Another Forbes Article

Douglas Schnell <dks28@xxxxxxxxxxx> · Fri, 3 May 2002 18:47:55 -0400

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 Forbes.com <http://images.forbes.com/media/assets/forbes_logo_blue.gif>

          <http://www.forbes.com/forbes/2002/0513/images/spacer.gif>

Digital Rules
Business Travel Battleground
Rich Karlgaard, 05.13.02, 12:00 AM ET

You can't beat a business that knows for dead certain the exact hour
paying customers will show up. A hot dog stand can only guess. A
fashionable restaurant, taking reservations many weeks ahead, knows a
tad more. Even so, it doesn't know what people will order to eat until
they do.

Nope, when it comes to having such valuable, prescient data--products
sold, time of transaction, size of transaction, profile of
audience--just one industry owns it all. Such an industry ought to,
you'd think, kill every record for customer satisfaction. It should
score a perfect 10 on every survey. Knock the ball into the cheap seats
each time. But this industry does not. In that regard, it may be the
absolute stinker--the worst of all time. Which industry is the Montreal
Expos, the New Coke, the Big Tourney Phil Mickelson of user
satisfaction? It's the airlines, of course.

Sorry to pour lye in your wounds, guys. Our gripes have little to do
with 9/11 and its time-robbing aftermath. On that, America cuts you a
free pass. Your sins are older, more basic. Let's start with the simple
boneheadedness of making your customers shuffle through a 40-minute
check-in line. Why on earth must you do that? And at every airport!
Every time! Your computers tell you the exact hour poor souls like me
will be arriving. Why not staff accordingly?

Can I raise an embarrassing issue? A male flight attendant on a San
Francisco to New York run last week exhibited--how to say this?--fierce
body odor. Dogs barked in Kabul every time the guy lifted his arm to
pour coffee. Must we suffer this, too?

Bye-Bye, Business Traveler

Southwest Airlines and the newly public JetBlue have figured out a way
to make a profit from coach travelers. (One type of aircraft,
second-tier airports, happy employees.) Bravo to these exceptions. The
rest of you, listen up. Today you depend on the business traveler. Say
good-bye to these customers. Phil Condit, CEO of Boeing, thinks 10% of
business travelers, based on the peak 2000 travel year, will never come
back. Not even when the economy perks up.

Condit underestimates. Here's why:

. Private jet travel is up 20% since 9/11. These gains likely will hold
and go up for one reason: positive network effects. It works like this:
As the customer base for a product or service grows, choices expand and
prices drop. To go from Akron to Albuquerque in a rented Dassault Falcon
50, configured to seat eight, costs about $30,000 today. Convenient,
yes; cheap, no. You're paying for the cost of repositioning the plane to
Altoona for the next customer. But as the customer base grows, maybe the
Falcon 50 need only go to San Antonio for its reposition. Or maybe it
stays right there in Albuquerque for its next fare to Albany, and the
price drops 50%.

. Just two airplane manufacturers serve commercial carriers today:
Boeing and Airbus. By contrast, the private jet field is rowdy and
competitive; thus it evolves faster. Dassault, Bombardier, Gulfstream,
Cessna, Raytheon and many others knock heads annually to deliver the
fastest or most cost-efficient jets. The customer wins big.

. But wait! The story gets better. Small-jet technology is about to get
disruptive. We first wrote about Eclipse Aviation
<http://www.forbes.com/forbes/2000/0529/6513057a.html> two summers ago.
Led by ex-Microsoft executive Vern Raburn, Eclipse is adapting the
Williams International cruise missile propulsion technology to its
six-seat jet, which is the size of a Piper Malibu. The Eclipse jet's
85-pound engines--no bigger than bongo drums--will operate at a
thrust-to-weight ratio twice as good as the Citation series' standard.
Not since fan-jets replaced turbojets in the early 1960s has such a leap
been attempted. If successful, we could see a brand-new Eclipse 500 jet
for under $1 million in 2004. Followed by a national network of air
taxis.

. Let's briefly revisit that other disrupter, so suddenly out of
fashion--the Web. It, too, even in this season of the Wall Street dry
heaves, gets faster and content-richer by the month. Videoconferencing
evolves at the pace of Moore's Law, more or less. Can anyone make that
claim for commercial air travel? Of course, videoconferencing's triumph
has been predicted before. But you don't have to predict conquest to
guess at the hurt even a slight migration will inflict on commercial air
carriers. You need only imagine 10% of business travelers--a quarter of
some airlines' revenue--not flying.

Cheap!

Grim are the prospects of some U.S. carriers. But never confuse a trend
with a stock pick. Despite the knocks against major U.S. carriers, you
might nevertheless consider buying their stock. All the stories about
long lines, apoplectic customers, rising fuel prices and strike-prone
pilots ... are baked into the stock prices. They are laughably cheap.
United Airlines (UAL) is a case in point. It will do about $16 billion
in sales over the next 12 months. Its market cap is a pitiful $860
million today. Honestly, have you ever seen a market-cap-to-sales-ratio
of 0.05 before? Market-to-book is cheap, too: 0.25.

Go to forbes.com, type in "UAL," and do your own analysis. I have a
hunch the big carriers, faced with death, will rise to the fight and
look good in a year. Who knows? Soon we might even be writing case
studies on born-again airline service.

Visit Rich Karlgaard's home page at www.forbes.com/karlgaard or email
him at publisher@forbes.com.

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<DIV><BR><SPAN class=3Dartsectiontitle></SPAN>&nbsp;</DIV>
<DIV><SPAN class=3Dartsectiontitle>Digital Rules</SPAN> <BR><SPAN=20
class=3Dmainarttitle><SPAN class=3Dmainarttitle>Business Travel =
Battleground</SPAN>=20
<BR></SPAN><SPAN class=3Dmainartauthor>Rich Karlgaard, </SPAN><SPAN=20
class=3Dmainartsrc></SPAN><SPAN class=3Dmainartdate>05.13.02, 12:00 AM =
ET</SPAN>=20
<BR><BR><SPAN class=3Dmainarttxt>You can't beat a business that knows =
for dead=20
certain the exact hour paying customers will show up. A hot dog stand =
can only=20
guess. A fashionable restaurant, taking reservations many weeks ahead, =
knows a=20
tad more. Even so, it doesn't know what people will order to eat until =
they=20
do.</SPAN> <BR><BR><SPAN class=3Dmainarttxt>Nope, when it comes to =
having such=20
valuable, prescient data--products sold, time of transaction, size of=20
transaction, profile of audience--just one industry owns it all. Such an =

industry ought to, you'd think, kill every record for customer =
satisfaction. It=20
should score a perfect 10 on every survey. Knock the ball into the cheap =
seats=20
each time. But this industry does not. In that regard, it may be the =
absolute=20
stinker--the worst of all time. Which industry is the Montreal Expos, =
the New=20
Coke, the Big Tourney Phil Mickelson of user satisfaction? It's the =
airlines, of=20
course. Sorry to pour lye in =
your wounds,=20
guys. Our gripes have little to do with 9/11 and its time-robbing =
aftermath. On=20
that, America cuts you a free pass. Your sins are older, more basic. =
Let's start=20
with the simple boneheadedness of making your customers shuffle through =
a=20
40-minute check-in line. Why on earth must you do that? And at every =
airport!=20
Every time! Your computers tell you the exact hour poor souls like me =
will be=20
arriving. Why not staff accordingly? Can I=20
raise an embarrassing issue? A male flight attendant on a San Francisco =
to New=20
York run last week exhibited--how to say this?--fierce body odor. Dogs =
barked in=20
Kabul every time the guy lifted his arm to pour coffee. Must we suffer =
this,=20
too? Bye-Bye, Business=20
Traveler Southwest Airlines =
and the=20
newly public JetBlue have figured out a way to make a profit from coach=20
travelers. (One type of aircraft, second-tier airports, happy =
employees.) Bravo=20
to these exceptions. The rest of you, listen up. Today you depend on the =

business traveler. Say good-bye to these customers. Phil Condit, CEO of =
Boeing,=20
thinks 10% of business travelers, based on the peak 2000 travel year, =
will never=20
come back. Not even when the economy perks up. <SPAN=20
class=3Dmainarttxt>Condit underestimates. Here's why: =
 <SPAN=20
class=3Dmainarttxt>&#8226; Private jet travel is up 20% since 9/11. =
These gains likely=20
will hold and go up for one reason: positive network effects. It works =
like=20
this: As the customer base for a product or service grows, choices =
expand and=20
prices drop. To go from Akron to Albuquerque in a rented Dassault Falcon =
50,=20
configured to seat eight, costs about $30,000 today. Convenient, yes; =
cheap, no.=20
You're paying for the cost of repositioning the plane to Altoona for the =
next=20
customer. But as the customer base grows, maybe the Falcon 50 need only =
go to=20
San Antonio for its reposition. Or maybe it stays right there in =
Albuquerque for=20
its next fare to Albany, and the price drops 50%. <SPAN=20
class=3Dmainarttxt>&#8226; Just two airplane manufacturers serve =
commercial carriers=20
today: Boeing and Airbus. By contrast, the private jet field is rowdy =
and=20
competitive; thus it evolves faster. Dassault, Bombardier, Gulfstream, =
Cessna,=20
Raytheon and many others knock heads annually to deliver the fastest or =
most=20
cost-efficient jets. The customer wins big. <SPAN=20
class=3Dmainarttxt>&#8226; But wait! The story gets better. Small-jet =
technology is=20
about to get disruptive. We first wrote about <A=20
href=3D"http://www.forbes.com/forbes/2000/0529/6513057a.html";>Eclipse =
Aviation</A>=20
two summers ago. Led by ex-Microsoft executive Vern Raburn, Eclipse is =
adapting=20
the Williams International cruise missile propulsion technology to its =
six-seat=20
jet, which is the size of a Piper Malibu. The Eclipse jet's 85-pound =
engines--no=20
bigger than bongo drums--will operate at a thrust-to-weight ratio twice =
as good=20
as the Citation series' standard. Not since fan-jets replaced turbojets =
in the=20
early 1960s has such a leap been attempted. If successful, we could see =
a=20
brand-new Eclipse 500 jet for under $1 million in 2004. Followed by a =
national=20
network of air taxis. &#8226; =
Let's briefly=20
revisit that other disrupter, so suddenly out of fashion--the Web. It, =
too, even=20
in this season of the Wall Street dry heaves, gets faster and =
content-richer by=20
the month. Videoconferencing evolves at the pace of Moore's Law, more or =
less.=20
Can anyone make that claim for commercial air travel? Of course,=20
videoconferencing's triumph has been predicted before. But you don't =
have to=20
predict conquest to guess at the hurt even a slight migration will =
inflict on=20
commercial air carriers. You need only imagine 10% of business =
travelers--a=20
quarter of some airlines' revenue--not flying. <SPAN=20
class=3Dmainarttxt>Cheap! Grim are=20
the prospects of some U.S. carriers. But never confuse a trend with a =
stock=20
pick. Despite the knocks against major U.S. carriers, you might =
nevertheless=20
consider buying their stock. All the stories about long lines, =
apoplectic=20
customers, rising fuel prices and strike-prone pilots ... are baked into =
the=20
stock prices. They are laughably cheap. United Airlines (UAL) is a case =
in=20
point. It will do about $16 billion in sales over the next 12 months. =
Its market=20
cap is a pitiful $860 million today. Honestly, have you ever seen =
a=20
market-cap-to-sales-ratio of 0.05 before? Market-to-book is cheap, too:=20
0.25. Go to forbes.com, type in =
"UAL," and=20
do your own analysis. I have a hunch the big carriers, faced with death, =
will=20
rise to the fight and look good in a year. Who knows? Soon we might even =
be=20
writing case studies on born-again airline service. <SPAN =

class=3Dmainarttxt>Visit <B>Rich Karlgaard</B>'s home page at <A=20
href=3D"http://www.forbes.com/karlgaard";>www.forbes.com/karlgaard</A> or =
email him=20
at publisher@forbes.com.</SPAN>=20
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