American Airlines Suffers, So We All Suffer

American Airlines announced this morning that they were cutting their flight capacity by as much as 12% and are instituting a new baggage handling fee.

American plans to retire as many as 85 planes in response to higher fuel prices and reducing demand.  In addition, starting June 15, 2008, you will have to pay $15 for THE FIRST bag you check.  If you need to check a 2nd bag, that will cost you an additional $25 and bags 3,4 and 5 will cost you $100 each.  These changes are in addition to other, previously announced fees.  The stock market responded by hammering AMR stock down by roughly 25% after the announcement.

The upshot for the average traveler will be longer lines at security since more people will have carry-on luggage than before, higher costs and a generally less pleasant traveling experience, not that traveling has been a whole lot of fun since 9/11 anyway!

My guess is that many travelers, particular those families with children, will choose to drive rather than fly for those short-hop flights of 2 hours or less.  With having to get to the airport 2 hours early and the inevitable flight delays the “1 hour” flight to San Francisco from Los Angeles becomes a 4 hour ordeal and ultimately takes you almost as long as driving does.   A note to the airlines … if you continue to raise prices, reduce service and further inconvenience travelers, this vicious cycle of price increases, reduced travel and lower profitability will continue until there are very few of you left.


Is Inflation Moderating?

The Labor Department earlier this morning reported that consumer prices rose .2% in April and a total of 2.3% year-over-year, a much tamer figure than most experts were expecting and much less than most people would think, given the high price of food, gas and other items.  That’s good news for those that thought we might be in the beginning stages of “stagflation” where we’ve got stagnant growth and high inflation, much as we say in the 1970’s.

The thing to remember about the consumer price number is that it’s reflective of all the goods and services sold in the economy.  The .2% number included a .9% rise in food costs and a 5.6% rise in gasoline but a reduction in the price of automobiles and lodging costs (hotels) as the demand for those items has dropped due to the higher cost of food and gas, among other things.  Gasoline prices ALWAYS rise this time of year in anticipation of the summer driving season and generally fall as the summer progresses.

The Fed has attempted to the delicate balancing act of cutting interest rates to keep the economy from falling into recession while at the same time not igniting excessive inflation and only time will tell if this month’s inflation reading was merely a statistical blip or if they’ve actually managed to pull it off.

Money and the Family Dynamic

Money is an incredibly sensitive topic. For most people, their “success” or “failure” in life is gauged by how much they make. Now many people, myself included, feel that there’s more to success than just money, however, we can’t escape the fact that many others don’t feel the same.

Money, in a family dynamic, can cause more strife than any other single topic. As I’ve said many times, money does not cause family dysfunction, it merely amplifies any underlying dysfunction that was always lurking below the surface. Add to this the fact that, in the next 20 years, we’re going to experience the largest transfer of wealth ever and the implications are huge.

The easiest way to avoid future conflicts over money is to do proper planning before it ever becomes an issue. When starting the estate planning process, it’s important that all interested parties be aware of what’s going on so that there are no nasty surprises when the transfer of assets actually happens. By doing proper planning ahead of time any issues can be addressed and hopefully, minimized with much less pain. I can’t tell you the number of times I’ve heard potential heirs complain that their parent/grandparents are frittering away “their inheritance.”

If you are a business owner with family members involved, if you’ve accumulated enough wealth to have a family charitable foundation, or if you simply want to give it all away when you die, it’s critically important that you let your heirs know what you intend to do with your estate when you pass away. There’s nothing worse than having a child that thinks they’re going to inherit a fortune, only to find out that you intend to give it all away to your favorite charities. Many baby boomers are counting on their inheritance to finance their own retirement so imagine their surprise and anger when they find out their own retirement plans have been derailed. At a minimum, not involving your heirs in this discussion could lead to incredible animosity, years of therapy and, most likely, legal wrangling in an attempt to undo your wishes. That’s why, long before it becomes an issue, you need to ask yourself the following questions:

  • While I’m alive and in my twilight years, who’s responsibility is it to take care of me when I can no longer take care of myself?
  • When I do die, what do I want done with my estate?
  • Are my children capable of carrying on the visions and goals of my business?
  • Will my heirs use the money in our charitable foundation the way I intended, or will they change its mission to something completely different?
  • If you plan to give it to your children or grandchildren, and they inherit a large sum of money, will they be able to handle it responsibly or will they “blow it” on, as the saying goes, wine women and song?

One of the trends we’re seeing is inheritance based on reaching certain personal milestones. For example, instead of giving your beneficiary a lump sum inheritance when they turn 21, the trust will dictate that a certain amount will be distributed upon reaching certain milestones i.e. graduation from college, marriage, starting a new business, etc.

The wealth transfer process, by its nature involves many parties including family, charities, attorneys, accountants, wealth managers and a host of others. By having open, honest discussions with your family and advisors regarding the transfer of your own wealth, you can have your estate go where you want it and in the amounts you want and, hopefully, all those involved will be on board so that the process is as painless as possible.