Cyrillic Partners

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.

Corporate Average Fuel Economy (CAFE) standards set the minimum gas milage an automobile maker’s fleet can obtain and has been a matter of contention for years.

Congress is expected to vote on higher standards for miles per gallon Wednesday. SFGate has a good quick history of the legislation:

If the bill passes, it would shake up the fuel economy of the U.S fleet, which has been stagnant for two decades. After Congress passed the program in 1975, fuel economy of passenger cars doubled in 10 years, from 14 miles a gallon to 28 miles per gallon by 1986. But as oil prices dropped in the late 1980s, automakers began selling SUVs, trucks and sedans that were bigger and more powerful - features consumers enjoyed.

Critics complained that, without any push from Washington, auto companies have let fuel economy flatline. Current law requires 27.5 miles per gallon for cars - the same as a decade ago - and 22.2 miles per gallon for light trucks.

Generally speaking, the position of V and I is that government should stay out of the way of the “invisible hand” of the marketplace for solving social problems. One of the big problems with legislation of this type is the bizarre incentive structure it establishes. And every piece of legislation has its loop holes.

CAFE is the perfect example. The legislation was designed, in part, to give farmers a break. It recognized that there was a subset of the U.S. population that needed serious trucks for agricultural work and it didn’t want to screw those people over.

But times change (always faster than Congress legislates) and light trucks became increasingly popular for the general public as commuter vehicles. The SUV became a favorite tool for suburban “soccer moms.” And automakers classified SUVs as light trucks, which are held to a lower CAFE standard.

So as SUVs became more popular, the percentage of vehicles on the road that had to actually achieve the 27.5 mpg fleet average decreased. I don’t know the stats, but I’d wager that the mpg average of all vehicles on the road was actually much, much closer to the light truck standard than anyone in Washington ever imagined.

So much for the “standard.”

More on this legislation later.

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]

The Writer’s Guild strike, already more than two weeks in progress, could be costing the Los Angeles economy more than $21 million each day, according to the non-profit group FilmL.A. The Los Angeles Times has a breakdown of the various costs associated with the estimate:

The estimate is based on the average number of employees on these shows, and their typical budgets and shooting cycles.

For example, a single episode of a drama costs about $3 million to produce, employs 300 people and takes eight days to shoot. An episode of a half-hour sitcom costs $1.5 million, employs an average of 88 employees and has a five-day shooting cycle.

Sitcoms were the first to take a hit because of the shorter lead times in writing them. During the first two weeks of the strike, filming for sitcoms outside of studio soundstages dropped nearly 50% compared with the same period a year earlier, according to FilmL.A. Activity for TV dramas has been virtually flat, while on-location reality TV shoots jumped 23% recently.

FilmL.A.’s estimate is conservative because it only takes into account jobs in the industry, not the scores of jobs at restaurants, hotels and other businesses that service Hollywood. The entertainment industry accounts for almost 7% of Los Angeles County’s $442-billion economy.

Nor does it factor in job losses from the feature film sector. Studios already have scripts in hand for their 2008 slates, so only a few feature films have delayed production, including Ron Howard’s “Angels & Demons” and Oliver Stone’s “Pinkville.”

It’s easy to poke holes in any cost-assessment, and the L.A. Times brings up a few good ones.

James “the genius” Surowiecki has a good piece in The New Yorker about strikes and why it is difficult to resolve them (read it here).

[Image from thepointmedia.com]

Southern California burned for the third day, forcing the evacuation of 300,000 and burning 400 square miles, according to the New York Times. It’s too early for journalists to start ball parking the total cost of the disaster, but you can bet they will soon.

It’s an important question for policy makers. The science of cost-benefit-analysis occasionally wends its way into debate, often with mixed interpretations. Aggrieved parties will call out at the injustice of reducing a complex issue such as public health and safety to pure numbers.

Coming up with an approximation for the value of lost property, the loss of life, the time and overtime of first responders and the time cost and anxiety of having to relocate hundreds of thousands of Californians is a complex, but achievable task. The real tricky part is determining WHO bears the cost of these fires and if the payers, likely ALL Californians, should be responsible for paying for better fire protection in the future. It’s a variation of the math behind building levies to protect farmers who decide to live in a flood plain. Why should everyone subsidize protection that will only be enjoyed by those that live by the river, or in this case, the hills outside San Diego? This is the real sticky wicket when it comes to cost benefit analysis and public policy.