AT A time when all aspects of air travel seem to come with a price tag, one service quite suddenly has become free. And it is not in-flight dining or checking in a bag or securing an exit-row seat. The increasingly common free service is onboard m…
AT A time when all aspects of air travel seem to come with a price tag, one service quite suddenly has become free. And it is not in-flight dining or checking in a bag or securing an exit-row seat. The increasingly common free service is onboard m…
GLEN HAUENSTEIN, the president of Delta, is optimistic about the future of basic economy. On a conference call this week, he boasted that the stripped-down airfares actually act as an incentive for passengers to upgrade to the more expensive standard economy tickets. Despite Mr Hauenstein describing it as a product that “people don’t really want”, the airline says it will expand the revenue-boosting basic-fares system in 2018.
Delta was the first carrier to roll out basic economy fares—sometimes called “last class”—in America in 2012. Since then the model has caught on. Both American and United quickly introduced similar services on some domestic routes. By taking away a perk here and adding another there, each airline has created a unique version of the same miserable experience.
The new fare system is not without its critics. Many have Continue reading
FOR once, The Daily Mail and the Guardian, British newspapers of the right and left, agree. In the former, Alex Brummer says “IMF’s new line of thinking of tax should please Corbyn & co” while the latter says that the IMF “analysis supports tax str…
MYANMAR’S democratic transition sometimes seems marked as much by continuity as by change. Depressingly, the army continues its bloody persecution of Rohingya Muslims in the west, for example (see article). But elsewhere moves to open the country’s markets, started by the preceding military regimes, have gathered pace. New commercial and financial services are springing up.
Take Khin Hlaing, who owns Global Mobile Shop, a small store surrounded by tarpaulin-covered stalls selling fresh fruit in Hlaing Tharyar, an industrial area outside Yangon, the biggest city. He is one of almost 12,000 agents for Wave Money, Myanmar’s largest mobile-money transfer platform. Most days about 20 people use his shop to send funds to friends or family elsewhere in the country. One…Continue reading
ON OCTOBER 18TH, President Xi Jinping will preside in Beijing over the most important political event in five years. At the Communist Party’s 19th congress much will be made of the triumphs achieved in nearly four decades of reform and opening up. So expect a glossing over of one part of that process where progress has largely stalled: the “internationalisation” of China’s currency, the yuan.
This seems odd. Just a year ago, the yuan became the fifth currency in the basket that forms the IMF’s Special Drawing Right (SDR). This marked, in the words of Zhou Xiaochuan, China’s central-bank governor, in a recent interview with Caijing, a financial magazine, “historic progress”. Symbolically, China’s monetary system had been awarded the IMF’s seal of approval. A further boost to prestige was the announcement in June this year that some Chinese shares would be included in two stockmarket benchmarks from MSCI.
Yet the yuan’s international reach has in fact fallen in the past two years. It has regained its ranking as the world’s fifth most active for international payments, after slipping to sixth in 2016. But its share of this market has slipped from 2.8% in August 2015 to 1.9% now (see chart). Use of the yuan in global bond markets over this period has fallen by half, as companies have instead raised funds within…Continue reading
SHAREHOLDER meetings in Ohio are not usually the stuff of high drama, but a recent gathering was a nail-biter. Nelson Peltz of Trian Fund Management, an activist hedge fund, sought a seat on the board of Procter & Gamble (P&G), the world’s largest consumer-goods company, in a proxy vote on October 10th. It was the biggest such battle ever. In the weeks leading up to P&G’s shareholder meeting, the fight resembled a political contest, complete with carefully crafted videos, lengthy white papers, mass mailings and tens of thousands of phone calls urging shareholders to vote blue (P&G) or white (Trian).
As The Economist went to press, P&G said it had won and Mr Peltz was contesting the tally. “Everybody but [P&G’s] current employees voted for us,” he said after P&G declared victory. “Maybe that’s why they keep so much overhead.” So the brawl is not over. Yet the outcome may not matter much. Mr Peltz will push P&G for…Continue reading
THE new app for an upmarket British department store certainly looks the part. Released on Google Play, a shop for Android software, on September 5th, it has the right logo, the correct vibrant colour and offers fashionable clothes and accessories. But…
THE port city of Kobe, on the southern side of Japan’s main island, is known for luxury beef from pampered cattle, fine sake and precision engineering. Its reputation for the last of those products took a blow on October 8th when one of its oldest industrial firms, Kobe Steel, admitted that that it had falsified data on many of its aluminium, copper and steel products. By October 11th, the company’s shares had fallen by a third, reducing its market value by ¥180bn ($1.6bn).
Kobe Steel has admitted to falsification over the past year relating to large quantities of four types of material; 19,300 tonnes of aluminium sheets and poles; 19,400 aluminium components; 2,200 tonnes of copper products and an unspecified amount of iron powder that was supplied to over 200 customers. These items were certified as having properties—such as a level of tensile strength, meaning stiffness—that they did not in fact possess.
No deaths or accidents have yet resulted, but the…Continue reading
OUTSIDE, a patch of grass affording a spectacular view of the Sierra de Guadarrama is littered with cartridge casings. Inside the Club de Tiro de Madrid (Madrid Shooting Club), on the city’s northern edge, over 400 people are fixing their sights for the next three months. Their business is not shooting but banking. Teams sit at 27 tables working on specific projects—to improve the global mobile platform, say, or to share information about job applicants. At another 12 tables are data specialists, in-house lawyers and others whose expertise the teams will need. The targets are on the walls: white boards that are soon covered in yellow and pink Post-it notes, listing tasks for the weeks ahead.
BBVA, Spain’s second-largest bank, began quarterly planning sessions like this three years ago, in its Mexican subsidiary. This is the fourth global gathering. The idea, explains Derek White, head of global customer solutions, is to replicate the nimbleness of financial-technology startups (“fintechs”) at large scale. When a project is conceived, a small group is assembled to work on it within three days. A prototype is created in six weeks. The finished article should be “en las manos de los clientes”—in customers’ hands—within nine months. The quarterly cycle starts with a planning session to thrash out priorities. It ends with a demo…Continue reading
“WE ARE always short ten to 20 people,” says Jack Marshall, the manager of PPG’s plant in Oak Creek, Wisconsin. The company makes coatings, paint and speciality materials for customers such as Harley Davidson, a motorcycle manufacturer based in the state, with a palette ranging from black denim to candy orange. His factory employs 550 people, many of whom must work overtime. It is hard to fill jobs, he explains, because many still think factory work involves repetitive assembly-line tasks, as in the candy factory on the old TV sitcom “I Love Lucy”.
As part of trying to shed this outdated image, America’s manufacturing industry has for the past five years celebrated the first Friday in October as National Manufacturing Day. Some 2,800 events across the country were organised this time round, ranging from factory tours to banquets. Intel, a chip giant, displayed its wafer-fabrication equipment at its enormous…Continue reading
MCKINSEY, a global management consultancy known for its discreet profile and rarefied air, is unused to the sort of tub-thumping popular revolt it is experiencing in South Africa. Such is public outrage over the Guptas, an Indian-born business dynasty accused of growing rich off their relationship with President Jacob Zuma, that a few professional-services firms linked to the family, including McKinsey—as well as SAP, a German software giant—have become targets of Twitter storms and protest banners.
Anti-corruption groups and the opposition Democratic Alliance (DA) have drawn blood in the case of Bell Pottinger, a British public-relations firm accused of orchestrating a racially divisive public-relations campaign on behalf of the Guptas. A complaint by the DA to a British PR industry association set in motion Bell Pottinger’s swift implosion in September. At KPMG, a global audit firm, eight senior executives in South…Continue reading
MANY people complain that the finance industry has barely suffered any adverse consequences from the crisis that it created, which began around ten years ago. But a report from New Financial, a think-tank, shows that is not completely true.
The additional capital that regulators demanded banks should take on to their balance-sheets has had an effect. Between 2006 and 2016, the return on capital of the world’s biggest banks has fallen by a third (by more in Britain and Europe). The balance of power has shifted away from the developed world and towards China, which had four of the largest five banks by assets in 2016; that compares with just one of the biggest 20 in 2006.
The swaggering beasts of the investment-banking industry have also been tamed. The industry’s revenues have dropped by 34% in real terms, with profits falling by 46%. Return on equity has declined by two-thirds. Staff are still lavishly remunerated, but pay is down by 52% in real terms. (Perhaps…Continue reading
DEREGULATION, along with tax cuts and trade reform, is one of the three pillars of President Donald Trump’s economic agenda. Republicans promise that, freed of red tape, American firms will invest more and unleash faster economic growth. And while Mr Trump has yet to unite his party around a major piece of legislation, the White House has plenty of sway over regulatory policy. For a start, the government agencies Mr Trump commands can regulate and deregulate on their own (subject only to the instructions that Congress has given them in the past). How much red tape have they managed to tear down since Mr Trump took office?
Regulation is difficult to measure precisely, but the long-term trend towards excessive rulemaking has been obvious. In 1970 there were about 400,000 prescriptive words such as “shall” or “must” in the code of federal regulations, according to the Mercatus Centre, a libertarian-leaning think-tank. Today there are 1.1m (see chart). Wonks of many stripes agree…Continue reading
WARS are fought with weapons, but also with money. To understand the global balance of power in the coming decades, it helps to pay attention to the commercial subplot of the North Korean crisis. For the first time, America is attempting to use its full legal and financial might to change the behaviour of Chinese companies and banks, which it believes are propping up North Korea by breaking UN and American sanctions. Some American politicians have concluded that, as China’s firms have integrated with the global economy, they have become more vulnerable to Uncle Sam’s wrath. America has potent weapons, but the trouble is that China can retaliate in devastating fashion.
North Korea is highly dependent on China. Some 60-90% of its trade is with its northern neighbour. China’s state-run energy giant, CNPC, is thought to have sold it oil in recent years—and is the parent of PetroChina, which has depositary receipts listed in New York. North Korean banks and firms operate in China, and…Continue reading
AIRLINES use all sorts of clever tricks to make more money from passengers. They charge extra for bags, for food and for selecting where you sit. Now they are embracing another strategy: packing more seats onto each plane. Last month American Airlines announced that it will insert 12 more seats, or two rows, into its economy class on its Boeing 737-800 fleet and an extra nine seats into its Airbus A321s. Similarly, JetBlue recently said it will cram 12 additional seats into its A320s.
But flyers do not like being packed ever-more tightly into the sardine tins that planes have become. This summer American Airlines announced that it would reduce the distance between rows—known as seat pitch—from 30 to 29 inches on some of its new planes. The public outcry was so heated that the carrier scrapped its plans, as Gulliver has previously reported. This February a member of Congress Continue reading
RICHARD THALER has won the Nobel prize in economic sciences this year for his contributions to behavioural economics. It’s a well-deserved prize and a clarifying one, as far as economics is concerned. For a very long time, economists hoped to treat ind…
THE credit-card bill arrives. You have enough money in a savings account to pay it off—the sensible thing to do, arithmetically speaking, since the interest rate on the credit-card balance far exceeds that earned on the savings. Yet you leave the savings untouched, and pay only as much of the bill as your current-account balance allows. What looks a daft choice to most economists made perfect sense to Richard Thaler, who on October 9th was awarded the Nobel prize for economics for his work in behavioural economics. Mr Thaler helped demonstrate how human reasoning diverges from that of the perfectly rational homo economicus used in most economic modelling. The world, and the field of economics, is better for his contributions.
Economists mostly recognise that normal people—their friends and family—fall short of omniscience and perfect rationality in making day-to-day decisions. Economic modelling requires simplification, however, and economists generally suppose that…Continue reading
THE award of the Nobel economics prize to Richard Thaler is a reminder that economics has been struggling, in the past 30 years, to adapt its models to the real-life decision-making processes of actual humans. The problem applies as much in investment …
LONDON’s Luton airport is not renowned for its quick boarding. But now it is possible to show up there and in 15 minutes be on a plane bound for Zurich. That is thanks to the recent expansion of Surf Air, a small carrier. Though its name may be unfamiliar, its business model is, in fits and starts, catching on.
Surf Air claims to be the world’s first all-you-can-fly airline. For a monthly fee, members can travel for free on as many flights as they want among the airline’s growing list of destinations. The airline was founded in 2013 in California, where it serves 12 cities. This summer it launched a service in Europe, where it flies from London, Cannes, Ibiza and Zurich. Milan, Munich, and Luxembourg are scheduled to join the roster later this year.
This flexibility comes with a hefty price tag, however. A membership for the airline’s American network starts at $1,950 a month for a limited plan, rising to $2,950 for the highest tier, which allows unlimited flying in the network and includes periodic free hotel…Continue reading
NOT long ago, the starting assumption of any economic theory was that humans are rational actors who maximise their utility. Economists summarily dismissed anyone insisting otherwise. But over the past few decades, behavioural economists like Richard Thaler have progressively chipped away at this notion. They combine economics with insights from psychology to show how heavily economic decisions are influenced by cognitive biases. On September 9th Mr Thaler’s work was recognised at the highest level when the Nobel Committee awarded him this year’s prize in economics. Mr Thaler thus becomes one of very few behavioural economists to win the prize.
Mr Thaler’s has been a prolific career, spanning over four decades, the last two of them at the University of Chicago’s Booth School of Business. His research has touched on subjects as varied as asset prices, personal savings and property crime. For example, Mr Thaler developed a theory of mental accounting, which explains how people making financial decisions look only at the narrow…Continue reading
BUSINESS travellers are hardy souls. It goes with the territory. Theirs is a life of jet lag, cramped seating and reheated meals, all washed down with a weak cup of coffee. Small wonder, then, that a recent study by Clarabridge, a technology firm, suggests that few travellers ever actually lodge a complaint about their flights. It surveyed almost 2,500 passengers in Britain and America and found that about two-thirds of respondents have never aired a grievance, even when they had good reason to. This is despite the fact that complaints are on the rise overall, as Gulliver has previously reported.
Why are so many reluctant to complain? One concerning reason is that passengers think airlines will ignore them. This explanation was given by about a third of those who have never complained, according to Clarabridge’s study.
This should worry…Continue reading
HOW much money do you need to retire? Depending on your age, it is a question you think about a lot (if retirement is imminent) or barely at all. For younger people, the subject is a combination of too far away, too complex and too boring, and too depressing. When you consider that you might live for 20, 25 or even 30 years after you stop working, it is a pretty important issue.
Say you want to retire on £20,000 a year (not a fortune) and you are 65. The best annuity rate at the moment in the UK is just under 5.2% which means you would need a pot of £385,000 to afford this. But hold on a minute. That is a flat £20,000 which does not account for inflation; if prices rise at 3% a year, the value of that pension will halve by your 90th birthday. To get an income of £20,000 that is guaranteed to rise in line with prices, you would need a pot of £619,000. (For American readers, the dollar amounts won’t be exactly the same, but they will be in the ballpark).
These are very big sums and explain why private sector…Continue reading
IN RICH countries, people’s diets are getting worse and they are getting fatter. Hence the increasing popularity of a “fat tax”, to make unhealthy food cost more. Since Hungary led the charge in 2011 with a “chip tax” on fatty and sugary foods, other countries have followed. Britain is to join a long list next year.
Since the poor both spend a higher proportion of their income on food and tend to eat less healthily, they are the main targets of such taxes. In France, for instance, adult obesity is seen in over 20% of households with monthly incomes under €1,500 ($1,765) compared with less than 10% of those who earn over €3,000.
Punishing consumers, however, is politically painful. So “thin subsidies” have been gaining ground. But data on the impact of such policies are scarce. A recent study on the distributional impacts of fat taxes and thin subsidies from researchers at the universities of Oklahoma and Grenoble suggests policymakers should be…Continue reading
IN APRIL 1956 the world’s first container ship—the Ideal X—set sail from New Jersey. A year later in Seattle the world’s first commercially successful airliner, Boeing’s 707, made its maiden flight. Both developments slashed the cost of moving cargo and people. Boeing still makes half the world’s airliners. But America’s shipping fleet, 17% of the global total in 1960, accounts for just 0.4% today.
Blame a 1920 law known as the Jones Act, which decrees that trade between domestic ports be carried by American-flagged and -built ships, at least 75% owned and crewed by American citizens. After Hurricane Irma, a shortage of Jones-Act ships led President Donald Trump on September 28th to waive the rules for ten days to resupply Puerto Rico. This fuelled calls to repeal the law completely.
Like most forms of protectionism, the Jones Act hits consumers hard. A lack of foreign competition drives up the cost of coastal transport….Continue reading
THE security guards at the foot of Antilia, a 27-floor private residence in Mumbai, while away the days just as all bored Indians have been doing in recent months—watching movies on their phone. Using a mobile network to stream endless Bollywood epics would until recently have been an unthinkable luxury, even in the rich world. In India it now costs less than a cup of street-side chai.
Thank the tycoon lording it in the skyscraper’s upper reaches. As boss of Reliance Industries, Mukesh Ambani, India’s richest man, has spent more than $25bn on building Jio, a state-of-the-art mobile-telecoms network. The delight of the guards at Antilia, and of the roughly 130m Indians who have signed up to the service since it launched in September 2016, is matched only by the misery of Mr Ambani’s rivals.
Jio’s rise is nothing short of spectacular. It took less than a year for it to be delivering more data than any other mobile…Continue reading
SWITZERLAND, which developed cross-border wealth-management in the 1920s, was once in a league of its own as a tax haven. Since the 1980s, however, tax-dodgers have been spoilt for choice: they can hide assets anywhere from the Bahamas to Hong Kong. Th…
A COMPANY that moves up the value chain from refrigerator parts to cars is impressive but not that surprising. A car company that buys an investment bank is audacious. But Zhejiang Geely Holding Group, a conglomerate based in Hangzhou, China, did not become big by paring its ambitions. Having successfully made the fridge-parts-to-cars transition at home, it went global in 2010. It acquired Volvo, a Swedish carmaker, from Ford of America. Now Geely is back in Scandinavia for another acquisition. This time it is buying one of Denmark’s biggest banks.
Saxo Bank announced on October 2nd that Geely would acquire 51.5% of its shares. It will spend over $800m on the deal, which still requires regulatory approval. Sampo Group, a Finnish insurance company, will acquire 19.9% of Saxo shares for €265m ($311m), and Kim Fournais, Saxo’s co-founder and chief executive, will retain 25.7%. The sellers are Sinar Mas, an Indonesian conglomerate, and TPG, an American private-equity firm.
Saxo was an early adopter of online securities trading and still invests heavily in financial technology. It makes a substantial portion of its profits from selling trading platforms to other firms. Daniel Donghui Li, Geely’s chief financial officer, says Geely hopes to expand Saxo’s technologies into Asia. Besides facilitating this expansion, Geely does not intend to change how…Continue reading
HERE’S the job spec. Unite a deeply divided board. Keep a strong-willed founder under control. Immediately recruit a new chief financial officer. Negotiate with angry local regulators intent on closing down the business in their city. Convince courts that the company does not have to provide its contract workers with the benefits due to full-time employees. Change a cut-throat culture without curbing employees’ drive. On top of all this, deal not only with an intellectual-property (IP) lawsuit that could cost the firm nearly $2bn, but also cope with a criminal investigation by the FBI that could see some managers end up in prison.
No one sane, you would think, would even apply for such misery. But after some hesitation Dara Khosrowshahi (pronounced cause-ro-SHAH-hee), until recently the chief executive of Expedia, an online travel agency, returned the headhunter’s call. Now he is boss of Uber, which, at $68bn, is the world’s most highly valued privately-held company. Can he…Continue reading
ALEXANDRE RICARD wants to talk boxing. He runs Pernod Ricard, a firm that sells Chivas whisky and Absolut vodka, among other drinks. Formed by his grandfather in 1975, with roots in a Pernod distiller set up in 1805, it is the world’s second-largest seller of wine and spirits, with a market capitalisation of €32bn ($37bn). He brags that Floyd Mayweather, an American pugilist with 19m Instagram followers, recently endorsed one of the company’s tequila brands. Such a “key influencer” on a digital channel “gives us speed and scale”, says Mr Ricard.
Celebrity endorsements are an old ploy: French singers, actors and racing drivers used to push Pernod Ricard’s liquor. But with 90% of sales in markets outside of France, punchier efforts are needed. Two years ago the firm commissioned a global study of boozing habits, which totted up all “moments of consumption” for drinkers, identifying 20 important ones in…Continue reading
LIKE any mechanic with a misfiring car, Ford’s new boss has had his head under the bonnet working out what needs attention. Jim Hackett emerged on October 3rd with a checklist of repairs to present to investors, who have been awaiting his diagnosis since he took over in May. The list is short but the engineering is complicated: restore Ford’s competitiveness while preparing for a future of electric vehicles (EVs), self-driving cars and transport services. But those expecting a radical overhaul were probably disappointed.
Mr Hackett’s predecessor, Mark Fields, was shown the door by Bill Ford, the firm’s chairman, for failing to make a persuasive case that he was reinventing Ford as a mobility firm at the forefront of automotive technology. Despite acknowledging to investors that he and Mr Ford agreed that his new job was “about the future not the past”, Mr Hackett was clearest about how to make Ford fit for the…Continue reading