How to fix the airline industry mess and improve customer experience?

Responding to Don's post on airline passengers rights (bill of rights) and on how to resolve the big mess in the airline industry and their level of service.

I feel like it's a lost cause to fight for better service on public airline travel, but obviously there is nothing that is impossible to fix. It will probably be more difficult and take a longer time to fix.But as of now, unless we like driving so much or have the means to buy our own plane (or buy franctional jet ownership like NetJets which is becoming more affordable nowadays), it seems like we just have to be content with these airlines.

Right now, the biggest problem that I see is the attitude of these airlines is: "You need us (more than we need you)". I understand that most of their workers have long days at the airport and have to deal with a lot of obnoxious customers (who get upset when flights are delayed and cancelled). And the cycle continues and eventually everyone gets upset. Interestingly, in other industries, Companies can't afford to treat customers this bad.

I think there are several things that needs to happen before customers can feel that they are satisfied with the level of service of the airlines (i.e. before the airlines have any incentive to improve service and feel that they need the customers).

One of the critical factor is: these airlines needs to start making money (which is probably the million dollar question on how can they achieve that). With profit, these airlline can start thinking about customer experience and customer satisfaction (which will take money to do that). Right now all they can think of is how to survive. How are we going to make it through the next quarter is probably the most common theme in the board/management meeting. Maybe our government needs to continually subsidize them (to give them incentive to improve) like the operation of the USPS (which is losing money each year but customers seems to be satisfied with their service). However, I am a believer of capitalism and Laissez Faire system.

Here are some of the things that the airlines can do to try to get to profitability:

1. Continue to cut salary of those Pilots and all other workers (both union and non-union worker).
2. Make sure most flight is full (and make more people pay more for their seats).
3. Try to create a plan to reduce their pension liability.
4. If they have cash left, try to improve some of the equipment (both the planes and the systems on the ground).
5. Persuade plane maker to build lighter planes and jet engine that can use less gas for the same distance.
6. Reduce management workforce.
7. Merger with other airline that has stronger and more efficient operation and reputation.

Obviously safety should be their #1 priority. I don't mind if the delay really will improve safety (if they find engine issue and need to be fixed before flying), but they have to reduce the number of occurence of engine maintenance related delay.

I mentioned earlier about being content. I used to live in Wisconsin, so I have had my share of bad experience with airline travel (snowed out in Madison, stranded in Chicago O'hare, 10 hours delay in Detroit DTW, lost luggage, double booked seat, missed international connection flight in SFO which you know sometime only fly once a day, bumped to a red-eye fight, etc, you name it.) Lately, as I lowered my expectation and do better planning, I rarely get frustrated anymore. Better planning is definitely key. If we know we need to be in a very important meeting, we want to plan to arrive early (build some fluff for delays. i.e. expect the delays). I know that time is valuable for people and many can't afford to arrive earlier but just like investing or any other part in life, we just have to weigh the risk and return. For example, earlier this year, during high season (for that area), I went to Omaha to attend a meeting that I don't want to miss so I went a day (24 hour) earlier, and the plane did get delayed, but I didn't miss the meeting.

So there are several things that we can do to improve our travel experience (and make lemonade from lemon):

1. Plan better. Build fluff/time cushion. Get a non-stop flight if possible. set enough time for each layover.
2. Watch the weather a day or two before the trip and see how it might impact your flight.
3. Bring some work, books or music/ipod
4. Enroll in one of the airport lounge membership program (I use priority pass and I think it is well worth it if you travel often).
5. Don't check in any luggage if possible. Carry on only.
6. Get enough rest before the trip.
7. Drink enough water to stay hydrated.
8. Stretch/walk once every hour or two.
9. Keep Tylenol/Advil handy (also your other medicines).
10. Finally, if you get delayed, take a deep breath and remind yourself that there is no help/benefit of being upset.

On a side note, due to the situation in this industry, I have avoided all airline stocks, even some of the best ones like JBLU and LUV and I definitely will not touch all the rest that mostly have lost money for the last couple years or the ones that is nearly bankrupt and is selling in the pennies, even if that will give me a multibagger return opportunity.

I guess there is no one size fits all kind of solution for this mess, but in the mean time (while the industry and congress are trying to fix this issue), we can try to do several things in our end to try to imporve the public air travel experience.

Happy flying!

Sincerely,

Sidarta Tanu

Value Microcaps Review (Accountability)

I'm going to review some of the Value Microcaps stocks (AOB and ETLT) that I covered in my previous posts late last year and earlier this year. It's accountability time!

Since the rally late last year (November 2006) these 2 Value Microcaps stocks that I mentioned has been performing badly especially since I mentioned it again early this year (January 2007). But fortunately the last couple months, the fundamental of AOB and ETLT continue to improve and the stocks recover (though still very volatile on a day to day basis). Some of my scenario that I laid out (of ten-bagger or 900% return) around the $7.50 call option becoming a reality. Unfortunately, I don't play/invest in options. If there is anyone following the AOB $7.50 call option strategy that I mentioned previously or bought and hold AOB below $7.50 then congratulation on the gain!

AOB is not too cheap anymore with trailing PE of 24, but they are still growing fast and the Onlympic next year in Beijing should help give them exposure. As far as ETLT goes, this is one tough stock to crack. Everytime it rallies, it dropped again in a matter of weeks (to PE of 5). I still feel that this stock is undervalued (PE under 10 and P/tangible book < 1 etc.) but they have been undervalued for years. I believe, at this price, there are concerns of fraud. I saw that it is also currently being pumped as well in many message boards which might explain the recent rally. I'm hoping someday ETLT will reach its reasonable value and sustain the rally that they deserve.

Honestly speaking, I don't know where these two stocks will head next especially in the short term. But I think, in about a year or two, AOB probably will not be called a microcap stock anymore....

Here are some of my previous posts on some Value Microcaps stock that I was referring to:

1. Why Value Microcaps Rock?

2. AOBOOOYAHH.. Back at you Cramer!

3. ETLT.OB: an example of a value microcap stock.

Happy Investing!

Sidarta Tanu

Disclosure: This is not a recommendation for an investment. Investment in AOB and ETLT (and similar stocks) are risky and you can lose all your investment. Always do your own due diligence.

What you need to know about Online Social Networking (Responding to Don's post caveat emptor v2.0)

Responding on Don Montanaro's post titled caveat emptor v2.0

I want to make some comments about Mackey's action, character and the responsibility of each individual on an online social network (i.e. blog, group or message board)

1. Mackey's action isn't good (regardless whether it's legally right or wrong). It reflects his character and to some degree his integrity. I wouldn't hire him if I own a company (if I know that he would do such things). Anyway, he's the founder/owner of the company (Whole Foods), so probably he can afford to do (or get away with) that.

2. In an online social networking environment, every individual is responsible to do their own due diligence and take whatever they read with a grain of salt. It's true that the badge and/or certified trade would add some degree of credibility but that still doesn't replace the responsibility to apply some common sense and in-depth research (v.s. blindly following others regardless their credibility status). As Don pointed out, there will always people who try to game the system. As TK could also be only one of the many account that an individual has (if I rememebr correctly, Don mentioned about this too before), and many manipulation techniques (i.e. pump and dump etc) can occur by utilizing the blog, account holder badge, certified trade badge and multiple/external accounts.

3. Having said all that, the account holder badge and certified trade badge surely will help to separate those who talk the talk and walk the walk, vs the ones that could be talking nonsense. I've been watching the certified trade myself and it is very interesting to see. before TK, there is nothing like this and I like this transparency. Even without the trader explaining why and what they are doing, the trade itself speaks volume.

4. Lastly, trust and credibility can be built only through time (and somewhat similar to building relationship). It will (and it should) take some time for someone to earn trust from others especially in the public (and often anonymous) community (even with amazing stock return proven by the certified trade). Follow their track record, their behavior, ethics, integrity, and see if what they say/do/post are consistent through time (so on so forth), before trusting them.

Happy Investing!

Sidarta Tanu

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Comments from Don
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Posted by: Donato Montanaro on September 6, 2007 7:49PM EST

Well said, Sidarta! I couldn’t agree with your three points more. I especially dug your points in #2, recognizing both the limits and the opportunities that our Certified Trades feature offers. It’s true: no feature, however advanced, can fully replace good, old-fashioned common sense and caution when considering the advice of strangers. We’re working hard to build more transparency into our community (without sacrificing privacy), but keeping your wits about you is always solid advice, too.

Honestly, Mackey’s actions are just mysterious to me. In addition to questioning his integrity, I’d be just as worried about a CEO who spends valuable time on petty trickery that’s unlikely to achieve anything useful but tarnishing his reputation and that of his brand – and he certainly seems to have accomplished that.

Thanks for your insights, Sidarta!

Be Good,

Don
Note: Any strategies discussed or securities mentioned, are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities.

Tradeking in Business Week (Social Networking Hits Investing)

BusinessWeek

Social Networking Hits Investing
Tuesday August 21, 8:08 am ET By David Bogoslaw

TradeKing allows all of its members to have their own blogs through which they can share investment strategies, or even thoughts about the political landscape that may affect future market conditions. The site's key innovation is its Certified Trades capability, which allows users to reveal what they have bought and sold and at what price.Tuesday August 21, 8:08 am ET By David Bogoslaw

For most equity investors, the wild market volatility of the past few weeks has been cause for gritted teeth and palpitating hearts. But a few who have become active in online trading communities took some solace in the fact that they at least had found a place where they can see how other investors are riding out the storm.

"Just the fact that I'm seeing people in there buying calls (an equity option that bets on rising prices) and common stock has definitely given me confidence that the individual is buying on the dip, which is basically what I do, and it's always good to get some reassurance that other people are doing the same thing," says Jim Collins, who opened an account at TradeKing.com in January.

"We see today's consumers aren't content to sit back and have their entertainment sent to them, or their news or, increasingly, to have financial advice sent to them," says Donato Montanaro Jr., co-founder and chief executive of TradeKing, which launched in December, 2005. "They demand to be part of the conversation that impacts their lives, and we are empowering that conversation." Investors in TradeKing include Battery Ventures Partners, and O'Malley sits on TradeKing's board of directors

Investors Who Network Trade More

TradeKing allows all of its members to have their own blogs through which they can share investment strategies, or even thoughts about the political landscape that may affect future market conditions. The site's key innovation is its Certified Trades capability, which allows users to reveal what they have bought and sold and at what price.

Montanaro and Mike Massey, the company's director of community development, stress that TradeKing, as a brokerage regulated by the Financial Industry Regulatory Authority (FINRA), cooperates with regulators and updates them about new features it's thinking about adding to the Web site. Last August, it launched the certified trades function, which allows customers to see what other account-holders who choose to participate are trading, how many shares they're buying or selling, and at what prices. Perhaps more important, the certified trades feature assures customers that TradeKing knows that those participating are real people and has validated their identity.

Massey says his team reviews every blog entry and takes steps to remove comments that can be construed as unethical or potentially harmful to investors. "We try to be as light-handed as possible. In one or two instances, we have removed the user and taken down the content (he posted)," he explained.

Whether these sites can truly unleash the wisdom of the crowd for market players remains to be seen. But you can bet that in investing, as in other corners of the Web, the urge for community will grow stronger -- and the bigger players in online trading may have to respond to upstarts like TradeKing and Zecco.

For the complete article from Business Week click here

Happy Investing!

Sidarta Tanu

Suze Orman is thinking what is best for her audience

I'm taking Moose's approach in responding to Dominic's posts titled in "What does Suze Orman really think?" (i.e. making this as a separate post rather than comments to the article, since it's quite a long response)

Q: So What does Suze Orman really think?

A: I think Suze Orman is thinking what is best for her audience.

Suze Orman is a very smart lady. She gives investment advice tailored to her audience. Though I don't agree with everything that she advises (nor that I am a fan of her), but I think her advices are quite solid (diversification, asset allocation, pay credit card debt, take some risk and investing in stocks,take free money i.e. 401K matching etc, etc)

She is not about "not doing what she preach". She is about common sense (and she expect her audience to have one too). And this is one of the few cases where you don't want to do exactly what she does for herself. Everyone has different optimal solution in terms of how an individual should manage their money. Suze know how much money she needs. she know herself and know what she know and know what she doesn't know. She has more than $30M in net worth. unlike many of her audience (that comes to her show such as YFB/young, fabulous and broke, or those who read her book) that probably has less than $100,000 in investable asset (or even net worth). You can't get much with putting all $100,000 in bonds (which probably earn 5-6% which translate to $5,000-$6,000 per year). I saw her show on PBS and many of those who come to the Suze's women and money workshop were middle class and lower class (at least those who were highlighted or being profiled on the show is)

In contrast, Suze, with $30M+, and knowing that she doesn't use that much money, she decided to be more conservative (and I don't think anything wrong with that). If you think this way, with $25M in zero coupon bonds which probably will yield 6%, that's like $1.5M income per year, which I believe she will still have to pay tax on that, so she probably netted about $1M per year after tax (give and take). And I think $1M is a lot of money, even for Suze (I'm guessing). Most likely she will re-invest most of that money (whenever the bond matures) either to add more real estate, bonds or some stocks I don't know, but I hope you get my point. And I think I don't need to mention the $7M in houses and $1M in stocks that she also have which values can also go up (or maybe down, which Suze mentioned she doesn't care if her stocks goes to $0. This tells me that she either don't feel confident in stock picking or she just doesn't want to deal with stocks which she obviously can afford to do so).

Maybe people say that she is lucky to have accumulate that much wealth, and maybe they are right, but the fact of the matter is that she is smart enough to stay up there.

I'm also not saying what Chuck Jaffe of MarketWatch is wrong (cause that is what Suze really do to her portfolio), but I think Chuck is not looking at the big/complete picture.

In the end, I think it boils down to some key things that you need to know:

1. Who you are (risk tolerance, patience level etc)

2. What your goal is (how much you willing to have, how much you want to spend, timeline for investment)

3. What you know (if you are good at picking stocks, or bonds/interest rate prediction, or any particular industry, or profession etc)

4. What you don't know (i.e. the impact of keepping up with the Joneses, credit card interest accumulation, time value of money, the beauty of long term compounding, rule of 72, cost to own/rent, oil or metal price prediction, or interest rate prediction, picking stock, or bonds, or real estate, or budgeting, or money management etc)

But bottom line is, it's all about common sense...

Happy Investing!

Sidarta Tanu