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Market Concentration Illustrated - Banking Brands after the Crunch

Wednesday, October 21, 2009

A terrific illustration here of how the global banking market has changed in terms of its market shares and concentration ratio recently.

read more...»

UK broadband in the slow lane

Tuesday, October 20, 2009

The relatively slow speed of the average broadband connections for most UK businesses and households will act as a contsraint on future competitiveness and growth. This report from BBC news finds that a study of the global state of broadband has put the UK 25th out of 66 countries in terms of the quality and reach of its networks. Rory Cellan Jones follows up the report with his own observations

“Britain has done well in the first broadband wave, using a pretty efficient copper network and DSL technology to get homes across most of the country connected. But other countries are moving forward more rapidly to build next generation networks using cable and fibre-optics.”

Investment in broadband can have significant demand and supply-side effects - the real consequences of under-investment will become more painful and obvious as time goes on - but who should pay for the extra capital spending needed? Will the new broadband tax make any noticeable difference?

Power Nodes - Using Economics to Make profit

Friday, October 16, 2009

Here is a fascinating article in the Times with Philip Thornton from Clarity Economics interviewing Mia de Kuijper an economist who can help companies to master the dynamics that govern their chances of success. Would be excellent for A2 students wanting some fresh ideas on management in an age of rapid technological change and a world of near perfect information. Her new book Profit Power Economics is due for imminent release.

Wall Street Partnerships and Principal Agent Problem

Monday, October 12, 2009

John Gapper has a super blog over at the FT in which he discusses the benefits that might flow from reforming bankers’ pay and restoring the partnership approach to renumeration

“Mr Thain correctly pointed out during the session that the old partnership structure of Wall Street firms, under which partners’ capital was at risk until they retired, produced better incentives in terms of risk management than bonuses based on short-term performance…This is not a bad idea but it might be extended. Why not truly replicate the partnership structure by applying those conditions to everyone who reached “partner” level - senior managing director or the equivalent at a large investment bank?”

This ties in with the idea of changing the behaviour of senior management so that they give great weight to the risks of particular investment and lending strategies and tries to avoid the myopic decision making that has proved so costly before the financial crisis.

The partnership model has applied particularly successfully in the UK with the continued success of the John Lewis Partnership.  In March 2009 despite the effects of the retail recession, John Lewis announced that The company it would pay out total bonuses of £125.5m. That is the equivalent to about 13% of salary, or seven weeks’ pay.

Nobel Prize in Economics: A different take on the Tragedy of the Commons

Elinor Ostrom and Oliver Williamson shared the 2009 Nobel prize for economics (and the accompanying $1.4m) on Monday for their work on how economic transactions operate outside markets in common spaces and within companies.

read more...»

Kindlenomics

Sunday, October 11, 2009

Amazon has announced that it will start shipping the Kindle e-reader in the next few days. Leander McCormick-Goodhart is doubtful about whether this spells the end of books. The Kindle device is part of an increasingly contestable market space whose size is set to rise sharply in the months and years to come. I have added a few links to Leander’s blog post. According to Chris Nuttall in an FT blog last month “there are now more than 45 e-reader models available worldwide, according to E Ink, the dominant technology provider for their displays.”

read more...»

Ticketmaster-Live Nation merger provisionally blocked by the CC

Thursday, October 08, 2009

This morning, the Competition Commission announced that it has provisionally moved to block the merger between Ticketmaster (the world’s largest ticketing firm) and Live Nation (the world’s biggest concert promoter).

read more...»

Swine flu vaccines and elasticity of supply

Wednesday, October 07, 2009

The scale of the ordering of swine flu vaccinations by governments across the world is eye-wateringly large! GlaxoSmithKline plc - one of the world’s biggest pharma companies has reported that governments around the world have so far ordered 440 million doses of its pandemic swine-flu vaccine Pandemrix. GlaxoSmithKline has been engaged in a tense race to get new swine flu vaccines onto the market fighting the likes of Sanofi-Aventis, Novartis AG and AstraZeneca to win contracts for public health programmes. For students of the price mechanism it is a fascinating example of many supply and demand concepts at work:

The challenge of scaling up production to meet huge levels of demand - this has involved out-sourcing
The relative importance of fixed and variable costs in developing and manufacturing/distributing a new drug
The elasticity of supply of vaccines to meet short term health requirements
The oligopolistic race to win and protect market share
Economies of scale in production
The balance of power between the major buyers and the multinational drug suppliers
Price discrimination tactics

The Guardian reports that:

“The company makes the vaccine in Dresden and Quebec but the demand is so great – about 60% higher than for usual seasonal vaccines – that it is also outsourcing production to third-party manufacturers.”

According to the Wall Street Journal

“Glaxo hasn’t released information on cost per dose of the vaccine. However, Chief Executive Andrew Witty said in July that Glaxo was charging wealthy nations $10.26 per H1N1 vaccine shot and developing countries less. The drug maker is also donating 50 million doses to the World Health Organization.”

The Independent reports that

“The United States has begun a massive campaign aiming to vaccinate 250 million people against the illness by year’s end.”

And the Times reports that “total booked orders for the drug are worth about £2.2 billion — a significant sales and profit windfall as a result of the swine flu epidemic”

Banana Price War Must Hit Growers

The supermarkets are spinning the latest price war for sales of bananas as a welcome boost to the spending power of hard-pressed consumers. True in the short term - cheaper bananas in my household will simply encourage me to buy more but ultimately throw most of them away. The medium term impact on banana growers is of much greater importance and it is this issue that was addressed in a timely and useful Big Question feature in the Independent yesterday. Here is the link.

The Big Question: Why are bananas so cheap, and what does it mean for producers?

There is a huge amount of economics in the article not least some evidence on the oligopsonistic power of banana growers and the oligopolistic battle for market share among the major retailers:

“Banana production is an operation on a gigantic industrial scale and is dominated by just five huge companies, Chiquita (formerly United Fruit), Dole, Del Monte, Noboa and Fyffes, which control 80 per cent of the global trade between them.”

“Asda - which sells two million kilograms of bananas a week - is charging 46p/kg. On August 25, the price was 84p/kg and 99p/kg last Christmas. Tesco and Sainsbury’s had been forced to match Asda’s price while the cost of bananas at Morrisons has fallen to 57p/kg and 59p/kg at Waitrose.” (Daily Mail)

More here

Daily Mail

Press Association

 

 

 

 

Airlines scramble to find new revenue streams

The days of the all in one ticket price - a simple means of flying from A to B are looking like a distant memory. The global aviation industry is set to lose up to $30bn this year and with average ticket prices continuing to decline and capacity utilization falling, the airlines are falling over themselves to find extra ways of getting passengers to part with their cash.

New wheezes include asking passengers to pay for the right to choose a seat, together with the growth of charges for baggage check-in and meals on board. If you are willing to pay in advance, travel light, book online and check-in online in a seat of the airline’s choice, you can still find very cheap flights. But the extras amount to a premium on choice and flexibility - I guess this is an example of the hurdle model of price discrimination - BA has launched a second-bag check-in fee on some of its flights and a reservation fee for passengers wanting to book particular seats more than 24 hours in advance of flight time. Day by day it is starting to resemble a budget airline in tactic as well as consumer goodwill. I booked a return flight to Hong Kong today with Cathay Pacific - no tedious optional extras - what a refreshing change!

This BBC video is good on the new a la carter revenue policies of airlines.

Telecom entry barriers are falling

Tuesday, October 06, 2009

John Gapper’s blog is one that I follow on a regular basis. Today he writes about a further shrinkage of barriers to entry in the mobile phone market.

Price elasticity of demand for stamps

Monday, October 05, 2009

The BBC reports that PostComm - the postal service industry regulator has given initial backing for Royal Mail to increase the cost of a standard first-class stamp by three pence. This would take the price up to 42p. At the same time, standard second-class stamps may rise by 2p to 32p. How will consumers respond to the price change? For many the price hike will have little effect - most of the stamps that I buy can be reclaimed as stationery expenses. But many smaller businesses spend heavily on mailshots as a part of their marketing. A rise in mail costs may cause them to consider making more effective use of their customer databases so that - for example - a 3000 mail shot volume is better targeted than before. Do you think that the price elasticity of demand for stamps is price inelastic - at least in the short term?

The Royal Mail is subject to a price cap agreed with their industry regulator. Since the Royal Mail?s current price control was agreed in 2006, the Royal Mail has lost 9% of its mail volumes over the three year period to April 2009, largely through shrinkage of the total market including 20% of stamped mail. The Royal Mail has also had to face up to increased competition as the postal market has been fully opened up to competition.

Shrinking mail volumes has the effect of reducing capacity utilisation of their collection, sorting and delivery capacity and leads to a rise in the unit costs of the business. The Royal Mail is required by law to operate a universal service across the UK; it is a business that requires substantial economies of scale to remain profitable.

 

Explaining Creative Destruction

Sunday, October 04, 2009

Leander McCormick-Goodhart provides an overview of the concept of creative destruction

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There is something in the water - the story of V-Water

The market space for enhanced water is getting crowded! Sales of ‘smoothies’ are down by more than fifty per cent this year but the volume of enhanced water bottles being bought is proving more resilient to the recession. And the growing amount of shelf space in the supermarket aisles given over to the likes of Firefly, Vitamin-Water, Just-Juice, Vitsmart and V-Water is testimony to the high margins these products generate. Chris Coleridge, co-Founder of V-Water gave a relaxed, entertaining and thoughtful presentation on the growth of his business to the Eton College Entrepreneurship Society on Thursday night. A large audience - fortified by a generous sample of the six flavoured drinks on offer - grilled Mr Coleridge on his business after he had taken time out to explode five myths about start-ups.

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The Times interviews Google’s Eric Schmidt

This is a hugely interesting interview with the CEO of Google Eric Schmidt. The questions and issues covered range from the future of cloud computing, the decline of traditional print media through to the challenge of maintaining an innovative momentum in an organisation that now employs over 20,000 people.

“So we have 20 per cent time for example, which means that engineers can spend roughly one day a week working on things they find interesting. We let people create start-ups within Google—Wave, Android and Chrome are some examples of the company within a company model.

This link takes you to the rest of the interview

The trade impact of car scrappage

Tuesday, September 29, 2009

As expected, the UK government has announced an extension to the car scrappage scheme which will expand the consumer subsidy to another 100,000 cars.

The ‘clash for clunkers’ scheme has at least helped to stabilise domestic car production but four fifths of the new cars sold in the UK are imported from overseas. According to the Guardian “For the year to date, production has declined by 44.6%. But the slight improvement recorded last month has prompted some carmakers to hope that the slump is bottoming out.”

So the direct impact on UK car assembly plants is smaller than we might think. Factor in though the multiplier effects on the suppliers of car parts and the boost to retail and distribution businesses.

Stephanie Flanders is on excellent form in her latest Stephanomics blog. She argues that the much larger German car scrappage scheme may have had an even bigger effect on our own producers than the UK government’s modest version. The German subsidy is worth ten times that of the UK and around 40% of German car sales last year were imports. More here.

A2 Micro Multiple Choice Quiz

A ten question multiple choice quiz on aspects of introductory theory of the firm can be found here

Launch interactive version of the quiz

Download SCORM-VLE Zip file (import to your VLE)

Say sorry ... it makes business sense!

Thursday, September 24, 2009

Sorry seems to be the hardest word for politicians and for all of us who have dug ourselves into a hole. But a new study of consumers from academics at Nottingham University finds that customers are more likely to continue a commercial relationship with a business that is up front anmd apologises rather than those who resort - after a delay - to financial sweetners. More here

Managing a global business in turbulent times

Wednesday, September 23, 2009

Over ten years at my current school I have been hugely fortunate to hear some tremendous speakers on a tremendously wide range of issues. Few have impressed me as much as Simon Henry, CFO of Shell plc in his talk to our Keynes (Economics) and the newly-formed Management Society last night. His talk was beautifully paced and considered; the responses to questions were candid and rooted in a deep understanding of energy industries where volatility has become the norm. Future shareholder value will depend largely on successfully breaking the cycle of volatility.

read more...»

Downturn Drives Hotel Rack Rates Lower

Tuesday, September 15, 2009

Here is a super short article from BBC news on the impact that the recession has had on average hotel room rates in different locations across the UK. Demand and supply side factors impact on room rates in specific towns and cities. More detailed information can be found from this press release from Hotels.com.

“UK hotel prices fell 16% on average making the first six months of the year a great time to staycation. Prices in London were down 12% to £101 on average, in Bournemouth by 14% to £66 on average and in Southampton by 33% to £57 on average.”

It might be worth having a discussion about the reasons for these regional price variations:

Bath £111
London £101
Edinburgh £91
Jersey £90
York £86
Blackpool £59
Southampton £57
Plymouth £57
Nottingham £53

Mature Banking

Monday, September 14, 2009

A post from student Tom Hosking

Where does parmesan cheese come from? It may surprise you to know that it is most likely to have come from a bank! Banks in Northern Italy have been running a cash-for-cheese loan scheme for the past fifty years. This year, demand for the scheme has risen 15% because cheese makers are struggling in these hard times.

read more...»

Volkswagen looks to China on the road to being the biggest car maker

Sunday, September 13, 2009

Volkswagen has a hugely ambitious long term aim - by 2018 it wants to overtake Toyota as the world’s biggest car manufacturer.

With this in mind it makes clear sense to focus capital investment in countries where the projected growth of demand for new vehicles is strongest. The relatively mature markets of Western Europe and North America look less attractive compared to emerging economies such as China and Brazil.

This week Volkswagen has announced a Euro 4 billion plan to expand capacity and output in China. In the short term the commercial need is to have sufficient capacity in place to meet the surge in demand brought about by the deep cuts in taxes on new cars introduced by the Chinese government as part of its economic stimulus programme - there has been a temporary cut in the purchase tax on cars with 1.6 liter engines to 5%. In the first half of 2009 Volkswagen has already sold over 620,000 cars in China!

Long term however the market demand for automobiles is forecast to rise by more than 10% per annum. Volkswagen has engineered joint ventures with Chinese manufacturers to build cars at plants in Nanjing and Chengdu - it is not beyond the realms of possibility that within eight years, it could be assembling over two million cars a year in China - a staggering volume of production and one designed to maximise the economies of large scale production.

More here from the BBC news site

McLaren’s new super sports car - income elasticity and status races

Thursday, September 10, 2009

We are told that this new product has been forty-five years in the making. McLaren has unveiled its new super sports car, designed using Formula 1 technology.

This BBC video offers a sneak preview of the new car and it might be a good one to use when discussing needs and wants! Or the income elasticity of demand for luxury products and the price premium for motorists already wetting themselves in anticipation of getting behind the wheel! Given the relative absence of economies of scale in production, you might get students to estimate the likely introductory price in the market?

At a pinch I would price it between £175,000 and £200,000 but then again I am happy to potter around in a nine year old Citroen that is just a year from the knackers yard.

Hold the phone!

Wednesday, September 09, 2009

For those of you are thinking of buying an iPhone, you would probably do well to wait until Christmas it seems. The exclusivity agreement between Telefonica-O2 and Apple is set to expire in the next few months, which could lead to an all-out price-war in time for the festive season. As the exclusivity is removed, it should make the market more contestable, and the price should fall.

read more...»

Orange-T?

Tuesday, September 08, 2009

Is this going to be the new name of the proposed merger between T-Mobile and Orange?

read more...»

Another Brussels lightbulb moment

A ban on traditional lightbulbs imposed by Brussels last year and adopted by the UK for implementation in 2010 is to be extended to cover spotlights and downlighters, an read more...»

World Trade Organisation

Monday, September 07, 2009

Whilst unlikely to be fully resolved any time soon, the WTO has got around to producing its (unhelpfully, confidential!) ruling on whether European government loans to Airbus for aircraft development are illegal subsidies or not.

read more...»

Oracle-Sun merger

Thursday, September 03, 2009

Despite getting clearance from the U.S Department of Justice, earlier this month, Europe’s top competition regulator today opened a full, in-depth inquiry into the proposed $7.4bn acquisition of Sun Microsystems by Oracle, citing concerns about the potential for anti-competitive effects if the merger went ahead unconditionally.

read more...»

Browser Wars!

Tuesday, September 01, 2009

Over the summer, it seems that the browser wars have intensified, and Microsoft’s Internet Explorer’s virtual monopoly has its days numbered. Earlier this year, Google brought out its Chrome browser, to rival Microsoft’s Internet Explorer, and today it was announced that Google have signed a deal to get it in to Sony PCs.

read more...»

Chris Anderson on Freemium

Sunday, August 30, 2009

With digital products the marginal cost of production is pretty close to zero - Google does not show up on your credit card bill and neither does Facebook. Bertrand predicted in the late 19th century that “in a competitive market, price falls close to its marginal cost”. Competiton is something we take for granted - it exists when you have two similar goods or services produced by mutliple parties. An under-cutting process can take place until the market price edges down towards the marginal cost of production. Now we have a digital economy where the MC of serving one more Tweet or web page is zero. How can you make money in this digital economy?

A recent talk by Chris Anderson at the RSA is now available to view on their web site. His explanation of freemium products is interesting as are his comments on piracy. To Anderson, piracy is an example of the animal forces of the market place because the music companies chose not to make their music free. Piracy is the market place imposing the price of free.

Another article on freemium is available here from the New York Times: Using Free to Turn a Profit

Chris Anderson - Free: The Future of a Radical Price

 

 

Game on!

Thursday, August 27, 2009

Oligopolistic theory predicts that firms in such a market structure will tend to prefer non-price competition rather than price competition due to the self-defeating outcome of a price-war.

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Businesses call for youth jobs subsidy

Wednesday, August 26, 2009

High and rising youth unemployment is one of the most important economic and social policy issues of the day. The CBI has called for extra funding from the government for a youth jobs subsidy - a £2500 per head payment for businesses that offer apprenticeships. The aim is to widen access to apprenticeships and equip school and college leavers with extra skills to improve their human capital and occupational mobility. If the lobbying proves effective, this is a good example to use of an active-labour market policy whose objectives are firmly on the supply-side of the economy.

According to CBI Chairman Richard Lambert, ““Young people leaving education this summer face the toughest job market in a generation. We know from previous recessions that a lack of employment after leaving education can damage young peoples’ long-term prospects at a critical point as they move from education to the world of work.” Their 5-point programme for reducing youth unemployment is available here.

Given that the government was quick to introduce a £2000 car scrappage incentive (paid paid for by the motor industry) - it might make for interesting discussion in the classroom to weigh up the relative benefits and costs of using a similar pot of cash for a direct subsidy for consumers contrasted with an employment and training subsidy for employers. Who should pay for training? Why is the free-rider problem relevant here?

This Guardian article argues that “Apprenticeships are an out of date idea. The only reason that they are back on the agenda is because of the TV show.”

Toshiba comes on board Blu-Ray

Tuesday, August 11, 2009

In February 2008 senior executives of Toshiba made a tearful farewell to their attempts to make the HD-DVD format a success over their rival Blu-Ray. The decision became inevitable after Warner Bros, Sony Pictures, Walt Disney and Twentieth Century Fox said they would only release their films in the Blu-ray format. Sixteen months later Toshiba is to start making products that can play Blu-ray discs.

Signs that Scrappage is Driving Demand

Monday, August 10, 2009

Just over one fifth of new new-car registrations in the UK are being attributed to the government-backed scrappage incentives, according to the Society for Motor Manufacturers and Traders.

Hyundai Motor Co led the way in the sales charts for July. The UK version of the car scrappage scheme offers motorists £2,000 in discount on new vehicles when they trade in vehicles that are more than 10 years old.

For the moment it is private buyers who are driving sales higher. My local Citroen dealer confirmed to me today that their sales have been boosted by the consumer discount - which is part financed by the government and by vehicle manufacturers. As our charts show new car registrations have moved higher and car production - affected greatly by winter plant shut-downs and extended holidays - is now showing signs of recovery. Sales and output for 2009 will be down as a whole - but perhaps the worst is now over?

More on the impact of the car scrappage scheme here from the BBC news site Together with an excellent background section on the challenges facing the car industry during this downturn.

Leading Questions with Robert Peston

Sunday, August 09, 2009

A new series of interviews is available through the BBC iPlayer in which Robert Peston, the BBC’s Business Editor talks to global business leaders who run multinational companies - here is the link

Bank lending and the economy

Monday, August 03, 2009

Commercial loans and overdrafts and other forms of credit for businesses are hugely important to sustain businesses fighting a recession or those in better shape and looking to expand. It is a truism that the UK economy will not engineer a durable recovery unless the international financial and economic backdrop improves. Increasing the availability of bank lending especially to small and medium-sized enterprises is another essential building block to an upturn in output and jobs.

In this sense the news that Barclays has lent £17 billion to UK households and business in the first half of 2009 - already outstripping the £11 billion target it set for the whole of 2009 - is welcome. But that figure hides the actual cost of servicing loans. Even if a business can maintain an overdraft facility or gain access to fresh credit, it is likely to be paying more for the privilege. The cost of debt can be as important as the supply. Here is a good video on Rhino Rugby a manufacturer of equipment for the rugby industry.

Given that thousands upon thousands of smaller businesses use credit cards as a way of tiding them over from month to month (something the business studies textbooks and exam boards seem strangely reluctant to recognise despite overwhelming evidence), it will come as little comfort to entrepreneurs to be paying upwards of 40 times base rate (policy rate) for their loans.

Information and Consumer Choices - Two Stories

Wednesday, July 29, 2009

Two stories on the role that information can play in influencing our choices caught my eye today.

The first is a new report from the Food Standards Agency that claims that there is little difference in nutritional value and no evidence of any extra health benefits from eating organic produce. Given that organic food in most of the major supermarkets carries a price premium, will more people decide that, leaving aside ethical and environmental considerations, the supposed health benefits from organic produce has been exaggerated? The recession has made life tough for organic farmers; this report will do little to help them, no surprise that one of the leading stakeholders, the Soil Organisation has laid into the report!

The second is a damming report on the health effects of tanning machines from the International Agency for Research on Cancer - reported here by the BBC - that claims that sunbed use is on a par with smoking or exposure to asbestos. Again an industry stakeholder the Sunbed Association has been quick in putting forward a defence.

Information failure
is a key cause of market failure. I suspect that consumers who enjoy flaunting their organic credentials and who swan around with a fake tan have both been conned for many years and spent a small fortune in the process!

 

Economics Snapshot - Google draws away from Microsoft and Yahoo

This BBC report discusses a deal announced between Microsoft and Yahoo.

“Microsoft’s Bing search engine will power the Yahoo website and Yahoo will in turn become the advertising sales team for Microsoft’s online offering”

This is an attempt to compete head on with the growing market dominance of Google in search engine queries but as the chart above shows there is a clear divergence between the market share of Google and the combined market share of Microsoft and Yahoo.

Microsoft and Yahoo’s combined share of U.S. search queries was 28% in June, down from 30% a year ago, according to comScore.

Contestable Markets - Spotify takes on iTunes

Here is the latest move in the battle for position, power and profitability in the market for digital downloads. Spotify the music streaming service based in Sweden has submitted an application to Apple for their iPhone that will allow their premium service users to search for music on the Spotify playlists and download their free library of songs onto their mobile phone.

Spotify say that the free application for the iPhone has met all of the developer guidelines required by Apple. The application will not allow users to buy music from the iTunes online store and herein lies the stumbling block! Will Apple really allow potentially one of its major rivals in the market place to find a home on the ultra-popular iPhone? Their dominance of the mobile phone music market looks too strong and too profitable to allow this new application. Spotify has become tremendously popular within a short space of time - it is claimed that they have over two million users in the UK alone.

*The advertising-funded version of Spotify is free of charge
*The premium service costs Euro 9.99 a month
*Apple has already approved several other music services such as Last.fm, Deezer and Pandora but these are much smaller competitors
*Music technology experts say that one of the main advantages of the Spotify application for the iPhone is offline play - push a button to download your Spotify playlists containing up to 3,333 songs to the app for playing whilst not connected

Here Rory Cellan-Jones from the BBC test drives the new Spotify application

And this Guardian editorial sings the praises of being able to listen to music without paying over the odds

Update: In August 2009 Apple announced that it had approved the bid for an iPhone app from Spotify. Details here

Economics Snapshot - Hedging the Fuel Price

Tuesday, July 28, 2009

Hedging is a way of reducing uncertainty over the future path of volatile commodity prices such as the cost of fuel. One the most important decisions that an airline can take is the extent to which it uses hedging to lock in the price of a barrel of kerosene for a period of six or twelve months.

Ryanair provides a good example of how this can have a decisive effect on profitability. Late in 2008 Ryanair was hedged into paying the equivalent of $125 a barrel for kerosene just as the world price price of oil was collapsing to below $40 a barrel - the result was higher operating costs and a Euro 150 million hit on profits. For 2009 around four-fifths of Ryanair’s fuel requirements are locked in at $62 a barrel which with oil prices nudging up towards $70 a barrel will give the airline much needed breathing space as the recession affects demand for seats and forces many airlines to cut prices still further to maintain a profitable level of load-factor (the percentage of seats on each flight that are filled).

*Ryanair is now Europe’s largest airline having overtaken Lufthansa and British Airways
*In the last twelve months nearly 60 million passengers have flown with the airline
*With a market capitalisation of £4.6 billion, Ryanair is larger than the German flag carrier and easily more than twice the size of BA.
*Ryanair has a 28% stake in rival Irish airline Aer Lingus and has tried several times to take it over - so far without success!

Using the Big Question

The Big Question feature in the Independent is a reassuringly regular source of useful and interesting background articles. There is often an economic / environmental /social / business perspective to their choice of topics in the news. And the Indy handily provides some vivid graphics that can serve well as student handouts or a prompt for a data response question. Here is a brief selection of recent features

Why is inequality rising in the UK? (July 2009)

Can the G8 meet its climate change targets? (July 2009)

What has gone wrong between the Chancellor and the Governor? (June 2009)

Will there be cuts in public spending whichever party is in power? (June 2009)

Why are games consoles the focus of the battle between computer giants? (June 2009)

 

Economics Snapshot - Sharing Information on Social Networks

Monday, July 27, 2009

Sharing information through social networking

There are many tools for people to share content they have seen on the internet. Which applications have the greatest market share at the moment?

Facebook 24%
Email 11%
Twitter 11%
Yahoo Bookmarks 5.5%
My Space 5%

Others include Stumble Upon, Digg It, Windows Live

Source: Alley Insider
http://www.businessinsider.com/alleyinsider

Microsoft to offer users a choice of browsers

Sunday, July 26, 2009

The battle between Microsoft and the EU competition commission seems to have gone on for an age. In the latest move Microsoft has agreed to contact European users of its Windows software to a choice of Web browsers. The browsers featured in the ballot would be determined by market share; the five with the highest—at the moment, Internet Explorer, Firefox, Apple Inc.‘s Safari, Opera and Chrome—are almost certain to be displayed. What is critical is the number of web users who then decide to switch to an alternative browser and click on an option for Microsoft IE to be removed as the default web browser. My default choice is now Firefox from Mozilla. Windows 7 is due for release on the 22nd of October.

Jury’s Inn - An Example of Organic Growth

This BBC news article flags up that Jury’s has secured additional finance to support their expansion programme. These are challenging times for the UK hotel industry as recession has affected room occupancy rates from business and household customers. But Jury’s Inn has instigated an ambitious programme of new hotels - a strategy of internal or organic growth. urys said it would look at new developments in key markets such as London. It has already opened five new hotels across the UK this year.

New hotels have opened in Sheffield, Watford, Exeter, Swindon and Derby. Another hotel is due to open in Aberdeen later this year, with more to follow next year in Portsmouth, Glasgow, Newcastle and Bradford. A new hotel in Prague is due to open in September 2009. Jury’s Inn has traditionally placed itself in the affordable business hotel market segment.

 

How the recession is changing behaviour

The Telegraph has an engaging piece here on ten ways in which the recession is changing Britain - from the explosion in the use of discount vouchers (real and virtual) to stay-cations, rising demand for sewing machines, takeaway pizza, discount food retailers and buses, consumers are showing resilience and ingenuity in responding to the challenges of the downturn. Smart businesses have taken advantage of the opportunities.

Smart Phones - Smart Money for Apple and RIM

Saturday, July 25, 2009

Feature rich smart phones such as the iPhone and Research in Motion’s Blackberry account for a disproportionate share of the operating profits of mobile phone manufacturers.

According to new research by Deutsche Bank, Apple and Research In Motion were responsible for 3% of all cellphones sold in the world last year but 35% of operating profits. In 2009 the figures are forecast to be 5% of the global market in unit terms but 58% of total operating profits. Together Apple and RIM had about 32% of the smart-phone market. Nokia dominates the basic mobile phone handset market where operating margins are much thinner.

The key to understanding the huge profits of smart phone makers is the subsidy offered by the mobile phone network providers who tend to treat mobile handsets as loss-leaders. They are happy to sell a phone for £60 or less because they can recoup the money and more through lucrative monthly call plans where the bulk of users (consumers) are locked in through minimum length of service contracts.

Palm Inc is trying to break into the cell-phone market and take some of the supernormal profits available.

OFWAT wants cuts in the real cost of water bills

Friday, July 24, 2009

The water regulator OFWAT has published their latest five-year price capping proposals for the UK water industry. They want household bills to fall in real terms for water customers in England and Wales - positive news for people struggling to pay their utility bills but not so for shareholders in the water companies who have become renowned for their generous dividends on the back of price increases over and above inflation in past years.

read more...»

Emerging Leaner, Stronger, Fitter from the Recession

Hamish McRae considers how businesses are responding to the challenges of recession in his Economics Life piece in the Independent this morning. Drawing on a new report from management consultants Arthur D Little he considers some of the strategies that businesses are adopting given the special nature of this downturn. Improving hygiene, fitness and building muscle ahead of the recovery figure prominently and there is a fascinating graphic illustrating some of the priorities of firms at this unusual time.

“Businesses that do survive the present harsh climate will emerge in much better shape. All downturns speed up the process of structural change in the sense that things that were going to happen anyway happen much faster that they would have done. But the speed of this one has been so extreme that the world is cramming a decade of such change into a year or 18 months. As a result a lot of firms that still appear weak right now may emerge in rather good shape when demand returns.”

Improving hygiene: Actions to cope short-term with the implosion of confidence and collapse of demand e.g. rationalising operations and cutting overhead
costs, turning fixed costs into variable costs: 80-90 per cent of business respondents are giving these actions very high or high priority.

Fitness: Keeping talent on board is a very high or high priority for 82 per cent of respondents. Maintaining R&D and innovation expenditures is a very high or high priority for 67 per cent of respondents.

Muscle Building: preparing for the world to come beyond the downturn, for example building stronger relationships with regulators or a high priority to preparing for the low-carbon economy

Arthur D Little Prism magazine

A Walk on the Clunky Side

The Sony Walkman was one of the innovations of its day - freeing up the music lover to play their favourite tracks on the go - thirty years on this appealing BBC magazine feature contrasts the iPod Nano with the Walkman which is thirty years old. A reminder of the benefits of innovation.

Economics Trivia - Global Sales of Mobile Phone Units

Wednesday, July 22, 2009

Global sales of mobile phone handsets set to fall by 10% in 2009
Nokia is the dominant manufacturer with 38.5% of the market in 2008
Average selling prices of their handsets have fallen from Euro 74 to Euro 62, operating margins are close to 10%
245 million mobile phone handsets were shipped in the first three months of 2009

Source: The Times (17-07-09)

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