A Flatter Europe

Good afternoon,

Coming back from Cadiz earlier this week, there were a few things worth noting. There are 107km from my place to the Malaga airport. Most of the way is through of one the most densely populated strips of coastal land in Spain, the Western Costa del Sol. Just a few years ago this trip was a nightmare, especially on a Sunday evening. Today for EUR 9.70 (EUR 15.75 during peak hours) motorists can take a fast and safe toll road built and operated by Ferrovial. How much longer will this road remain a safe and fast connection is a function of traffic, rather the lack thereof. With “La Crisis” traffic has declined significantly and already there are some stretches where there is some noticeable deterioration of the road surface. But this is mainly a maintenance issue. The large infrastructure - the tunnels, the bridges, and large cuts on the side the mountains - will remain for future generations.

Thus in less than an hour I handed over my car to the valet parking attendant from one of a myriad long term airport parking companies. The operation went flawlessly. How these people make any money is somewhat of a mystery. For just over 45 euros per month the customer gets indoor parking, battery charges if needed, and a monthly pick-up and delivery at the airport terminal door. Of course, cash is the preferred form of payment. But before you jump to any conclusions, in this case as in so many other businesses catering to the large British community in the Costa del Sol, the owners/operators are also British. Therefore we can rest assured that the proper amount will find its way to the Treasury, can’t we? All I hope for is that my car will not be involved in illegal road races, or my airbags or spare tyre go missing!

Once inside the terminal, the horror starts. Malaga is a fairly busy airport, in 2013 it ranked 4th in Spain for passenger traffic with 13million passengers. Malaga ranks number 31 in Europe in annual passenger traffic, or 9th if you exclude national capitals. Barcelona and Palma de Mallorca are also in that top-ten list. In fact, Spain’s airports handle 200 million passengers per year a similar figure to Germany’s.

But does Malaga really need the 2010 pharaonic extension to its terminal? The new 250 thousand square meter terminal cost EUR 410m while a yet to be used second runway cost EUR 610m. And yet passenger traffic in Malaga has grown from 11.5m to just under 13m over the last ten years. Wasn’t anybody at AENA aware that a high speed train service to Madrid and Barcelona had been in service since 2007.

Apparently the many unnecessary improvements and additions to the national airport network are so expensive that there is no money left over for air conditioning. The temperature inside the terminal was indicated as 26.5C with 66% humidity in several large displays which reference yet another one of the crisis motivated inane Government decrees. The seasoned traveler to Spain knows by now that these displays almost always show this same temperature and humidity in the summer months – which is Spain run typically from mid-May through early October. Even more interestingly the same data points are on display throughout the country.

This is the kind of cost savings programme the government and SWMBO like. Who cares about sweaty tourists as they prance half naked through these steamy halls. Once they get home they will forget all about it. Let's hope that following the partial privatization of AENA there will be no need for this London Tube in July like temperature conditions any longer.

It has been a while since low cost airlines are low cost between two normal destinations. They are just a new source of stress for the European middle class. Few things are more ridiculous than watching grownups openly display their dirty laundry to total strangers as they struggle to rearrange the weight in their check in bags to meet the weight limit. Once you know a few basic rules, low cost travel is a bit like prison you get used to it even as you yearn to get to pay your debt to society as soon as possible.

Michael O’Leary is perhaps the only non-financial company CEO who is widely reviled in Europe. And yet he has made his shareholders rich. He has successfully knocked off the Southwest Airlines business model, including using the same Boeing 737 Aircraft. In fact, we learned yesterday that Boeing is poised to win a $11 billion order from Ryanair for a new version of the 737 Max model that squeezes in more seats.

This company thrives on the dense infrastructure of secondary airports in Europe, it has received millions in public sector aid, later to be ruled illegal, and to ad nsult to injury enjoys the second lowest corporate tax rate of any of its competitors (Spanish Companies don’t ever seem to pay corporate tax). Incredibly to the French taxpayer, Ireland has not been forced to raise the corporate tax rate as a condition of the Comprehensive Aid Package it received from the EU.

For those interested in aircraft comps, the link below may or may not contain useful information. It seems to the layman that the 737’s only advantage is to have 5% more seats.

http://planes.findthebest.co.uk/compare/230-269/Airbus-A320-vs-Boeing-737-800 (Perhaps calling O’Leary a non-financial company CEO is off the mark, as an airline business is to some extent a financial business. In this low rate environment a $10billion aircraft order seems far less daunting.)

But the principal reason many travellers dislike O’Leary has perhaps been cleverly fixed. For a few months now, the Ryanair experience has been normalized. It’s not quite Jet Blue, but if not enjoyable it is at least sufferable. Passengers no longer have to deal with the tackiest web site in the planet, or pay extortionate amounts should they forget their boarding cards or, God forbid, misspell their names. Ryanair has also mercifully decided to stop blaring commercial offers during the flight, and has discarded the self-promoting jingle when landing on time. All these things are welcome developments for a company that plans to fly over 100m passengers per year very soon.

The one thing that the airline cannot control is the airport. Stanstead in Essex is one of Europe’s busiest with 19m passengers per year. The lines at customs are the best way to get acquainted with Britain’s fondness for queuing. The luggage service is fine especially when compared to Gatwick, which doesn’t yet seem to have one under its new ownership. There is a valet parking system that is not bad, but obviously somewhat more expensive than Malaga’s at GBP 85 for a three week stay. There is also the typical rickety train service to central London with spotty mobile phone coverage and no Wi Fi, yet expensive. Stanstead is 40.1 miles from my London flat. The journey more often than not can be covered in less than two hours, but it takes at least an hour and ten minutes. British visitors may marvel when they take the subway from Barajas to central Madrid for EUR 2, and enjoy wireless service and this time proper air conditioning throughout the journey.

That was one more trip between two countries that have enjoyed a love hate relationship since at least the time when Catherine of Aragon was repudiated by Henry VIII. Two countries that today seem to have very complimentary resources. While the UK’s infrastructures are collapsing under the strain of record usage and population growth, Spain has large spare capacity. While fast rising home prices have replaced the weather as a favourite conversation opener, home prices in Spain remain near multi year lows in many areas. There are a number of large Spanish companies with a UK presence that could star t a revolution by offering suitable UK employees the option of moving to Spain. Perhaps some Santander, O2 (Telefonica), Scottish Power (Iberdrola), Heathrow (Ferrovial) or International Airline Group (Iberia) employees are candidates for voluntary relocation to Spain. We should start thinking about this as being no different from an employee in the Minneapolis office asking to be transferred to San Diego.

One would have thought that in the Internet era there would be more mobility in what Thomas Friedman wrongly predicted to become a Flat World. The opposite seem s to be happening. Whereas artists seem to always find large attractive cities with a cheap cost of living such as was Paris after WWI or Berlin is today, the rest of us seem to either stay put or gravitate towards the most inconvenient and poor value for money places. Even more difficult to understand is why young professionals flock by the thousands to places like London. Unlike the New York of my formative years in the early 1990s, young people in London don’t seem to make enough money. It will remain a mystery to us why today we have to stick to the same work arrangements that were common more than a hundred years ago. What is all the progress and modern infrastructure good for if we still have the life habits common in Edwardian England. Perhaps now that that Ryanair is fixing up its service and that Telefonica is deploying fibre in Spain, this hope may become a reality.

Best regards, Luis