Sunday, 28 September 2008

The Amazing Race 13, Episode 1

Los Angeles, CA (USA) - Salvador, Bahia (Brazil)

The first leg of The Amazing Race 13 took the reality-TV racers from the Los Angeles Coliseum to the city of Salvador, in northeastern Brazil.

As usual, the flight choices for the first leg (on American Airlines and United Airlines, we were told) were prescribed by the TV producers, and the actual routes and connections were omitted or obfuscated. So viewers aren't likely to have realized that even given a free choice of flights, the racers would have needed to change planes at least twice. And they couldn't have arrived in Salvador on American or United, since neither flies any closer than Rio de Janiero, 800 miles away: at one of their connection points, they must have had to transfer to some other airline.

In fact, northeastern Brazil is by far the largest and most populous region so close to the USA without direct flights to and from the USA. The reasons why are a case study in airline and government decision-making:

International airline routes are determined by airlines, as business decisions to maximize expected profits. Profitability and passenger numbers are not the same: A flight that is typically emptier, but serves a city pair between which a wealthier clientele are willing to pay higher average fares, may be more profitable (with a higher average revenue per seat, even counting the empty seats into the equation) than a flight between more popular but lower-revenue destinations.

Profits, load factors (percentages of seats typically filled, which may be different in coach/economy than in business or first class), average fares (ditto), and other costs (such as differential landing fees) aren't the whole story, however: Airlines must work within (although their lobbyists work hard to influence) the rules of bilateral and multilateral aviation treaties, the terms of which are negotiated by governments on the basis of their perceived national political, economic, and other interests.

The USA is party to some so-called "open skies" agreements, but they are far from free trade agreements, since they don't override a variety of other protectionist laws and subsidies that favor USA-based airlines over foreign competitors. More often, aviation agreements set limits on how many airlines based in each country can operate flights between them (each country wanting to protect the profits of its "own" airlines by protecting its share of the total market), which gateways in each country they can fly between (people who travel from country A to country B may come from, and want to go to, different places in both countries than those travelling from B to A) and sometimes what fares they can charge. Nominally balanced bilateral agreements may have very different effects on the two countries, their airlines, and their travellers.

Those rules aren't necessarily bad: Market forces would produce airline route maps even more skewed toward the travel patterns of the world's richest people, and even less oriented towards the interests of the largest numbers of potential air travellers, than they are today under many of these agreements. Air travel is very heavily subsidized by taxes -- including taxes paid by people who can rarely afford to fly -- and it's only fair for governments to make sure the airlines that receive these subsidies operate, at least to some degree, in the public interest.

The problem is that airline lobbyists, and other economic interests (especially business travellers), have much more influence on the negotiating process than ordinary travellers.

When I was in Brazil last year, I talked about this issue over lunch with the U.S. Consul in Recife, Brazil, in the context of the bilateral USA-Brazil aviation agreement which was then being renegotiated.

For historical reasons the U.S. Consulate General serving the entire northeast of Brazil has long been located in Recife, despite the fact that Salvador is now marginally larger, wealthier, better known, and more popular with tourists. My great-uncle Nathaniel P. Davis -- no relation to the other better-known Nathaniel Davis with whom his career in the State Department partially overlapped -- served as head of the U.S. diplomatic mission in Recife in the 1920's. Since I was passing through (the TAP Air Portugal flights between Recife, other cities in northeastern Brazil, and Lisbon are some of the shortest and most affordable connections between South America and Europe), I was curious to see what had become of the places where my great-uncle and aunt had lived and worked.

The current U.S. Consul in Recife is a diplomatic history buff (see pp. 36-37), fluent in Portuguese, who started her career in government service as a Peace Corps volunteer near Salvador, many years before fulfilling her wish to return to the region as head of the U.S. diplomatic mission. (She says the transition from the Peace Corps to the U.S. Foreign Service is less uncommon than one might think, perhaps because of the paucity of U.S. citizens with any sort of international experience.) She was unable to find out anything for me about the former locations of the U.S. Consulate or the Consul's residence. And the Consulate is woefully understaffed (typical of the neglect of northeastern Brazil by the central governments of both the USA and Brazil), with only three other American officers, in addition to the Consul herself, to conduct the required in-person interviews and make decisions on all visa applications from a catchment area with a population of more than 50 million people.

But the consul herself graciously made time to share her perspective on the relationship between Brazil's Northeast, the centers of Brazilian economic and political power in São Paulo and Brasilia, and her own superiors at the U.S. Embassy in Brasilia and in Washington.

I don't always agree with the official views expressed by U.S. diplomats. Then again, they don't always agree with the governmental views they are required (unless they want to quit their jobs) to represent. Regardless of those disagreements, I've always found it worth going out of my way, and worth taking advantage of any opportunity, to hear what they have to say about the places they are stationed. In general, I think U.S. foreign policy would be greatly improved by giving more weight to the opinions of diplomats "in the field". (A point on which I suspect my Uncle Pen might have agreed, at least most of the time, despite his role in bringing greater administrative standardization and centralization to the operations of U.S. missions overseas) Within the limits imposed by diplomacy, I've found individual diplomats to be surprisingly forthright about most things, even on the record.

You aren't likely to snag an invitation to meet the head of a large and busy diplomatic mission. And the U.S. Embassy is such a lightning rod for anger in some places (Sana'a, Yemen, for example) that it's best to stay away unless it's unavoidable. But in a place like Recife -- as much a backwater today as it was in my Uncle Pen's day, in the eyes of most Americans as well as those of most wealthy, white, and southern Brazilians -- diplomatic courtesies are often extended even to casual tourist visitors from the diplomats' home country, if you ask nicely.

So what were the issues, and why, in the USA-Brazil aviation talks?

The majority of the wealth in Brazil is in greater São Paulo. The continent's largest and overwhelmingly wealthiest city, it's the destination of most of the high-revenue business travel from the USA to Brazil, and the source of most high-revenue business and leisure travellers from Brazil to the USA. Most tourists from the USA, on the other hand want to go to Rio de Janiero, mainly at Carnaval and relatively few the rest of the year.

Since the bankruptcy of Varig and a succession of short-lived competitors, there is only one long-haul Brazilian airline flying to the USA, TAM, and only one other Brazilian airline (discount domestic and regional airline GOL) potentially interested and able to do so. Allowing more airlines from the USA to share the USA-Brazil market would only dilute the Brazilian market share.

The USA doesn't allow Brazilian or any other foreign airlines to fly within the USA. So Brazilian airlines want to fly directly to as many places as possible in the USA, and places that are destinations for Brazilians, while airlines based in the USA can feed people through pretty much any hub (even one that's neither an origin nor a destination for many travellers) to and from places throughout the USA.

This means that the Brazilian government is mainly interested in limiting the number of airlines from each country allowed to serve São Paulo or Rio, while getting rights for them to serve as many places as possible in the USA. If airlines from the USA add more flights, Brazil would rather they be required to serve other provincial Brazilian cities, preferably those chosen by the Brazilian government, where they would promote targeted regional economic development and reward the provincial and Northeastern support base of the governing Workers' Party without undercutting TAM's profits to and from the big-money centers of São Paulo and Rio.

In arguing that USA-Brazil relations would benefit from direct flights between the USA and the northeast of Brazil, the U.S. Consul in Recife may have had more in common with Brazilians from the Northeast than either she or they had with either country's officials in Brasilia or Washington. But as Consul, she had no direct role in the negotiations, and could only forward her advice (privately) to her superiors, for them to consider, or not, as they saw fit.

The government of the USA, on the other hand, wants as many airlines as possible (most of which will be from the USA) to operate as many or as few flights as they wish (to maximize profits from large seasonal fluctuations in demand) from a few hub cities in the USA of their choosing (to suit their hub-and-spoke domestic route systems) to São Paulo and Rio.

JetBlue was and is a wild card for both the USA and Brazil: JetBlue's chairman, David Neeleman, was born and lived as a child in Brazil, and returned there for a time as a young adult Mormon missionary. JetBlue has made a success of serving secondary international destinations in other countries, such as Santiago in the Dominican Republic. If any airline in the USA would have noticed the potential profits and lack of competition for flights between the USA and northeastern Brazil, most people -- including me -- assumed that it would be JetBlue. But as a dual citizen of the USA and Brazil, Neeleman is eligible to own airlines in both countries, under their parallel protectionist laws. After resigning as president of JetBlue, he announced earlier this year that he is starting a new airline (yet to be named) that will focus on domestic routes within Brazil. There's no clear indication yet that either JetBlue or Neeleman's new Brazilian airline wants to fly between the two countries. Neeleman's choice makes sense: average airfares per passenger-mile within Brazil are substantially higher than on most USA-Brazil routes, in either direction. Most middle-class Brazilians travel by bus, even for thousand-mile journeys. GOL has yet to saturate the potential market for lower-fare, but still profitable for the airlines, domestic air service within Brazil.

The new bilateral agreement concluded between Brazil and the USA in June 2008 reflects a typical set of diplomatic compromises. The limit on the number of airlines from the USA allowed to fly to Brazil was lifted -- a key goal of the USA. The limits on the numbers of cities in Brazil and flights per week to and from Brazil by airlines from the USA -- key Brazilian desires -- were retained, although increased. Of five new permitted Brazilian destinations for USA-based airlines, Brazil was allowed to designate two (Curitiba and Fortaleza, an interior and a Northeastern city neither of which would likely have been the first choice of the USA or any of its airlines), while the USA is allowed to pick the other three.

Most of the new flights will be additional frequencies, and flights on more USA-based airlines, between their hubs in the USA, São Paulo, and Rio de Janiero. But a few of the new flights will be to other cities in Brazil, including the first direct flights to the Northeast. In November, American Airlines will start direct fights between Miami and Salvador (the flights that didn't exist when "The Amazing Race 13" was filmed), Fortaleza (stay tuned!), and Belo Horizonte.

But while AA is adding a fourth daily flight between São Paulo and Miami (in addition to its flights between São Paulo, Dallas/Ft. Worth, and New York), they will have only one flight a day to Salvador, and only four flights a week to Belo Horizonte. That doesn't necessarily mean they expect more traffic to and from Salvador than Belo Horizonte: More likely, it's because most travel to and from Salvador will be by wealthy tourists from the USA willing to pay higher fares, while business to and from Belo Horizonte will come mainly from the large number of poorer Brazilian-Americans from Minas Gerais state, their families, and their friends. (I went to Belo, and found it interesting and worthwhile. Among other things, it's the center of the Brazilian clothing manufacturing industry, with garment-district prices on distinctive Brazilian fashions. But it's definitely not on the typical tourist's radar.)

Those different passenger demographics will mean higher yields (average fares) to Salvador and profits even with some empty seats in the back of the plane, while the large year-round volume of lower-yield "visiting friends and relatives" (VFR) traffic to Belo Horizonte will only allow an airline to make a profit if they keep the number of flights small enough that they can count on filling almost every seat. That's the kind of calculus that airline route planners go through in prioritizing the use of expensive aircraft.

As for the Brazilian airlines, TAM's first new route to the USA under the new agreement will be between São Paulo and the most desirable destination for Brazilian tourists that isn't an international hub for any major USA-based airline: Orlando.

Back in 2000, American Airlines had nonstop São Paulo-Orlando service, but dropped it after 11 September 2001, when it became too difficult for even upper-class white Paulistas to get tourist visas to take their families to Disney World. Today, people in São Paulo have to wait an average of more than 2 months just to get an appointment for the in-person interview required for all tourist or transit visa applications.

The U.S. Embassy in Brasilia, along with the U.S. consulates in São Paulo, Rio, and Recife, has been working hard -- within the limits of the visa rules set in Washington -- to speed up visa processing and mitigate its hassles. The consul in Recife, for example, was rightfully proud of having added an air-conditioned waiting area and an ATM inside the consular grounds, so visa applicants are no longer at the mercy of thieves who used to know that everyone standing in line on the street outside the consulate had at least US$131 on their person in cash to pay their visa fees.

It remains to be seen if things have changed enough, or if there is simply enough pent-up demand, for TAM to make money on a São Paulo-Orlando route that depends on enough Brazilian tourists getting visas to the USA.

Link | Posted by Edward on Sunday, 28 September 2008, 23:59 (11:59 PM) | TrackBack (0)
Comments

Neeleman's new Brazilian airline has been named Azul (which according to this article[1] was the second-place winner in the online voting, behind "Samba").

[1] http://www.businessweek.com/innovate/content/may2008/id2008056_561046_page_2.htm

Posted by: Christopher Davis, 1 October 2008, 06:32 ( 6:32 AM)

Why did you start to talk about the race and then go into this long speach about the airlines??? I want to read your thoughts/news about the race not the bull???? above.!!!

Posted by: Linda, 1 October 2008, 09:28 ( 9:28 AM)

Linda has a right to her opinion, but, frankly, I find your comments on subjects other than the Amazing Race - like the state of air travel between the U.S. and Brazil - to be of very great value and interest. By all means, don't stop discussing the Amazing Race, but also keep on keeping us in the loop about subjects we won't get anywhere else, like China's new visa rules, issues related to traveler privacy/civil liberties, airline fares, tips on places to visit, etc. Keep up the good work!

Posted by: Paul Schlienz, 1 October 2008, 13:14 ( 1:14 PM)

I guess I fall somewhere between Linda and Paul. I agree that your blog is a good place to read discussion on a variety of travel issues. But other than being used as a launch point for your essay, this post had almost nothing to do with the Amazing Race.

I also found the topic to be kind of "inside baseball," of little interest to the average traveler. If I was going to N.E. Brazil for all or part of a vacation, I've probably planned way ahead and blocked out days, weeks, or more. So it would matter little if I fly on one day or the next. Ditto having to change flights. Only frequent travelers -- most likely business people -- are going to care about these issues.

Posted by: Anon Y. Mouse, 3 October 2008, 01:01 ( 1:01 AM)

Damn - some of y'all have been drinking too much Hater-ade.

1) This post is VERY relevant to the Amazing Race. Keep in mind that I'm a flight geek who used to work with Edward, and thus understandably I'm probably one of the only people in the world nearly as interested in these things as he is. But the issue of "How can it possibly be so hard to get from Point A to Point B?" has come up many, many times on the Amazing Race before. I recall one season where people had to get from somewhere in the Persian Gulf (I believe it was Bahrain) to Mauritius. Even though Emirates operates that route via Dubai (which would have been the most direct option) it either didn't operate that day or the racers had already missed the departure. Thus they had to fly all the way up via London to get down to Mauritius, and some of the racers accused the airport staff of being idiots when they were told that was their only option. Anyway the point of this episode was that the racers were only given a choice between two airlines. There was the earlier flight on American (a longtime Amazing Race sponsor) and a later flight on United. It was a sad case of product placement, but that's become par for the course on the show. If the racer's had been given free range to book whatever flights they wanted to then they could have had a huge advantage by flying to Miami and then getting on one of the TAM flights instead of having to fly all the way down via Sao Paolo.

2) You mentioned that TAM is looking to fly from Sao Paolo to Orlando. What you didn't mention is that TAM currently flies direct [or with connections] from Miami to Salvador, Recife, Fortaleza and Manaus.

3) Azul's website is up and running and has been for several months now. There's an interesting message on there from David Neeleman as well as the Top 100 suggested names that were submitted in their "name our airline" contest. The winner gets free Azul tickets for life:
http://www.voeazul.com.br/

Keep up the good blogging,
Mateo

Posted by: Mateo, 7 October 2008, 17:30 ( 5:30 PM)

I think "The Amazing Race" is purile TV at it's most mediocre. I read the entry precisely because it had little to do with a tee vee show. Life: try it some day, people.

Posted by: Bill, 9 October 2008, 20:51 ( 8:51 PM)

intelligent analysis. Love your logo

Posted by: , 2 September 2009, 11:34 (11:34 AM)

Wow, your readers are the kind of readers nobody wants! What's up people if you don't like what Mateo writes than get the F*** out and read something else. What kind of person reads the whole story just to reclaim afterwrds? I like your Posts the way they are!

Posted by: Peixe Urbano, 14 February 2012, 09:25 ( 9:25 AM)
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