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In the Headlines-January 9th, 2015

In The Headlines

The Unfriendly Skies of Southeast Asia

In the past year, Southeast Asia’s aviation industry has suffered an unprecedented number of tragedies. The latest, AirAsia Flight QZ8501, had been traveling from Surabaya, Indonesia, to Singapore when it vanished over the Java Sea. These tragedies point to several disturbing trends that raise the question of whether flying in peninsular Southeast Asia is completely safe. The air market in the region has embraced low-cost carriers, leading to a proliferation of flights throughout Southeast Asia, stretching air traffic controllers, and possibly allowing some airlines to expand too rapidly. Indonesian carriers, air traffic controllers, and Indonesian airspace in general have become notorious for weak safety regulations.

AirAsia, modeled on carriers such as Ryanair and Southwest Airlines, was the first low-cost airline to prosper in Southeast Asia, which had been dominated by state carriers until “open-skies” deals significantly expandd the market in the past decade. AirAsia allowed the growing middle classes in Asia to use air travel for pleasure as well as business for the first time. The no-frills airline charged for food, bags of any significant size, choosing a specific seat, and many other services, but it also gained a reputation for solid customer service.

AirAsia has expanded rapidly in Indonesia, the most populous nation in Southeast Asia. Indonesia-based low-cost carrier Lion Air has also grown rapidly and placed a massive order in 2013 for 234 new Airbus planes and then followed that up with an order last month for 40 more planes. Other low-cost carriers such as Citilink, Tigerair, Valuair, and many others have also built up their route networks across the archipelago.

But while air traffic has grown in the region, the increase in low-cost flights may have resulted in planes being operated by men and women with less experience than in the past. Southeast Asian airspace still has the same mountainous terrain, chaotic weather, and tough approach paths as it always did. The pilot on the AirAsia flight had about 6,000 hours of flight experience on the Airbus plane he was flying, but it is unclear whether he had experience flying at 34,000 feet or higher, where he was trying to take the plane to avoid bad weather. (The higher the plane rises, the more difficult it can be to navigate tricky conditions such as thin air and ice crystals.) Some low-cost carriers seem particularly strapped trying to find quality staff and allegedly push their pilots and crew to work too many hours in order to run so many flights. Indonesian carrier Lion Air has had at least three of its pilots arrested for crystal methamphetamine use since 2011. Crystal meth is a stimulant that can be used to stay awake and alert.

The increase in flights seems to have also taxed air traffic controllers, pilots, and mechanics operating in Indonesia. The country has become infamous for poor management of planes in the air and coming in for landings, and for lax enforcement of airlines’ need to maintain planes. Pay for air traffic controllers, mechanics, and regulators of the aviation industry remains low by regional standards, and graft is endemic at all levels of regulatory agencies in Indonesia. Yet the increase in flights into and through the country has required more air traffic controllers, mechanics, and pilots, whether Indonesia is capable of providing trained people to fill these jobs.

Indonesia’s airlines have suffered numerous deadly crashes in the past 10 years. The European Union (EU) has banned virtually all Indonesian airlines from flying in the EU because of safety concerns. Even Indonesian state carrier Garuda Indonesia was, in the 2000s, banned from flying in Europe because of its safety record. The International Air Transport Association has not allowed Lion Air to become a member because of concerns about the airline’s safety.

Indonesia, meanwhile, though a real democracy, also has been reluctant to allow outsiders complete access when working on search-and-rescue missions, perhaps because the government fears exposing the ineptitude of some of the country’s air regulators and controllers. The unwillingness of governments in the region to confront the shortcomings of their aviation systems means that more tragedies are likely to occur.

Coming to a Farm Near You – the Driverless Tractor

Farmers in tractors plowing, planting, and harvesting their fields in a cloud of dust are a classic image of rural America. It may not be for long. Companies such as Kinze Manufacturing, a large farm-equipment maker in Iowa, are developing variations of driverless tractors that would turn a century-old chore over to robots and free farmers to do other work without having to hire someone to take their place.

Autonomous harvesters and planters work much like the self-driving cars that Google, Mercedes-Benz, and Nissan are developing. Instead of navigating streets and highways, they drive back and forth across corn, wheat, and soybean fields. Precision is important because farmers need rows to be plowed and planted within a few inches of accuracy. Autonomous tractors also need to be able to make a U-turn and line up properly in the opposite direction so as not to leave any land unworked. There is also the matter of safety. Tractors often need to travel short distances on public roads to get from one field to the next; a hiccup could result in accidents.

A driverless tractor sounds like the ideal solution for any farmer: Access to 24-hour efficient farming without having to rely on increasingly rare skilled labor. Yet, the take up of such technology has been surprisingly low despite the efforts of manufacturers in the U.S. and Europe to develop the right kit.

“The technology is available and it works,” says Heribert Reiter of Agco, the world’s third-largest tractor maker by sales, based in Marktoberdorf, Germany. “The question is when it will be accepted by customers. We’ve had a lot of discussions but nobody is really convinced they want to be the first movers.” The benefits are clear, he says. “With just one driver, you can still have high yield efficiency, you can use them all year round and because they are robots, they are more precise and can do the work for longer.”

The technology gives farmers the potential to farm their land later in life too, says Terry Anderson, the lead designer at the Minnesota-based Autonomous Tractor Corporation. “A lot of farmers as they get older can no longer ride in the tractors but they still want to farm,” he says. “With our technology, they can sit down and watch many tractors do the work.”

Still, some see stumbling blocks along the way. Price is one thing—and a system requiring the purchase of two tractors can cost as much as $810,000. “Price is somewhat prohibitive,” says Rhett Schildroth, senior product manager at Kinze Manufacturing. He says his company so far has deployed three driverless tractors and concedes the technology is at its early stages when it comes to being commercially viable. The technology needs to improve too, says Mr. Schildroth. “We want to make sure that we work for every farmer in every field as there are so many different terrain types, field types and farmers that operate differently.”

Despite these limitations, Autonomous Tractor’s Mr. Anderson takes an optimistic line and predicts that 100,000 driverless tractors could be working the fields in the next decade.

1. http://buswk.co/1EDS664 – BusinessWeek
2. http://for.tn/1xGwJej – Fortune
3. http://on.wsj.com/1F2dlPd – Wall Street Journal

The Good News Is . . .

• The consumer confidence index rose 1.6 points to 92.6 which, outside of October’s 94.4, is the strongest reading of the recovery. November’s index was revised 2.3 points higher to 91.0. The “current conditions” component of the index was up 5.1 points to 98.6, a strong gain and the best since the recovery began. The “jobs-hard-to-get” subcomponent showed special strength, at 27.7% vs November’s 28.7% in an improvement that could mean a strong December employment report.

• Nike, Inc., the world’s leading designer, marketer and distributor of athletic footwear, apparel, equipment and accessories for sports and fitness activities, reported earnings of $0.74 per share, an increase of 25.4% over year-ago earnings of $0.59. The firm’s earnings topped the consensus estimate of analysts by $0.04. The company reported revenues of $4.4 billion, an increase of 14.8%. Management attributed the company’s results to the strong performance of its Nike and Converse brands, as well as improvement in its overall gross margin.

• The Chinese conglomerate Fosun International has agreed to acquire the Meadowbrook Insurance Group of Southfield, Michigan, for $8.65 a share in cash, or $433 million. Founded in 1955, Meadowbrook sells and underwrites specialty property and casualty insurance programs. It operates six insurance carriers. The company will continue to operate under the Meadowbrook brand name when the transaction closes. Fosun has more than one third of its total $50 billion in assets invested in insurance businesses around the world, and this deal will allow it to establish a presence in the important U.S. property and casualty insurance market.

1. http://bloom.bg/1bidM2T – Bloomberg
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://swoo.sh/14lxwaV – Nike Inc.
4. http://nyti.ms/147qNQU – NY Times Dealbook

Planning Tips

Tips for the New Credit Card

In 2015, you may want to pay closer attention to your credit cards. The coming year is shaping up to be the biggest year for credit card changes since the Credit CARD Act came out and shook things up in 2009. Below are some guidelines for the changes you are likely to see in your credit cards.

Look for new credit card technology to arrive soon – One of the biggest changes, EMV technology, will put new credit cards in most shoppers’ hands by the end of 2015. Computer chips embedded in these cards generate a unique transaction code every time you use them for a purchase, offering greater protection against fraud. There’s no need to apply for a new credit card to get one of these more secure cards, as issuers are already mailing them out.

More support for “mobile wallets” – As a side effect of the new high-tech cards, you may find there is also more opportunity to use a mobile wallet. Many of the new point-of-sale terminals that retailers are installing to read the new chip cards also work with the technology behind Apple Pay and other mobile wallets.

Continue to check your statements – Even with the added security measures, monitoring your credit card statements is still going to be important. This year is the beginning of a transition period where issuers will be sending out the new cards, but not everybody will have them right away. Not all stores have the terminals yet, and not all of those that do have turned them on. Until that time arrives, hackers can still commit the same kind of large-scale data breaches shoppers have seen plenty of in recent years at chains like Target, Home Depot and Michael’s.

Re-evaluate your cards’ interest rates – You may also want to think again about whether you have the right cards in your wallet, in light of the potential for rising interest rates. It is highly likely the Federal Reserve is going to raise interest rates in 2015. If you are carrying a balance, consider switching to a fixed-rate card because the rates will not fluctuate like those of variable-rate cards. They are rare, but a few community banks and credit unions still offer them. Or look into balance transfer offers. Those are typically fixed-rate offers, and a lot of them extend as far as 18 months. Whatever option you choose, take action before the Fed announces a rate hike, something many Fed watchers expect will happen next summer. When that occurs, offers can change literally overnight.

Re-examine your benefits – While you are checking terms, take a hard look at your card benefits. Rewards have gotten more enticing in recent months. In addition to the valuable ones that consumers often miss, like price adjustments and extended manufacturer’s warranties, many cards now include regular free looks at your credit score. Discover Card, Barclaycard US and First Bankcard have already announced such programs, and Citibank said recently it will start sharing scores with cardholders in January.

1. http://read.bi/1l5T3Hg – Business Insider
2. http://usat.ly/1pPkSKp – USA Today
3. http://www.cnbc.com/id/102277146 – CNBC
4. http://bit.ly/1BuoC5f – CreditCardscom
5. http://1.usa.gov/14lxDDl – Answers.USA.gov

Please don’t hesitate to give us a call if you need help with any component of your financial planning.

In the Headlines-January 16th, 2015
In the Headlines-December 5th, 2014

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