Friday 31 July 2009

** Chocolatey Scents ** - Thursday 30th July

Global markets continue to rise and rise as the risk-trade continues its dramatic return-to-form, with investors seemingly believing their own hubris surrounding the sustainability of the recovery, even in the face of mounting concerns over consumer debt-default levels and the stubborn indicators of unemployment. Commodities have pulled back a little, with Oil noticeably failing to slick-its-way-past the all-important $70/brl - cries of anguish across the Mid-East, cancellations of extra suites at plush Mediterranean hotels. US motorists also provided with an extra excuse to set-aside their short-lived-love-affair with the eco-car, returning to their manly-gas-guzzling behemoths, capable of dwindling oil-supplies from Persia-across-Kazakhstan with a single tank.
Asian, European and US markets trading slightly higher today so far – all eyes on US jobless claims numbers due to be released later - +575k cons.

Childish about China… So the China bubble is close to bursting is it? After doubling in just over 7-months (and still currently returning +87% YTD on the CSI300), it seemed quite inevitable that the main Chinese market would be in for a bit of a rough ride with the usual bout of profit-taking, coupled with the launch of two large IPOs, one of which (China State Construction Engineering) is the largest globally since Visa’s IPO in March 2008.

China’s market fell -5% yesterday (it rose again today btw). That was no surprise. What was surprising though was the rather uncalled-for and heavily-negative stream of commentary from the international financial press, exceptionally quick to pounce on the one-day fall, seizing the opportunity to hack any semblance of success out of China’s day (both IPOs stormed at their open, yesterday’s closing at +50%).
The general reaction to China’s one-bad-day was like watching a pack of starved hyenas suddenly alone with their prey. Fair enough, every dog has its day, and when the US-financial crisis was at its worst, the Chinese did certainly take some joy in the pain felt across the once magnificent capitalist system.
In the context of the “strategic discussion” taking place throughout this week between the two though, the reaction was an eye-opener, serving only to reinforce the suspicions that under all the kind (and exceptionally smooth) talking by the US administration in welcoming the Chinese leadership to the global-financial-stage, that old overriding factor of human frailty and emotion once more took over. That ingrained instinct to wish the worst upon your closest rival rising to the surface in a shockingly aggressive manner. How does CNBC get-away with calling a one-day move (after almost ignoring the exceptionally impressive China market performance over the last few weeks) as an “absolutely disastrous day…the ring-tolling of the end-of-the-party for China” – huh?? Are they serious? Talk about an overreaction and a slight glimpse into the beneath-the-surface-childish glee at another’s troubles.

Bit of a stink?
Sometimes, world events really just make it too easy. Today, conspiracy theorists will no doubt rejoice and have a new hanger to pin-their-sceptical-coat-on in the financial world. The following could be viewed as an innocent occurrence during a normal trading day in the banking world. Others will view it as a truly-new-low, not to mention despicable and underhand attempt to dissuade customers from obtaining loans and other banking services (in order to finance their homes and feed their families) through US government supported institutions.

The visit of a certain lady to her local bank branch, somewhere in deep Texas, ended with 35 people being hospitalised. According to reports, whilst waiting in line at the bank to discuss her outstanding loans (the bank was unusually busy that day it was noted), the lady decided to spray what was described as a rather “potent” perfume. This first caused a bought of immediate nauseousness amongst her fellow surrounding customers, then continuing to spread throughout the banks ventilation system (that is one strong-smelling substance) resulting in almost 25 bank employees to suddenly feel ill enough to require hospital treatment.

Hold on Hold on. There’s definitely something wrong here. If this had been a report from the Middle East somewhere, then there might just be a chance the concentrated-sweet-smelling-Oud that is so popular in the region would have been able to cause such havoc amongst the more sensitive of noses across Texas, but as it stands, either the “potent” aroma was clearly something more vicious than perfume, or indeed the bank is guilty of stooping to new lows to protect its balance sheet and prevent a run-on-the-bank. Nah, they wouldn’t really do something like that, would they? Let the bloggers begin…

Not so chocolaty-sweet business…
Times must be tough as British Airways decides to eliminate snacks on its short-haul flights and (please fasten your seat-belts) no longer serve canapés and chocolates to business-class passengers on long-haul flights. Knowing the British press, and other delightful modicums of journalism, this is going to get turbulent.
A business class ticket to Los Angeles on BA costs almost $11,000 – are you seriously telling me that there is no way some of that cost can be put towards a simple box of Cadbury’s to help finish-off a meal served in the luxurious biz-class cabin to those poor hungry passengers having to deal with the horror of sleeper beds and only a 15-inch flat-screen displaying one of their “over-100-channels-of-great-entertainment”? If not a selection of Godiva, maybe just a couple of Snickers bars thrown in – don’t take it all away.

This is quite a surprising move at a time where other (full-service) airlines are stepping up their game to provide value-for-money for customers – especially the Gulf and Asia based airlines. Whilst Singapore Airlines, Qatar and (increasingly) Emirates are treating their business class customers with extra luxury and continuously improving their service (including a sumptuous selection of high-quality artisan chocolates), BA has made what will surely be concluded to be a horrific PR mistake in “dumbing-down” its offering even further, and blurring the line between low-cost and full-service airlines.

OK granted, the costs involved for BA’s operations flying in-and-out of the main global airports is a great differentiator, but travellers are more willing to go “that extra mile” if it means they can make significant savings. BA’s move is reminiscent of a typical knee-jerk reaction to a crisis – rather than searching for innovative and meaningful ways to improve business by offering incentives and lowering costs, BA’s genious decision may prove one the defining moments in its demise.
It is symptomatic of misguided cost-cutting measures across other industries, without considering the medium-to-long-term effects on business. Could you imagine a dry cleaner looking to cut-costs for example, by telling you that the extra dry-spin at-the-end-of-your-wash is no longer included? That’s a lot of wet-pants.

Rather than cutting services to the customer, BA may have been better-off probing for a deceptively smelly-and-smart-way to ensure voluntarily leave by surplus staff. The gifting of a certain perfume brand may well achieve this desired outcome once sprayed. They always say you first need to give, to get what you want.

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