Why CPH does not like Euros?

This year I noticed that two European airports, located in non-euro countries, discriminate against paying with euro cash. I am sure there are more such airports, but I have just experienced that in Copenhagen and Riga. This is a little bit surprising as both of these airports are significant players in their region (Nordic and Baltic Countries respectively). Even more, both of them aspire to become even more important, to offer more destinations and to capture more transit passengers.

The last wish -- to capture transit passengers -- almost sounds like an obligation to accept euros for an European airport. True, both of them accept it. But the exchange rate may be rather unfavorable, and the change is given in the local currency, in this way rendering the euro cash next to unusable. Why that? I offer three potential explanations, one political and two economic ones…

1. Operating with two currencies in every single shop may be too costly, possibly because most non-local customers use credit card anyway. However, passenger ferries in Northern Europe regularly accept currencies of both departure and destination port. It shouldn't be too different for an airport.  
2. This is a form of price discrimination. Foreigners without a credit card do not have a choice -- either you accept the unfavorable terms or you exchange money with even worse rates. But I doubt those without credit card belong to the least price-sensitive group...
3. For political reasons, the shops cannot treat euro on equal terms with the local currency. I remember stories of this sort, but unfortunately not the details. But why should politicians care, especially while they also want to have their "pet airport" to gain even more traffic and fame? 

I don't know the answer. Anyone else?

BLAMING CONTINENTAL FOR CONCORDE CRASH

In December 2010, a French court decided that Continental Airlines is criminally responsible in the crash of the Concorde, back in summer 2000, which killed 113 people. Namely, a Continental plane, taking off just minutes earlier, left a piece of debris on the runway, which afterwards punctured the tire of Concorde and lead to the crash.

Should we blame Continental for this crash? Briefly, I believe we should, but just a little.

Events have a large number of causes. In case of Concorde crash, those include the design of the airplane (which was vulnerable to the tire bursting at high speed), the related testing and certification process (which was unable to identify that problem), the plane operators (who did not strengthen the plane despite of numerous similar incidents), the airport in Paris (which could not spot the piece of metal on the runway), and the Continental plane, which left the debris. In a sense, all of them are somewhat responsible.

Unfortunately, causality itself is a tricky concept as well. What is needed for an act to be a cause for something? Perhaps I am guilty if my act was necessary and sufficient to lead to an undesirable outcome. If a soccer player kicks the ball, and the goalkeeper blocks it, and the ball bounces to a window -- who is guilty? Both the kick and the blocking were necessary, but not sufficient. The Concorde case is similar: wrongly repaired thrust reverser was necessary but not sufficient for the accident.

To overcome this paradox, we need a more complex concept of responsibility. As the court ruled for 70% of the compensation claims to be paid by Continental, it implicitly stated that the Continental was to be blamed for about 70% of the crash. I believe this is the right way to think about similar cases (although I would go for a smaller percentage here). There are many culprits, but they are of different importance. It was a shared responsibility where Continental had a (minor) part.

Is there a consistent way to establish one's "share of blame"? I doubt it. But we may still try.

First, it is not acceptable that a departing plane drops large pieces of metal on the runway. Second, for years Air France knew the problems with bursting tires and potential damage it caused. However, little was done. This is unacceptable as well. One might propose something along the following lines: First, calculate what is the expected cost for the other airlines (including eventual crashes) if a plane drops a piece of metal, given everyone follows the procedures which was deemed appropriate in summer 2000 (call theses costs A). Next, calculate how often would Concorde crash due to bursting tires, using the procedures and technology as it was used by Air France during the time of the crash, without any debris on the runway (call related costs B). In total, A + B correspond to the sum of costs, both of which are sufficient but not necessary for the accident. Now find, what would be the second likelihood, given there is similar debris on runway (call this C). The difference C - B corresponds to the extra costs for Air France, caused by the debris, but also by the weak design of the Concorde. The Continentals "guilt" might be (A + 1/2 (C - B))/(A + C), i.e. the costs Continental caused alone (A), plus a half of the extra (1/2 (C - B)) as a percentage of the total costs (A + C).

Although the the proposal above has many shortcomings, it helps to analyse situations where there is no single ultimate "guilty" part.

Directive 261: why the airlines should pay for hotel (and why they shouldn't)

Here I discuss the issues related to occasional cancellations, not caused by the airlines. These arguments may not be valid if the airline itself is the source of the problem, or in case of massive air traffic disruptions, such as the ash cloud of 2010.

By Jnpet [GFDL or CC-BY-SA-3.0], from Wikimedia Commons

There are two reasons to require airlines to provide food and lodging -- risk aversion and economies of scale. Humans do not like risk. They hate to change their plans in an unexpected and expensive way like when the flight is cancelled because of bad weather or industrial dispute. Obviously, the airlines hate to pay these costs as well. They simply collect the money from the passengers themselves in form of more expensive airfares. Essentially, the airlines act as insurance providers, charging passengers a little more for their flights, and providing food and shelter when needed. As airlines operate many flights, delays and cancellations occur quite often, and it is relatively easy for them to collect and maintain related funds.

Large firms can handle occasional disruptions lot easier than individual passengers. Hence it makes sense to shift more of the risk to the firms. Second, as airlines have a base or partner in the airport, it is easier for them to provide the hotel. Imagine yourself stranded in an airport far away with little money, extremely expensive cellphone prices and no idea about the hotels. How would you get to an affordable one? Airlines could easily (eventually through airports) make an agreement with a number of hotels and taxi companies. Even more, they have access to phones, internet and office facilities, which tremendously simplifies booking. It costs a lot less for them to do the actual bookings in case of cancellations.

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The arguments above work best if all passengers are similar. But they differ. First, people have inherently different tendency to take risks. Second, your risk aversion depends on the circumstances. Your outbound flight was delayed? Bad, but not a big deal. Just go home and sleep till morning. You are probably not that interested in a hotel just a few blocks away from your home. However, if this happens to be your flight home, the situation is different. Third, people value lodging differently. A backpacker may find it completely acceptable to spend a few nights in the airport (in exchange for cheaper airfare), while others are willing to pay a lot for a good hotel.

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The current directive 261 requires the airlines to offer a one-size-fits-all compulsory insurance. But sometimes you may rather want to get cheaper tickets and take the risk, another time you may want to pay even more to get better provision. The current directive does not allow for this kind of flexibility. Fortunately, there is an easy solution -- make the insurance voluntary, an explicit choice with corresponding price tag, while buying the tickets.

Does this mean that current directive 261 should be replaced by a voluntary insurance? Maybe. It depends on how different the passengers typically are, and whether they actually understand the risks and make the right choices. But it might be a good idea to experiment with this option.

This story is inspired by discussions with Idir Laurent Khiar. Here I use the opportunity to acknowledge his role.

Canceled Flights and who should bear the Risk

Flying is risky. In September 2010 airBaltic (BT) canceled a number of routes while shifting to the winter schedule. Although it is common in the airlines industry to operate a thinner schedule for the winter period (October till March), this particular process was related to many unexpected changes. BT canceled flights where they already had sold tickets, including a large sales campaign which ended just days before the canceling announcements. This led to number of accusation of BT being unreliable and unfair to customers.

However, the story is not quite that simple. Namely, according the the BT's representative Janis Vanags, "flexibility" is necessary in order to keep the prices low. I would add another dimension here -- flexibility, i.e. ability to change schedule and cancel flights, also encourages BT to start flights to more risky destinations. These include low-demand, seasonal, or otherwise unknown locations, where the firm may be quite uncertain about the business results. To put it briefly -- BT is cheap, and reaches many destination, exactly because it is flexible.

You, as a customer, should understand it as a take-it-or-leave-it deal. You get a cheap flight to a weird destination. But be aware: this airline is re-scheduling/canceling more than you might expect. To put it in a different way: compared to "traditional" airlines, BT is shifting more of the operating risks to the customers. This helps it to keep the prices low and the network large. Is it good or bad for the customers? It depends. If you are price sensitive and don't mind changing your holiday plans by a day or two, then it is a good deal. If you are a business traveler booking your tickets just a few days before you fly, it is fine as well (the schedule changes are usually announced about a month in advance). If you are not flexible -- bad luck. Consider another airline if there is an affordable alternative nearby.

Can we conclude that last-minute changes in schedule are fine? Not quite. The problem is that customers may not aware of the actual risks. The majority of airlines are following their schedule closely long time in advance. BT seems to be somewhat free-riding on this perception of reliability. The best solution may be to make the customers aware of the related risks, given they are actually able to make use of this type of statistics.

Traveling long distances is a risky business. You either have to pay the insurance, or take the risk.

Eesti lennundus: kas ja kui palju otseliine

Rohkem otseliine on head kuid ka tihedast ühendusest lähedaste keskustega on palju abi.
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Viimasel ajal on ajakirjanduses olnud korduvalt juttu Eesti lennunduse (kehvast) seisust. Peamise probleemina tõstetakse esile otseühenduste vähesus Tallinnast, aga just otseühendused toovad riiki turiste, investeeringuid, ning rahvusvahelisi üritusi. Ma ei hakka neid mõtteid siin kordama. See kõik on õige. Põhjendan siin hoopis, miks peaks riiklik poliitika peaks keskenduma ka teist tüüpi lendudele, muu hulgas tihedale ühendusele Riiaga.
Peamine põhjus on see, et Tallinna lennujaama tagalas ei ole suure otseühenduste arvu jaoks piisavalt elanikke ning airBalticuga võrreldava võrgustiku loomiseks vajalikke investeeringuid ei ole silmapiiril näha. Seega, kuigi otseühendused on olulised nii turistide kui ärimeeste mõttes, peab suurem osa Euroopast siia ikkagi lendama ümberistumisega. Selles mõttes on Helsingi ning Riia lennujaama lähedus Tallinnale suur eelis. Tänu oma kompaktsusele ning airBalticu äristrateegiale võimaldab Riia tavatult lühikesi ümberistumise aegu, Helsingi pakub aga häid ühendusi ka kaugete paikadega. Seega, kui olulised ärimehed tulevad väga erinevatest keskustest, siis võib parim valik olla hoopis Tallinn-Riia ühenduste tihendamine ja sihtkohtade arvu suurendamine Riias. See võib tunduda natuke paradoksaalne, kuid selleks et 10 investorit nädalas Madriidist Tallinnasse tuua, ei ole võimalik lennuliini avada. Aitame parem lätlastel seda teha ja võimaldame ärimeestel kiiresti Riiast edasi saada. Lisaks pole neile, kes tegutsevad Pärnu-Tartu joonest lõuna pool, otselennud Tallinnast sugugi "otsemad" kui Riiast. Ka vastupidine võib olla õige: kui enamus investoreid pärineb Londonist ja Frankfurdist, siis tuleks (vajadusel dotatsiooniga) avada kaks lendu päevas nimetatud sihkohtadesse.
Teiseks, inimeste aja ning hinnaeelistused on erinevad. Kui tööreisijad eelistavad pigem kalleid ja kiireid ühendusi, siis paljud on nõus ümber istuma või 4 tundi bussiga sõitma, et saada odavale Rynairi lennule. Sellele reisijatehulgale on abi ainult odavatest otseühendustest. Kui me toetame ärireisijaid nõu ja jõuga, siis kas ärimeestest on ikka palju rohkem abi kui kultuurireisidest, õpilasvahetustest ning vähemrahakatest turistidest? Ka kunstnike ja tudengite liikumisel on ühiskonnale positiivne roll. Sellise hinnatundlikuma seltskonna huvides võiks olla hoopis maismaa traspordiühenduste parandamine (rongiühendus!).
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Kokkuvõttes: lähedane ning tihedasti Tallinnaga ühendatud hub Riia võib mängida olulist rolli ärisidemete loomisel. Lisaks sobib suurele osale Eesti elanikkonnast soodsamate hindade nimel ümberistumisega reisimine.