Idle ramblings of a wandering mind...

Have Airlines Lost Their Mind?

I have heard stories of Airlines doing some really crazy pricing. However - I had never came across on such masterpiece face to face - till this week.

I was looking for flights from Detroit to Tulsa, OK. I was not sure of my return date so I tried looking for one-way flights. Horror of horrors - this is what I find. Look at the screenshots below. The first screenshot is for a return flight - leaving May 10th and returning May 20th. The second screenshot is a one way journey (exactly same as the first half of the return journey).

Screenshot 1: Return Flight, Price: $401



Screenshot 2: One way flight, Price: $730


Note that the two flights use exactly the same setup for the common part - same flight no. So - at any rate, the return flight should be expensive than the one way - its the same flight plus some more. However, the reality is completely upside down. The on way ticket is almost double in price than the return ticket that has the one way ticket embedded in it. One might as well buy the return ticket and then throw away the return part of the ticket.

I can't think of any justification for it - it just does not make sense. Airline industry it seems uses all kinds of sophisticated revenue management systems, yield management systems etc etc. - and after than if they are coming up with this amazingly crazy pricing then something is surely wrong somewhere.

PS> Northwest has been bleeding money past few years and it under bankruptcy now. See any lconnections??

Labels: Airlines, US

   

H-1B Visas: Problems All Around
Its old news that this year the annual quota for H-1B visas filled twice over in just two days (Link to CNN story). This has given rise to all kinds of discussion on whether H-1B cap should be raised; whether H-1B should even exist and what effect does H-1B has on wage levels in US. There is a bipartisan bill on table in congress that is expected to make matters worse.

Among all the noise, there is one group of people who are finding themselves in the middle of the crossfire - International students in US Universities. The H-1B visas are no longer available for students who will graduate at the end of the current academic year. Most of them have job offers with US companies, provided that they are get their H-1B visa. This really is a double whammy for them - first of all - employment opportunities for international students are severely limited in US. Here in Ross School of Business, University of Michigan, during the past internship season for the MBA class of 2008, only 255 of the total 490 job listings accepted applications from international students. On top of that, even these jobs are in jeopardy because of visa restrictions. Just to be sure - these are students from one of the top MBA programs in the world and any country/company should welcome them with open arms as they will script the future of the business world tomorrow - and here they are rebuffed and rejected.

Increasingly US universities are looking abroad to get qualified students. In most top MBA programs, international students make up more than one third of the student body. These students pay higher out of state tuition and take huge loans (more than $120K) and are willing to legally pay taxes and contribute to the US society and economy - there is no reason to not allow them to work and prosper in US.

Update: International PhD students that take up a job with a US University are not counted as part of the usual H-1B limit. This is good news for all aspiring faculty members like me! (More information available at Carnegie Mellon's excellent page on the subject.)

US Competitiveness: Auto Industry

Already many people including Bill Gates and Harvard Crimson have raised their voices. Bloggers have even suggested that restricting companies from hiring foreign workers will actually lead them to go to the source of talent and outsource more work. In the middle of these, New York Times has written an excellent piece on increasing skill levels of outsourcing firms in India. Combine this with excellent engineering innovation like the sub-$2,500 car I mentioned in my last post - and the indicators are not good for long term competitiveness of the US economy.

If someone really needs some hard data after all this, here are the latest automobile sales figures for US market for March 2007 (market share means share among the producers mentions, not total market share, sales mean unit sales not dollar sales). Look at how the Detroit Three are doing against the Asian Three:

Since I live in Michigan, the auto industry is always top of the mind - and the figures above are so disappointing for any true fan of Detroit's auto history. Not only are GM, Ford and Chrysler losing market share, they are doing worse even in their supposedly strong area - trucks and SUVs. In cars its not even a competition anymore - its a rout! Toyota is already the largest car maker in US and is third if we include both cars and trucks. With gas prices and emission requirements pushing the market towards smaller and more efficient Toyotas and Hondas, its only a matter of time before Toyota and Honda take the leadership position in US auto market from GM and Ford.

Toyota and Honda are both excellent value with forward PE in 13.50 range. I own Honda as I am slightly concerned with Toyota's ability to sustain growth with the large base that it has. Plus I expect Honda to take back the green leadership that it seems to have lost to Toyota Prius.

Labels: Auto, Immigration, India, US

   

I had written before about the growing wind energy capacity in India (Link: Wind Energy Powering India). Wind energy has continued to expand at a phenomenal pace in India. In year 2006, wind energy capacity in India increased by 41.5% amounting to 1,840 MW of new capacity. India was third in the world in new capacity additions (after US and China) and fourth in the world in total installed capacity (after Germany, Spain and US). The table below shows the distribution of installed wind power capacity in the leading countries:



Fast growth in US was expected because of recent tax concessions and the large suitable area and energy demand. China's emergence as the second largest capacity addition in 2006 is more of a surprise. Till few years back China did not really cared about alternative energy. China's ability to quickly ramp up is admirable though.

Things are moving in the right direction. Wind energy is the cleanest renewable energy source available and even though it had problems of high capital cost and non-optimal load distribution, its good to see rapid growth in wind energy capacity. This is one positive impact of the rise in oil prices - the renewable energy sources are now looking more and more attracting in comparison. I will continue to follow growth in wind and other renewable energy resources.

Labels: Alternative Energy, China, India, US, Wind Power

   

I am a teaching assistant for BIT 582 - Enterprise Systems Strategy course at Ross. During last class the class discussion went towards a remarkable analysis - which countries has more people looking for information about cutting edge technology . After all, tomorrow's technology leadership will be decided by how many people in which country are knowledgeable about advanced technologies. So here are some startling information from Google Trends, which tracks origins of search requests for popular search terms.

So, to start, lets pick a popular and generic advanced technology: Nanotechnology. There is no doubt that Nanotechnology will be exceedingly important in future. So - which cities have most people looking for information in Nanotechnology? Google trends provides the answer:



Whoa! Look there - of the top ten cities, none are in developed countries, six are in India and all ten are in Asia! May be top cities is not capturing the full information - lets look at the same data by Countries, rather than Cities.


This is definitive now - Developing countries are the one most important in finding out more about cutting edge technologies. US comes 8th in the list - quite troublesome, considering that its current "adversary" Iran is at the 2nd spot. BTW - this is not happening just because developing countries have more people than the developed world. While overall population is surely bigger, the number of people with Internet access is developing world is smaller than that in developed world.

Just for fun, lets take something from manufacturing, say "Lean Manufacturing" - very effective and well known concept. Which countries are looking for information on Lean Manufacturing? Lets also look at something more specific, say "Service Oriented Architecture". Google Trends provides the the following information:



Chart 4: Searching for Service Oriented Architecture: Top Countries (from Google Trends)

The trend is consistent - Developing countries are more inquisitive about technology then developed countries. India seems to be right on top on every technology search. Is this a cause of concern for developed countries? I think so. These kind of things are the leading indicators, the weak signals that portends a structural shift in balance of technology leadership. A few more years of this and we will have a developing world well versed in technology and a developed world ignorant of the same. What makes it even more striking is the fact that *all* advanced education and technology facilities are in developed countries and even then we have this disparity. As developing world improves their education systems and builds technology facilities, this gap will only increase and the trend will get even more momentum.

Some caveats are in order too: Google is mostly used by the English speaking world - that's why China is conspicuously absent from all the charts above. I am quite sure it will be neck-to-neck with India (or even above) if all search engines are taken together.

My take on this: the four billion poor people of the world have finally information at their disposal (Thank You Internet!) and they are voraciously consuming all this information. The knowledge barrier that kept them down has vanished - and they will be down no longer. We are looking at the emergence of a global knowledge base - that will further feed globalization, and the developed countries are looking at strong (and knowledgeable) competition for tomorrow's technology leadership.

Labels: Development, India, Technology, US

   

I was looking around for World Military Spending - and found the data at the CIA World Factbook. I did a little poking around and interesting facts came out from the data. Look at the table below. I list top 20 countries in the order of their defence expenditures (in billion USDs) and then I calculate their defence spending as a percentage of world total.


Things that jump out straight:

• US spends almost half the world's total defence expenditure!! USD 518 billion - thats more than the entire GDP of Africa. The enormity of this amount is astounding - this is like about 100 dollars for every person in the world - every year!! And we thought the cold war, the nuclear race and all the crazy things were over!
• Look at the countries US is in potential conflict with - Iran and North Korea - they do not even figure in the top 20 countries!! Where is the justification for US asking these countries to scale down their defence programs when US itself spends more than 500 billion on defence.
• China spending 81 billion and India spending 19 billion are out of line too. Both these countries are developing, with millions in extreme poverty - and here they are spending so much on defence.

My impression is that the enormous US defence establishment (including the political and administrative extensions) has become self-sustainable. US is spending so much money not because it needs to but because its tied to so many people's self-interest.

When I think of the Iraq situation, I find it amusing that we have American soldiers with salaries and benefits totalling perhaps more than 100,000 USD per year are trying to keep peace in Iraqi villages, which would not have total income of 100,000 USD for the entire village put together. If they had just given the cost of peacekeeping to Iraqi people - they would have been much better off and would probably have taken cared of their own situation much better themselves.

Everybody's life is invaluable - but from a pure economic point of view, American soldiers don't make sense. How about outsourcing the work to Indian or Pakistani soldiers (leaving aside the political complications for a moment)? They are cheaper to employ and they have extensive experience of peacekeeping in similar contexts as Iraq (Indians in Kashmir, Pakistanis in Karachi and these days in Afghanistan border). Of course the idea would not fly in the current political scenario - but I think the future trend for American military is clear. They should focus on being the Command and Control and the Equipment army and they should collaborate with developing countries as the people army. This is a win win for both for taking care of all international assignments.

Labels: India, US

   

The Multi-Fiber-Agreemenet (MFA) ended end of 2004 and there was widespread fear that with no protection for smaller underdeveloped countries, they will get swamped by China. I just came across US textile import data (link) for 2005 and a cursory look presents an interesting picture:

• China indeed saw a sharp growth in textile growth to US: 53%, against overall US textile import growth of 7.5%.
• However, most second string exportere (developing countries) also saw significant jump in their exports. India: 25.5%, Indonasia: 17.3%, Pakistan: 13.2%, , Bangladesh: 18.7%
• Major declines in textile exports were confined to relatively prosperous countries: UK, France, HongKong, Singapore, South Korea, Italy, Taiwan, Turkey...
• So - developing countries are not on the losing side. They are in fact benefitting from developed countries becoming less competitive in post-MFA world.
  

So - ending of MFA has not spelled the death of textile exports in poor countries. They are in fact experiencing a textile export growth rate higher than the overall growth rate of US textile import. The developed and near-developed countries are losing market share in US textile imports - and thats something entirely desirable.

Textile export is one of the strongest anti-poverty trade measure in many developing world. It has done wonders to people's standard of living in large areas of Bangladesh, India, Pakistan and Sri Lanka - and its good to know that they will survive - even after MFA. Its heartening to see that developing world is being able to withstand competition from China.

Latest US textile import data can be found here.

Labels: Economics, India, US