Home' Trinidad and Tobago Guardian : August 10th 2014 Contents AUGUST 10 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
INTERNATIONAL | SBG19
Travelers, prepare to pay more for your flight.The
average roundtrip ticket within the US, including
taxes, reached US$509.15 in the first six months
of this year, up nearly US$14 from the same period
last year. Domestic airfare continues to outpace
inflation, rising 2.7 per cent compared to the 2.1
per cent gain in the Consumer Price Index.
Airfare has gone up 10.7 per cent in the past five years---after
adjusting for inflation---according to an Associated Press analysis
of data from the Airlines Reporting Corp, which processes ticket
transactions for airlines and more than 9,400 travel agencies,
including websites such as Expedia and Orbitz.
The formula for rising fares seems simple, but it eluded the
airlines for years: Match the supply of seats to passenger demand.
"Airlines have reduced the number of seats while more people
want to fly because of the economic recovery. All this leads to
higher airfares," says Chuck Thackston, managing director of data
and analytics at Airlines Reporting Corp. "This trend in airfares
is likely to continue for the near future, as the economy continues
These days, fares only capture part of the cost of flying. Many
passengers pay extra to check their luggage, typically US$50
roundtrip for the first bag and US$70 for the second one. But bag
fees haven t changed much in the past few years. Now, the airlines
are increasingly enticing passengers to pay for fast-track security
lines, early boarding, additional legroom and other extras that can
add from US$9 to US$299 to the cost of a flight.
So, for example, a US$300 ticket can balloon to US$450 on
some airlines if you check two bags and pay US$30 for a little
more room to stretch your legs.
And travelers aren t finding much relief after landing. The
average nightly price of a hotel room in the US during the first
half of this year was US$113.80, according travel research company
STR. That s up US$4.47, or 4 per cent, from the same period in
Most people are traveling for work. And when the economy is
strong, they do more flying. Data released by the government last
week shows that economic growth bounced back after a brutal
winter, businesses are creating jobs at a steady pace and consumer
spending is on the rise.
The Global Business Travel Association predicts that worldwide
business travel will grow 6.9 per cent this year to a record US$1.18
trillion. The United States is the business largest travel market,
with travelers spending US$274 billion last year, a 4.5-per cent
increase over 2012.
Baggage fees and some others were introduced in 2008 to offset
losses from rising fuel prices. However, this year airlines are actually
paying less for fuel --- US$2.96 a gallon so far, 7.2 per cent less
than last year, when adjusted for inflation.
Passengers aren t seeing any of those savings. One reason is
that airlines no longer need to entice fliers with lower fares. There
are simply fewer choices today.
A wave of consolidation that started in 2008 has left four US
airlines---American Airlines, Delta Air Lines, Southwest Airlines
and United Airlines---controlling more than 80 per cent of the
domestic air-travel market. Discount airlines such as Allegiant
Air and Spirit Airlines have grown at breakneck speed but still
carry a tiny fraction of overall passengers.
That control of the market has enabled the bigger airlines to
charge more for tickets and not worry about being undercut by
the competition. In addition, the airlines are taking in about US$3.3
billion a year in fees. The result: record profits.
In April, May and June, the four largest US airlines earned a
combined US$2.9 billion. Airlines are earning so much money
that they are starting to pay investors dividends---something
unheard of in an industry that just a decade ago was struggling
with a wave of bankruptcies.
Airlines for America, the industry s US trade and lobbying group,
says passengers should blame the government, not the carriers,
for higher fares. Last month, increased fees linked to the Trans-
portation Security Administration took effect. Fliers will now pay
a flat fee of US$5.60 each way, up from US$2.50 each way for
nonstop flights and US$5 for trips with connections.
But taxes and government fees still remain a small portion of
what passengers pay. On a US$500 roundtrip ticket between New
York and Seattle, they make up 12 per cent of the price. AP
US airfares on the rise,
The Espirito Santos are a banking dynasty whose
name is as resonant in Portugal as that of the Rock-
efellers is in America. Their reign ended abruptly on
August 3, however, as Banco Espirito Santo, a big
Portuguese bank in which the family business had
a stake of 20 per cent, was restructured. That followed
the disclosure of hefty losses of US$4.9 billion arising
from exposure to the family-controlled group of com-
panies whose interests range from hospitals to cattle
The scale of the losses came as a nasty surprise
to the central bank, which has spoken of a "fraudulent
funding scheme" run by Espirito Santo companies
outside its jurisdiction. It also has accused the former
bosses---a new, independent chief executive already
had been drafted in---of committing previously unre-
ported, potentially criminal acts of "seriously detri-
mental" management during its final days, with a
negative impact of US$2 billion.
The loss brought the bank s solvency ratio below
the statutory minimum, disqualifying it from European
Central Bank funding essential to its survival.
A massive rescue was essential, but the form it
took embodied, at least partly, a tougher European
stance intended to share the burden between taxpayers
and private creditors. Its sound activities, such as
deposits, senior debt and most assets, were transferred
to Novo Banco, a newly created "good bank." Share-
holders and junior bondholders, who are the first to
be wiped out when a company fails, have been left
with only the toxic assets, essentially the bank s expo-
sure to the crumbling Espirito Santo empire and a
troubled Angolan lender. This "bad" bank, which
keeps the BES name, will be liquidated.
Judging from the prices of the shares and junior
bonds, few investors expect much from the sale. The
situation is different for senior unsecured creditors,
whose bonds are trading at levels implying that they
will be paid back in full. That is because they are
moving with the bank s untroubled assets to the
healthy Novo Banco.
That makes the BES rescue a fudged hybrid of
bail-in, in which investors foot the bill, and bailout,
in which taxpayers do. Portugal s assertion that the
rescue comes at no cost to taxpayers is highly ques-
tionable: A total of US$6.5 billion is being injected
into Novo Banco from Portugal s bank-resolution
fund. Though all lenders contribute to this kitty, the
fund has been bolstered by a US$5.9 billion govern-
ment loan, using European Union and International
Monetary Fund money left over from Portugal s sov-
ereign bailout in 2011.
The state cash will be paid back from the proceeds
of Novo Banco s sale. If the price tag is below US$5.9
billion, in theory banks, not taxpayers, will fall liable
for the difference. That presumes that the government,
already having seen BES tumble, does not step in to
foot a bill that could threaten the stability of other
The bail-in/bailout hybrid Portugal has opted for
complies with current EU rules, but would run afoul
of incoming regulations. As of 2016 senior creditors
and even large depositors would have to chip in,
further insulating taxpayers.
@2014 The Economist Newspaper Ltd. Distrib-
uted by the New York Times Syndicate
A massive rescue was essential,
but the form it took embodied,
at least partly, a tougher
European stance intended to
share the burden between
taxpayers and private creditors.
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