Sunday, December 15, 2013

A culture clash when Silicon Valley invades San…

SAN FRANCISCO — The culture clash between Silicon Valley and the City by the Bay spilled over from the streets of San Francisco and onto the Web this week, and the results in both cases weren't pretty.

They were, however, quite dramatic.

Last week came the sight of a commuter bus filled with Google employees being blocked by a group of anti-eviction protesters in the city's Mission District.

Onto that scene came a fake Google employee pretending to heckle the real protesters — until he was exposed as a real union organizer and activist from Oakland, across the bay.

Two days later came a real start-up executive whose social-media rant about "the lower part of society" along Market Street here was uglier than any real taunt the fake Googler could come up with.

The fracas might seem absurd if the problem underlying it weren't so serious.

Namely, how to maintain the peace when high-paying tech jobs move into a part of town previously populated mostly by drug dealers, panhandlers, street crime and homelessness.

The incidents gave the industry here such a black eye that San Francisco Mayor Ed Lee on Thursday urged tech companies to step up their charitable and philanthropic efforts.

The influx of new tech start-ups into the city during the past few years has driven median monthly rents to $3,400, according to San Francisco's budget analyst.

The strong demand for high-priced housing is prompting landlords to turn out longtime residents in large numbers using the Ellis Act, a 1986 state law that allows such evictions if apartments are converted into condominiums.

The annual number of evictions in San Francisco soared to more than 1,700 for the 12 months ending in March, says the local chapter of the National Lawyers Guild.

That's the most since 2001, just around the time the dot-com boom was ending.

Half of those evicted have incomes at or below the federal poverty level, according to figures shared by city budget analyst Fred Brousseau! at a public hearing last month.

The sight of having the city's poorest residents thrown out into the street to make way for nouveau-riche tech millionaires has become a hot-button political issue.

Last month, the Board of Supervisors voted to push state lawmakers in Sacramento for changes in the Ellis Act and, if necessary, draft local laws that would make such evictions far more costly for landlords.

Still, it wasn't long before anti-eviction protesters took matters into their own hands by blocking the Google bus before it could head south to Mountain View, Calif.

Into that scene stepped Max Bell Alper, who was first reported to be a Google employee heckling the protesters but was later identified as a union organizer.

Before he was outed, Alper went on a fake rant — which he later called "street theater" — saying, "I can pay my rent. Can you pay your rent? This is a city for the right people who could afford it."

As elitist as that sounds, it was topped on Wednesday by Greg Gopman, founder and CEO of AngelHack, who, on his Facebook feed, described Market Street as "grotesque" and "overrun by crazy, homeless, drug dealers, dropouts and trash."

Perphaps Gopman, whose LinkedIn profile says he was "born and raised in Florida," should read the column I wrote last month predicting that new wealth from Twitter's IPO would likely bring big changes to that very section of Market Street.

But that will take time, so it may behoove him and other tech workers who have recently arrived in the city to have a bit more patience with those who have been here longer.

Patience may also prove useful for those on the other side of the debate.

The history of San Francisco suggests that the new social-media boom, like previous booms built from gold, silver, railroads, World War II and dot-com companies, will someday end.

How much more comfortable the city's streets will be for people such as Gopman or Alper will likely depend on how long that takes.

John Shi! nal has covered tech and financial markets for 15 years at Bloomberg, BusinessWeek, the San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others.

Thursday, December 12, 2013

Southwest Airlines abandons small markets

For most of its history, Southwest Airlines (ticker: LUV) has been an aggressive growth company. It terrorized legacy carriers like Delta Air Lines (DAL) and United Continental (UAL) by constantly pushing further into their turf.

With lower costs and friendly service, Southwest had a lot going for it. However, today Southwest faces tougher competition. As a result, it's looking to retrench to boost its earnings. Southwest's management has stated on multiple occasions that it will hold capacity roughly flat in 2014 in order to focus on completing the integration of its AirTran subsidiary.

As part of that plan, the company recently announced that it will pull out of three smaller markets: Jackson, Miss., Branson Mo., and Key West, Fla. This will free up capacity for more promising markets with plenty of passenger traffic, like New York.

The changing economics of air travel

In recent years, Southwest Airlines has expanded its route network significantly. Some of this growth has come organically through its entry into major markets like New York, Boston, Denver, and Minneapolis-St. Paul, which Southwest had historically avoided. More recently, Southwest bulked up through its acquisition of AirTran Airways, which gave it access to a variety of new cities.

However, the economics of flying to smaller cities has changed in recent years. With higher fuel prices, it's important to keep airplanes full (without discounting tickets too much). As recently as 2007, Southwest's full-year load factor -- the percentage of seats sold -- was just 72.6%; for the past two years its load factor has risen to over 80%.

In order to match capacity to demand, legacy carriers such as United and Delta hire regional airlines to fly small planes between smaller airports and their hubs. By contrast, Southwest only flies mainline aircraft: in fact, it's in the midst of phasing out all of its aircraft with fewer than 143 seats. Southwest's low-cost operating model is therefore hard to implement in small! markets..

Focus on efficiency

The three cities Southwest is leaving are some of the smallest in its network. In Branson, it offers just three daily departures; in Jackson, it has four daily departures; and it operates three daily departures in Key West.

It's not very efficient for airlines to operate in cities where they have very few flights. At any airport where it operates, Southwest needs ticket agents, baggage handlers, and gate agents, as well as gate space and check-in counters.

In other words, there's a certain minimum of cost involved in setting up in a new city. For Southwest Airlines, operating three to four daily flights to a particular city means that it's not getting the most it can from its investment. Southwest will benefit by redeploying capacity from these smaller cities to large markets where it can operate more efficiently and thereby mount a stronger challenge to the legacy carriers.

In fact, on the same day that Southwest announced these service cuts, it also announced that it had acquired six new slot pairs from American Airlines at New York's LaGuardia Airport. (These slots were sold as part of American's merger with US Airways.) At LaGuardia, Southwest will now operate 33 daily departures, more than enough to efficiently utilize its fixed costs on the ground.

Bottom line

Just a few years ago, Southwest Airlines was the clear king of the U.S. airline industry. Today, Delta Air Lines has already surpassed it in terms of profitability; American and United are hoping to catch up soon. In order to regain its leadership position, Southwest needs to be even more ruthless about keeping costs down by utilizing assets efficiently.

As a result, Southwest is pulling out of some of its smallest markets in order to double down on larger, more promising opportunities. For travelers headed to or from smaller markets, the loss of service on Southwest could lead to higher ticket prices. However, fliers in the biggest metro areas will be the benefic! iaries, as! continued growth by Southwest will help offset the impact of consolidation, keeping ticket prices in check.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.



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