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Would-be air travelers pick on price. The difference between a Delta flight and a US Airways or United flight is probably un-noticeable to someone who isn’t a frequent flier. That’s why websites such as Priceline, CheapTickets and Expedia proliferate and prosper.

But airlines are increasingly upping the fees on things that used to be amenities. We wrote last week on United’s move to charge people $15 to check a bag. Now comes news that US Airways will start charging $2 for a soda or bottled water on flights. Alcoholic drinks will go up to $7 a piece. There was a time when movies and headphones were free too. What’s next? You’ll have to pay $1.50 for a seatbelt? $3 for use of the overhead compartments?

Yes, the price of gasoline has gone up. No doubt the airlines suffer for this. Still, is it fair to hide a slew of fees under the price of a ticket? Can a reasonable person be expected to keep track of which airline charges for checked bags and calculate the appropriate step up in price attendant to the ticket?

I don’t like companies that play games like this. Life is hard enough without having to keep track of hidden fees and changing rules. Better to focus on costs than look for ways to gouge the unsuspecting. I can only imagine the unhappiness my parents would have flying with an airline that tried to charge for a glass of water on a flight. They’d never fly with that airline again. With good reason.

It makes Delta the more attractive for focusing on its expenses. Though I would not put it past the company to follow its peers down this perilous path.

Corporate acquisitions seldom help the buying company. Promises of synergistic growth typically fall way, way short, studies show. However, if cost saving is the goal of a corporate acquisition, then the buyer’s stock goes up.

That’s why Delta’s move to cut 4,000 jobs is a positive sign for the impending deal with Northwestern. When cost cutting is on the brain, shares go up.

V and I have a nuanced understanding of the commercial air travel market after two years of distance dating. Still, it’s stunning to see United adding a $15 charge for each piece of checked baggage on each domestic flight. CNN.com does the reporting.

There is, of course, a great tendency to abuse the checked baggage allowance. I’ve stood in line behind people looking to ship everything short of the kitchen sink.  But there are some things that you can only get across the country by checking in (wine) and this new policy certainly hurts a class of travelers.

The more deleterious effect may be on the struggle to fit carry-ons into the overhead compartments. I’ve seen some folks try to stuff small elephants above their heads.

Other airlines have cut down check-in allowances of course. Delta has gone from two bags to one for basic travelers (though the Silver Medallion folks get three for free). It has also upped its fees for pet transportation, which we found out the hard way. American Airlines announced a similar fee in May.

The fee should apply to one in three customers United says. The company expects to make $225 million in the first year from the added fee.

I haven’t been a big fan of Dell computers since the company sold me one that has chronic overheating problems. My dad came to hate Dell after it jerked him around over a cable it never sent.

Now Dell is getting whacked by the NY Attorney General for “fraud, false advertising, and deceptive business practices.” My buddy Brian Caulfield has the story for Forbes.com. He also points out that Dell shares are off 11% for the year.

Rupert Murdoch, the media mogul extraordinaire, decided to keep the Wall Street Journal behind an online pay-wall, dispelling rumors it would be free after his purchase of the product.

Silicon Alley Insider deconstructs the reasons to keep it a pay-to-read publication:

• Not giving away a growing revenue stream of $75 million + in free money.
• Preserving the brand’s exclusivity.
• Continuing to charge premium CPM rates for a known audience.
• Preserving the value of the print paper for a long as possible (subscribers will be less inclined to drop their subscriptions if they have to pay for the content anyway). Continue Reading »

Tradable emissions permits markets were all the rage when I was in school. It seemed like the perfect opportunity to solve a social problem in a sane, economically-justified libertarian way. The professors painted a picture of economists saving the day by pointing the invisible hand of the marketplace toward an intractible social problem.

Well, fast forward a few years and the cracks in the system are starting to show. My friend Katie Fehrenbacher’s great site, Earth2Tech.com, has a great description of what’s going on:

The fragility of the nascent carbon offset economy is front and center this week. As the U.N. was kicking off its Framework Convention for Climate Change in Bali yesterday, on the other side of the world Irish certified emission reduction (CER) credit provider AgCert saw its stock tumble over 70 percent. The collapse occurred following the company’s announcement that it would not be able to deliver all of the 7.2 million tons of United Nations-approved carbon offsets if had committed for 2008.

This follows Friday’s report from the WWF that a full fifth of U.N. carbon credits issued through the Clean Development Mechanism (CDM) are bogus and actually increase emissions. None of this bodes well for the struggling carbon market. The cap-and-trade carbon solution is the favored mechanism for carbon emissions control, but the U.N.’s top climate change official Yvo de Boer warned last month at the Carbon Forum Asia that the carbon trading market “could disappear more quickly than it appeared.”

Reporter Craig Rubens does a good job of wrapping up the recent developments in cap-and-trade systems and says that much of the future of the current carbon trading program relies on what happens in Bali in the next two weeks.

We’ll be keeping an eye on it.

There are a handful of news articles out today speculating that Saudi Arabia will break ranks with the rest of OPEC and increase the supply of oil (see CNN.com, for example).

The country can afford to throw its weight around because its reserves are so much larger than its closest competitor. Most of the other countries in OPEC are already pumping at full capacity. More oil on the market would hurt these other countries who would be unable to offset the falling crude price with more production.

Economists spend a lot of time thinking about cartels and the game theory behind how they work. Cartels are hard to enforce, especially when the one-time reward of cheating can outweigh the potential sanction any single member would face from the group. 

[Image thanks to EVWorld.com]

Last weekend, Alex and I went wine tasting in Sonoma County, Calif. and made a very interesting observation. After visiting a three or four vineyards, we realized that our cash was vanishing while we had only consumed a total of about a glass and half of wine total for two of us!

The prices on bottles of wine at the wineries are actually at least as much as you would pay in regular store, and quite often they are even more expansive. That’s a surprise! Why would selling at the winery, which by the way has a zero transportation cost be at a higher price than transporting those bottles of wine to San Francisco, or even to South Carolina?

We came up with several ideas on this, first it maybe an experience itself that is of high enough value for the customers to experience so that they are eventually ready to pay more money for the same bottle of wine, which they could have gotten cheaper in a less romantic environment.

The second explanation is that wineries are simply trying to sell at bulk, not sell a bottle at a time but sell cases instead, that would justify the cost of tasting. Indeed buying a case of wine in the winery is cheaper than buying that case at the store.

[Image from cotaticorner.com]

Canadian regulators have launched an investigation into Nestlé, Cadbury, Hershey, Mars and others that may have been involved in a price-fixing chocolate cartel that bilked consumers out of billions of dollars.

CBC has the news [via Fark]: “We can confirm that we are investigating alleged anti-competitive practices in the chocolate confectionery industry,” said John Pecman, the bureau’s assistant deputy commissioner in the criminal matters branch. “The volume of commerce affected here is definitely potentially in the billions of dollars per year.”

Another rich case study chance for some graduate student some place. Throw it on the pile, next to the airline price-fixing scandals we reported on earlier this week.

[Image from PhillipsChocolate.com]

There is, no doubt, a graduate student somewhere who is working on a paper about airline price fixing. Now he or she has at least one more set of data to analyze thanks to Austrailia’s Qantas.

The AP reports: Qantas sought to eliminate competition by fixing the rates for shipments of cargo to and from the U.S and elsewhere from at least January 2000 through February 2006, according to the charges filed in the U.S. District Court for the District of Columbia.

The story goes on to point out that this case is one of three this year. British Airways and Korean Air Lines each plead guilty to price fixing of both passenger and cargo flights. Each paid $300 million in criminal fines for their actions (not that it means much to companies recording their profits in currencies other than the U.S. Dollar).

The cause for the price fixing? Good old fashioned greed mixed with the increased cost of fuel. The price of fuel is up 44% this year, according to reports. Read our story about it from earlier this month.

[Image thanks to tsvc.com]

Apartment hunting in San Francisco is both daunting and depressing. V and I looked at a one-bedroom place in my building over the weekend and were stunned to find that it was going for $2350 a month! We found ourselves wondering how we could ever afford to actually own a place of our own.

The Boston Globe recently ran an interesting case study on the difference between renting a place and owning it. A lady wrote to the paper asking for help assessing the deal her land lady had offered her. Broad is the paper’s evaluator and Pennucci is the lady looking to rent or buy:

Although the assessed value was $300,000, the online real estate service Zillow set the town house’s value at $240,000. Broad chose the lower number, checked out current mortgage rates, and looked at Pennucci’s tax return to calculate potential tax savings. The result: With a 6.25 percent fixed-rate 30-year mortgage, with no money down, monthly costs would come to $1,892. Given Pennucci’s 15 percent marginal tax rate, tax savings would drop the monthly expense to $1,738.

But when Broad moved on to Pennucci’s current living expenses, the benefits of home ownership began waning. Given the current $1,200 monthly rent, which Pennucci said accurately reflected the Medford rental market, ownership would increase monthly housing expenses 45 percent, costing an additional $538 a month.

“No matter how wonderful owning the place might be, right now renting is the better deal,” Broad said. The case for renting became even more compelling when Broad reviewed Pennucci’s cash flow and retirement savings.

Turns out that the extra $500+ was going to put a serious squeeze on Pennucci’s pocketbook, especially as she was looking at the cost of adopting a second girl from China.

The case study is a little misleading, though. The paper mentions Pennucci’s 15% marginal tax rate in passing. I imagine it is significantly lower than what two young professionals might expect to pay…

[Image from CartoonStock.com]