The Irish Times reports that British Airways (BA) was braced for another day of turmoil at Heathrow today as it struggled to overcome the humiliating debacle of Thursday's opening of its £4.3 billion (€5.4 billion) showpiece terminal at the world's most congested airport.
The airline cancelled about 20 per cent of its flights out of Terminal Five yesterday and warned of further cancellations today, although probably fewer than on the previous two days.
Almost 250 flights have been cancelled since the chaotic opening and more cancellations are due, giving the airline a financial and public relations headache.
BA drafted in 400 extra staff yesterday to shift 15,000 items of baggage built up since Thursday. The airline said it expected to operate the terminal at 87 per cent of its capacity today and tomorrow, as against yesterday's 85 per cent.
"We are sorry for the disruption and inconvenience caused to customers whose flights have been cancelled or whose bags have been delayed," said BA chief executive Willie Walsh, whose airline has exclusive use of the new facility.
"We continue to work towards increasing the number of services in the days ahead. The baggage system is now generally working well. From time to time, problems have developed that were not encountered during the extensive trials. These issues are being addressed as they arise ."
All long-haul flights from the new terminal operated yesterday, however, and passengers were at least able to take their luggage with them. On opening day, baggage-handling problems forced the airline to turn away passengers who needed to check luggage and several flights left without any of their passengers' bags.
The airline pulled a multimillion pound advertising campaign amid concerns about the damage the chaos could do to its brand. BA had planned to unveil a campaign next week promoting the terminal's "fast, safe, reliable" baggage arrangements.
Heathrow handles 68 million passengers a year and is the world's third-largest airport in terms of total passengers.
The chaos at Heathrow continued as the Open Skies agreement between the European Union and the United States came into effect yesterday, opening the airport to more US airlines.
Delta, Continental and Northwest Airlines began flights into Heathrow yesterday under the treaty which ends a lock on flights between the US and the London airport for British Airways, Virgin Atlantic, United Airlines and American Airlines.
Cheaper air tickets and a greater choice of routes are expected under the agreement. The EU estimates the pact could provide a major boost to transatlantic air traffic with more than 26 million extra passengers expected over the next five years.
The limited availability of slots at large airports such as Heathrow will mean that transatlantic carriers are likely to use smaller airports instead.
Low-cost airline Ryanair has also expressed an interest in flying to North America.
The Irish Times also reports that the investigation into media ownership in Ireland was sparked by a call from the Competition Authority, and not Independent News & Media (INM), the Government insisted last night.
Minister for Enterprise Micheál Martin has given an advisory group, chaired by Paul Sreenan SC, three months to advise if existing competition law sufficiently covers the need to maintain diversity of opinion when deciding on media mergers.
The Competition Authority urged Mr Martin to carry out the inquiry after it had difficulties in deciding on the takeover of Emap's Irish radio stations - Today FM, FM104 and Highland Radio in Donegal - by Denis O'Brien's company Communicorp. Mr O'Brien has since agreed to sell FM104.
The authority concluded that while it could measure the business impact of the takeover, it did not have "the expertise" to decide on the need to maintain plurality in the Irish media.
INM was one of dozens of companies to reply to Mr Martin's call last December for submissions on the need for possible changes to the Competition Act 2002.
A number of Sunday newspapers yesterday reported that INM had said in its submission that restrictions should be imposed to prevent any single person, or company, controlling large sections of both print and broadcast media.
The inquiry ordered by Mr Martin will be part of the "current review of the operation and implementation of the Competition Act 2002", and will report before the end of July. Mr Martin said:"It is appropriate in the context of the current review of the Competition Act 2002 to have a specific look at the existing criteria and arrangements for considering and assessing how a proposed merger might affect the diversity of views and the concentration of ownership within and across media businesses."
Under the Competition Act, the authority is required only to investigate the effect on competition that a merger or takeover could have on the market, though the Minister retains powers to veto deals in the public good.
The advisory group's members are Dublin City University professor Colum Kenny; Arts Council chairwoman Olive Braiden; Broadcasting Commission of Ireland (BCI) chief executive Michael O'Keeffe; and Peter Cassells of the National Centre for Partnership & Performance. Another person has still to be appointed.
Rejecting charges that the inquiry has been spurred by INM's actions, the Department of Enterprise said the announcement would have been made some weeks ago but for delays in replies from some potential members.
Mr O'Brien has amassed a 21 per cent stake in INM, making him the second largest shareholder after Sir Anthony O'Reilly.
A spokesman for Mr O'Brien confirmed last night that the businessman would commission an update on a controversial report by a US academic ahead of INM's next annual general meeting.
The move is expected to increase tensions further between Mr O'Brien and the O'Reillys. Gavin O'Reilly, second-in-command at INM and Sir Anthony's son, labelled Mr O'Brien "a dissident shareholder" at the company's results presentation last week.
Mr O'Brien's spokesman said the businessman would ask Dr Stephen Davis, of the Yale School of Management, to update the report he wrote last year which was highly critical of the corporate governance of the company. INM rejected the findings of the report.
The BCI, which has the power to block media mergers on the basis of cross-media ownership, is expected to examine Mr O'Brien's media interests if his INM shareholding reaches 25 per cent under its ownership and control policy.
The National Union of Journalists (NUJ) gave a "guarded welcome" to the establishment of the advisory group, calling on Mr Martin to broaden its remit. Séamus Dooley, Irish secretary of the NUJ, said: "The debate about media control and ownership must go beyond the personal ambitions of key players within the industry."
The Irish Examiner reports that Tesco, one of the dominant players in the Irish retail market, has stopped the roll out of Fresh ’n’ Easy, its chain of US convenience stores on the east coast.
Fresh ’n’ Easy is the group’s first venture into the US market, about which the giant retailer has been very bullish.
According to yesterday’s Sunday Telegraph, the grocery chain, which has diversified into petrol retailing and financial services, suspended the expansion of Fresh ’n’ Easy last week, while it reviews the performance of the startup.
Tesco announced the three-month halt to the expansion of Fresh ’n’ Easy, after opening almost 60 stores since last autumn.
Finance and strategy director, Andrew Higginson, said earlier in the year that customer response to Tesco’s newest expansion in the US was “very encouraging”.
However, the Tesco move was seen as swimming against the tide, as big players in the grocery sector have been forced to cut prices to in order to compete with the expanding power of Wal-Mart.
Retailers catering to the mid-market, such as Kroger, Safeway and Albertson, three of America’s biggest grocers, have all been squeezed.
They come under pressure to cut prices and margins once Wal-Mart moves into the area.
Tesco’s offering in America is going against that trend.
It is aiming Fresh ’n’ Easy squarely at the middle market, hoping to repeat its success in attracting shoppers from all the main social groups in Britain.
Until recently, social class played at least as big a role in determining where people shopped as price and convenience did.
Tesco will also be a pioneer in two other important ways: the size of its stores and their range of goods.
Most Fresh ’n’ Easy outlets will be relatively small, at about 929 square metres.
Food retailers in America are either much bigger (six Fresh ’n’ Easy’s would fit into a typical supermarket and 10 into the average Wal-Mart), or much smaller.
While Tesco refused to comment, the suggestion is that price rather than size may be the sticking point.
The Financial Times reports that Hank Paulson, the US Treasury secretary, may receive what his hosts consider a nice gift when he arrives in Beijing early on Wednesday – a strengthening Chinese currency poised to reach a significant new high.
The renminbi closed trading in China on Friday at Rmb7.017 to the dollar, on the verge of breaking through Rmb7.00, a symbolic moment following a period of accelerated appreciation since late October.
After years of arm twisting by Washington, where the currency has become a litmus test of Chinese responsiveness to US complaints on trade, Beijing expects Mr Paulson to acknowledge publicly the renminbi’s gains.
But the bilateral prism through which Washington sees the issue gives a distorted picture of the reasons for the renminbi’s strengthening, say analysts, and also exaggerates the real changes in the currency’s value. “A small factor is the pressure from the US. A big factor is inflationary pressure in China,” said Gao Shanwen, an economist with Essence Securities in Beijing.
With inflation hitting a 12-year monthly high of 8.7 per cent in February, after several months of sharply higher food price rises, the currency has moved to centre stage as a policy instrument for Beijing.
The top ranks of the government have long been split on the need for the currency to rise more quickly, with objections from the economic planning ministry and the export lobby enough to keep the pace slow.
Wen Jiabao, the premier, has been ineffective in wresting the issue out of the bureaucratic morass it has long been caught in, preferring instead to wait until a consensus was forged on the issue, say local economists.
But while at the top of the US agenda, the currency has in some respects remained a second order issue for a Chinese government focused above all on maintaining fast economic growth. For Beijing, a fast-growing economy helps in turn address a range of difficult issues – the rich-poor gap and the underfunded health, education and welfare systems. “Without economic growth, everything else becomes really problematic,” Michael Enright, a consultant, and co-author of a new book, China Into the Future, said.
But the spectre of inflation has now galvanised the government on the currency. After rising by about 14 per cent over 30 months since mid-2005, when the US dollar peg was dropped, the renminbi has accelerated at an annualised pace of about 15-20 per cent against the US currency in the opening months of 2008.
A stronger Chinese currency helps reduce the cost of importing products such as soybeans, 80 per cent of which are used in pig feed. Chinese inflation has primarily been driven by higher food prices, especially of pork, the staple meat. The currency also remains helpful in taking the steam out of the swollen trade surplus, which has been a political problem in relations with big trading partners.
Incentives for policymakers to allow the currency to appreciate could be short-term, amid signs that headline inflation could fall from mid-year and that the trade surplus is peaking.
“I expect the pace of appreciation to slow in the second half of the year,” said Ha Jiming, of China International Capital, the country’s largest investment bank, as inflation and the surplus eased.
But while Mr Paulson may give China credit for lifting the renminbi against the dollar, China’s other trading partners have less reason to applaud. Europe, now China’s largest trading partner and increasingly anxious about the size of the bilateral deficit, has seen the euro appreciate by more than 3 per cent this year against the Chinese unit. The Japanese yen, in turn, had strengthened by more than 7 per cent in 2008 by the end of last week.
As a result, the renminbi’s effective exchange rate, the yardstick advocated by bodies such as the IMF, has not moved at all this year against its leading trading partners.
Such outcomes are hardening suspicions in Europe and elsewhere that the renminbi is still tracking the dollar. As long as the currency is rising against the greenback, however, Mr Paulson might consider that to be Brussels’ and Tokyo’s problem.
The FT also reports that financial services institutions are slashing investment plans and trimming jobs in preparation for a “long siege”, convinced they have not yet felt the worst of the credit squeeze, the CBI and PwC report on Monday.
In a quarterly survey of the industry, conducted by the employers’ body and the professional services firm just before the latest shock of Bear Stearns’ implosion, the vast majority of respondents thought market conditions would deteriorate and 90 per cent saw little hope of a return to normality within the next six months.
“While liquidity injections and interest rate cuts by the Bank of England will help shore up the system, neither will solve the fundamental problem of restoring trust,”said Ian McCafferty, CBI chief economic adviser.
Fears of growing funding constraints and a prolonged slump in demand are spreading gloom even to areas of business relatively insulated from the immediate problems in credit markets.
Banks seem to be becoming inured to tougher conditions, with confidence declining less steeply than last quarter. But the survey shows a collapse in confidence among life assurers, as volatility in asset prices threatens both the returns on their portfolios and consumers’ willingness to make new investments.
With institutions expecting business volumes, fees and investment income to fall further, there is little appetite for expansion in the sector that has propelled economic growth in recent years.
Twenty five per cent of respondents said they had cut jobs over the past few months, the highest rate since 2003, and a third said they planned to reduce headcount in the next quarter, although sweeping redundancies appear unlikely.
Fewer institutions want to offer new services or gain market share in the next year. The balance planning to cut capital spending on land, buildings and machinery was the largest since 1992.
Forty per cent thought difficulties raising funds could limit their ability to expand, compared with 24 per cent in December’s survey. However, a much higher proportion thought sluggish demand would be a constraint, signalling that a slowdown in the real economy was the biggest worry.
Reflecting the stagnant housing market and strains on mortgage lenders, the survey suggests that lending to private individuals has fallen more sharply than corporate lending – although the balance of respondents expected the latter to contract over the next quarter.
One bright spot was the general insurance sector, where business volumes and profitability are still growing strongly, and institutions are splashing out on training and higher-paid staff.
Fund managers, still hiring aggressively, were the only sector where confidence had risen since December.
The New York Times reports that most everyone on Wall Street, and on Main Street, wants to know when will the financial crisis end. So far, despite the government’s efforts, the markets are whispering an answer that no one wants to hear.
Even as the secretary of the Treasury, Henry M. Paulson Jr., prepares to lay out a blueprint on Monday to overhaul financial regulation and prevent future crises, signs of stress are evident deep inside the financial markets.
Stock prices are gyrating. The dollar hovers near low points against leading currencies. The credit markets remain unsettled. And traders keep buzzing that Bear Stearns, which was saved from the prospect of a bankruptcy filing through a takeover backed by the Federal Reserve, may not be the last Wall Street bank to run into trouble.
But the proposals from the Treasury to change financial regulation, which critics say are long overdue and do not go far enough, are aimed at the future and do not address the current turmoil.
The debate in Washington over what to do is entering a new phase, with more calls for broad help for homeowners to help prevent what some fear could be a severe recession.
On Wall Street, it has been a grim first quarter. And in the next few weeks, big banking companies like Citigroup are expected to write down the already shrunken value of mortgage-linked investments further, sapping quarterly profit.
The effort to rescue Bear Stearns has overshadowed distress in other corners of the financial industries.
Last week, for example, the Federal Deposit Insurance Corporation, which insures bank deposits, said that a mortgage lender, Fremont Investment and Loan, had too little capital, and it ordered the company to recapitalize within two months. Also, the CIT Group, a lender to businesses, was forced to draw on $7.3 billion of emergency credit and said it would try to sell some assets to raise cash.
And several large investment funds, including one affiliated with the Carlyle Group, a prominent buyout firm, have had large losses recently and risk collapse.
Everyday stock market investors are having a tough time, too. The average diversified stock mutual fund has fallen 10.3 percent so far this year — the worst quarterly showing in five years, according to analysts at Morningstar in Chicago. For some people, such reduced assets seem to sting even more as they confront the deepening housing slump.
Market watchers hope that the Fed will inject enough cash to instill much-needed confidence. And there are signs that some things are improving.
Since the Fed stepped in to keep Bear Stearns from collapsing two weeks ago, it has been lending money directly to big investment houses in an effort to calm the jittery markets. It is also trying to shore up wobbly mortgage securities by letting Wall Street banks use those instruments as collateral to buy Treasury debt.
But what investors fear is that financial companies’ pain will not end with the troubled mortgages, which by some estimates have already resulted in more than $200 billion of losses. Car loans, home equity loans, credit card debt, small business loans — any of that might run into trouble as the economy stalls.
“A year ago, we were told the problems were in subprime, ”said David Rosenberg, chief North American economist at Merrill Lynch,“and what is becoming increasingly apparent is that the participation in the credit bubble was far greater than just that.”
So while the Fed is easing credit, the markets are reluctant to follow suit. Banks are hoarding cash and are wary about lending money, even to one another. Part of the banks’ unwillingness to lend reflects their own weakened condition, analysts say.
As a result, mortgage rates remain higher than they might be, at around 5.9 percent for a 30-year loan. The rate at which banks borrow money from other banks in the London market, a widely used reference rate for short-term loans, rose to 4.47 percent on Friday, its highest level since December.
Bond investors, the linchpins of the credit markets, are on edge, too. Many want to buy only the safest debt. Investors are demanding a premium of about 1.8 percentage points over United States Treasuries on mortgage bonds guaranteed by Fannie Mae, the giant mortgage business.
While that spread — a measure of the risk that investors perceive in the Fannie Mae bonds — has narrowed since early in the month, it is up sharply from a year ago.
“Banks’ appetite for risk has totally disappeared,” said Peter Gumbel, a mortgage broker in Greenwich, Conn. “Regardless of how much the Fed lowers rates, banks just can’t price in enough of a premium to want to take a risk on some loans.”
Borrowers with less than stellar credit scores or those trying to finance expensive houses are still struggling to get mortgages, Mr. Gumbel added.
The Fed has reduced the benchmark short-term interest rate seven times since September, lowering it by a total of three percentage points, to 2.25 percent, and has made tens of billions of dollars available to Wall Street banks at low rates.
Yet that has not been enough to spur trading in arcane yet large arenas like collateralized debt obligations, which are pools of loans, and auction-rate securities, which are debt obligations typically issued by municipalities and nonprofit institutions on which the rates are set at regular auctions.
Nor have the Fed’s moves squashed market rumors that another Wall Street firm, Lehman Brothers, could face the kind of bank run that toppled Bear Stearns.
On Thursday, Lehman felt compelled to issue a statement calling the rumors “totally unfounded.” It blamed individuals or funds that had sold its stock short, which would result in a profit if the stock fell.
At least one Wall Street analyst argued that fears about Lehman running out of cash were overblown, pointing to the firm’s war chest of $34 billion and access to funds from the Fed.
The analyst, Prashant A. Bhatia of Citigroup, said in a research report Friday, “It’s tough to have a liquidity-driven meltdown when you’re being backed by government entities that have the ability to print money.”
The NYT also reports that driven by a painful mix of layoffs and rising food and fuel prices, the number of Americans receiving food stamps is projected to reach 28 million in the coming year, the highest level since the aid program began in the 1960s.
The number of recipients, who must have near-poverty incomes to qualify for benefits averaging $100 a month per family member, has fluctuated over the years along with economic conditions, eligibility rules, enlistment drives and natural disasters like Hurricane Katrina, which led to a spike in the South.
But recent rises in many states appear to be resulting mainly from the economic slowdown, officials and experts say, as well as inflation in prices of basic goods that leave more families feeling pinched. Citing expected growth in unemployment, the Congressional Budget Office this month projected a continued increase in the monthly number of recipients in the next fiscal year, starting Oct. 1 — to 28 million, up from 27.8 million in 2008, and 26.5 million in 2007.
The percentage of Americans receiving food stamps was higher after a recession in the 1990s, but actual numbers are expected to be higher this year.
Federal benefit costs are projected to rise to $36 billion in the 2009 fiscal year from $34 billion this year.
“People sign up for food stamps when they lose their jobs, or their wages go down because their hours are cut,”said Stacy Dean, director of food stamp policy at the Center on Budget and Policy Priorities in Washington, who noted that 14 states saw their rolls reach record numbers by last December.
One example is Michigan, where one in eight residents now receives food stamps. “Our caseload has more than doubled since 2000, and we’re at an all-time record level,” said Maureen Sorbet, spokeswoman for the Michigan Department of Human Services.
The climb in food stamp recipients there has been relentless, through economic upturns and downturns, reflecting a steady loss of industrial jobs that has pushed recipient levels to new highs in Ohio and Illinois as well.
“We’ve had poverty here for a good while,”Ms. Sorbet said. Contributing to the rise, she added, Michigan, like many other states, has also worked to make more low-end workers aware of their eligibility, and a switch from coupons to electronic debit cards has reduced the stigma.
Some states have experienced more recent surges. From December 2006 to December 2007, more than 40 states saw recipient numbers rise, and in several — Arizona, Florida, Maryland, Nevada, North Dakota and Rhode Island — the one-year growth was 10 percent or more.
In Rhode Island, the number of recipients climbed by 18 percent over the last two years, to more than 84,000 as of February, or about 8.4 percent of the population. This is the highest total in the last dozen years or more, said Bob McDonough, the state’s administrator of family and adult services, and reflects both a strong enlistment effort and an upward creep in unemployment.
In New York, a program to promote enrollment increased food stamp rolls earlier in the decade, but the current climb in applications appears in part to reflect economic hardship, said Michael Hayes, spokesman for the Office of Temporary and Disability Assistance. The additional 67,000 clients added from July 2007 to January of this year brought total recipients to 1.86 million, about one in 10 New Yorkers.
Nutrition and poverty experts praise food stamps as a vital safety net that helped eliminate the severe malnutrition seen in the country as recently as the 1960s. But they also express concern about what they called the gradual erosion of their value.
Food stamps are an entitlement program, with eligibility guidelines set by Congress and the federal government paying for benefits while states pay most administrative costs.
Eligibility is determined by a complex formula, but basically recipients must have few assets and incomes below 130 percent of the poverty line, or less than $27,560 for a family of four.
As a share of the national population, food stamp use was highest in 1994, after several years of poor economic growth, with an average of 27.5 million recipients per month from a lower total of residents. The numbers plummeted in the late 1990s as the economy grew and legal immigrants and certain others were excluded.
But access by legal immigrants has been partly restored and, in the current decade, the federal and state governments have used advertising and other measures to inform people of their eligibility and have often simplified application procedures.
Because they spend a higher share of their incomes on basic needs like food and fuel, low-income Americans have been hit hard by soaring gasoline and heating costs and jumps in the prices of staples like milk, eggs and bread.
At the same time, average family incomes among the bottom fifth of the population have been stagnant or have declined in recent years at levels around $15,500, said Jared Bernstein, an economist at the Economic Policy Institute in Washington.
The benefit levels, which can amount to many hundreds of dollars for families with several children, are adjusted each June according to the price of a bare-bones “thrifty food plan,” as calculated by the Department of Agriculture. Because food prices have risen by about 5 percent this year, benefit levels will rise similarly in June — months after the increase in costs for consumers.
Advocates worry more about the small but steady decline in real benefits since 1996, when the “standard deduction” for living costs, which is subtracted from family income to determine eligibility and benefit levels, was frozen. If that deduction had continued to rise with inflation, the average mother with two children would be receiving an additional $37 a month, according to the private Center on Budget and Policy Priorities.
Both houses of Congress have passed bills that would index the deduction to the cost of living, but the measures are part of broader agriculture bills that appear unlikely to pass this year because of disagreements with the White House over farm policy.
Another important federal nutrition program known as WIC, for women, infants and children, is struggling with rising prices of milk and cheese, and growing enrollment.
The program, for households with incomes no higher than 185 percent of the federal poverty level, provides healthy food and nutrition counseling to 8.5 million pregnant women, and children through the age of 4. WIC is not an entitlement like food stamps, and for the fiscal year starting in October, Congress may have to approve a large increase over its current budget of $6 billion if states are to avoid waiting lists for needy mothers and babies.
