushed to the limit, as may be true during holidays. If you have data to the contrary, please post it your reply.

      Thanks for your comments.

      ~V
      Apr 22 10:54 AM
    • DAL/NWA: Proposed Merger So Large, Yet It's Worth Less Than Yahoo [view article]
      Last Friday DAL and NWA closed at $8.75 and $9.69 respectively with a combined market cap just under $5b. Tangible assets play a far less important role in valuation today than they did a several decades ago. These days intangible value accounts for about 75% of total capitalization.

      What's the "normalized" market value of a company? Over the last 55 years the ratio of value to revenue was 1. If you're interested in the details see my paper on the value/revenue ratio at papers.ssrn.com/sol3/p...

      Apr 21 09:57 AM
    • Unintended Consequences of a Delta/Northwest Merger [view article]
      E.G. said “The valuation of the two airlines (NWA & DAL) is something very tangible using asset-base or units per capacity and can be decided objectively if reasonable approaches are applied.”

      Tyroni said my analysis is “is complete trash and meant to skew the results.”

      Let’s review the bidding to this point.

      On February 28, 2008 DAL closed at $13.35. With 299.47m shares outstanding its market cap was $4.00b. That same day NWA closed at $13.43. And with 262m shares outstanding its market cap was $3.52b.

      On April 16, DAL closed at $8.62. On that day Yahoo! Finance reported shares outstanding were 292.22m, so its market cap was $2.52b. That’s a 35% decline in market cap since 2/28/08. NWA closed at $9.55 with 236.43 shares out so its market cap was $2.26b. That’s a 29% decline.

      If you added the 2/28/08 market caps of DAL and NWA they came to $7.52b. On April 16 their market caps added up to $4.78b. Over the ensuing seven weeks investors knocked $2.3b off their combined value, for a 32% decline.

      If you guys bought at DAL and NWA (based on your theories) at 2/28/08 prices in anticipation of making a bundle once the merger went through, I guess you made a bad call.

      Looks like investors don’t agree that the valuation of these two airlines is “something very tangible.” And it just might be that my analysis isn’t "complete trash ... meant to skew the results."

      Thanks for your comments.

      ~V
      Apr 17 10:50 AM
    • 'Power Offers' in Air Travel: Should Continental Partner with the TSA? [view article]
      RG,

      Your comment is a welcome voice for change in replies to recent posts in my series on improving the air travel experience. I was beginning to think I was the only one who believes that most of the hassle of flying occurs on the ground. And more important, that removing those hassles would create a “power offer” that would be far more appealing than frequent flyer miles.

      It also came as a surprise to me that none of the domestic legacy carriers are involved in the TSA Registered Traveler program. So I thought they must be in process. Apparently not. I just searched for the phrase “Registered Traveler” in the Q3 and Q4 07 earnings call transcripts on Seeking Alpha for CAL, DAL and UAUA. Guess what? Not a single mention of this TSA program in any of them. These being three of the biggest domestic carriers in competition with Virgin Atlantic, BA and Air France you would think they might be exploring this option.

      Right now I’m working on the next post in this series for Sunday April 13, 2008. It takes the notion of a “power offer” to the next level by reviewing two privately held companies that offer supporting ground services in cooperation with the TSA. It turns out that Virgin Atlantic, BA and Air France already have partnered with one of the as well. But not CAL, DAL or UAUA. I guess merger mania has blinded senior management of these carriers to even the possibility of offering a more appealing and profitable service. I also wonder why we don’t hear more from the pilots on this possibility. They have as big a vested interest in more appealing and profitable air travel experiences as anyone else.

      Thanks for your thoughtful comment.

      ~V
      Apr 09 11:27 AM
    • 'Power Offers' in Air Travel: Should Continental Partner with the TSA? [view article]
      Feedback on my error,

      I apologize to the shareholders and employees of AirTran Airways for my error. I also apologize to SA readers. If I had cross-checked The New York Times report on the bankruptcy of ATA Airlines (www.ata.com/) more carefully I would have discovered it was not AirTran Airways, a subsidiary of AirTran Holdings (NYSE: AAI), (www.airtran.com/Home.a...).

      The SA editors have removed the incorrect references from this post. Thank you for your prompt feedback on my error.

      By the way, I searched the AirTran website for information on their TSA Registered Traveler service and found no reference to it. Do you know anything about availability of this service to AirTran passengers?

      Should I stick to financial reporting? Maybe I should. It's sure is a lot easier to find errors in a financial analysis of historical data than in the complex issues associated with redesigning an unprofitable business model.

      ~V
      Apr 07 10:31 AM
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