Airbus recently announced that it has entered into a partnership with Zodiac Aeropsace, a French aviation-equipment company, to develop “lower-deck modules with passenger sleeping berths.” In other words, passengers in need of 40 winks might eventually be able to go below decks to the cargo hold and sleep in bunk beds. The video released by the companies shows a clean, white, modern, and comfortable-looking space, although one conspicuously devoid of windows.
Starting in 2020, Airbus says, the beds will be available on its widebody A330 planes, and could possibly appear on A350s as well. The sleeper modules will be easily swapped in and out, the company promises, so airlines can decide whether to use the hold for cargo or for passengers to get some rest. They can also include areas for the medical treatment of sick passengers, play places for children and meeting spaces.
Few passengers would turn down the chance to sleep in a real bed on a long-haul flight, especially if they are not among the lucky few with partially or fully reclining business- or first-class seats. The question is, how much will this privilege cost? Airbus hasn’t released any details on pricing. But according to the International Air Transport Association, cargo generates an average 9% of airline revenue on combined passenger-cargo flights, more than twice what airlines get from first-class flyers.
So for this to be a worthwhile proposition for airlines they would need to offset that lost revenue, and then some, in order to compensate for the cost and logistics of adding the new class of service. Given that only a fraction of flyers will probably be able to use these beds, it is not hard to imagine something close to a doubling of ticket prices to use them—or, if airlines want to make the beds more attractive, spreading-out those costs among other passengers.
For flyers at the top and bottom of the price hierarchy, the beds won’t make sense. First-class passengers on Korean Air A330s, for example, already enjoy the comfort of a flat bed. And most economy passengers won’t be willing to shell out the price of a hotel room for a few hours on a bunk bed. But for some business travellers, a better night’s sleep might be well worth the extra cost to them or their employers.
Even without Airbus’s announcement, cargo-hold sleeper berths were already on the way. Qantas Airways, which is pushing the limits of long-haul flying, with a new route from Perth to London and possibly another on the way from Australia to Chicago, needs to find ways to make these journeys more comfortable. Its chief executive said last month that beds in the cargo hold were one option. So there is a good chance you’ll soon find yourself on a flight with beds below deck. The question is just whether you’ll find them worthwhile.
Japan still has great influence on global financial markets
IT IS the summer of 1979 and Harry “Rabbit” Angstrom, the everyman-hero of John Updike’s series of novels, is running a car showroom in Brewer, Pennsylvania. There is a pervasive mood of decline. Local textile mills have closed. Gas prices are soaring. No one wants the traded-in, Detroit-made cars clogging the lot. Yet Rabbit is serene. His is a Toyota franchise. So his cars have the best mileage and lowest servicing costs. When you buy one, he tells his customers, you are turning your dollars into yen.
“Rabbit is Rich” evokes the time when America was first unnerved by the rise of a rival economic power. Japan had taken leadership from America in a succession of industries, including textiles, consumer electronics and steel. It was threatening to topple the car industry, too. Today Japan’s economic position is much reduced. It has lost its place as the world’s second-largest economy (and primary target of American trade hawks) to China. Yet in one regard, its sway still holds.
This week the board of the Bank of Japan (BoJ) voted to leave its monetary policy broadly unchanged. But leading up to its policy meeting, rumours that it might make a substantial change caused a few jitters in global bond markets. The anxiety was justified. A sudden change of tack by the BoJ would be felt far beyond Japan’s shores.
One reason is that Japan’s influence on global asset markets has kept growing as decades of the country’s surplus savings have piled up. Japan’s net foreign assets—what its residents own abroad minus what they owe to foreigners—have risen to around $3trn, or 60% of the country’s annual GDP (see top chart).
But it is also a consequence of very loose monetary policy. The BoJ has deployed an arsenal of special measures to battle Japan’s persistently low inflation. Its benchmark interest rate is negative (-0.1%). It is committed to purchasing ¥80trn ($715bn) of government bonds each year with the aim of keeping Japan’s ten-year bond yield around zero. And it is buying baskets of Japan’s leading stocks to the tune of ¥6trn a year.
Tokyo storm warning
These measures, once unorthodox but now familiar, have pushed Japan’s banks, insurance firms and ordinary savers into buying foreign stocks and bonds that offer better returns than they can get at home. Indeed, Japanese investors have loaded up on short-term foreign debt to enable them to buy even more. Holdings of foreign assets in Japan rose from 111% of GDP in 2010 to 185% in 2017 (see bottom chart). The impact of capital outflows is evident in currency markets. The yen is cheap. On The Economist’s Big Mac index, a gauge based on burger prices, it is the most undervalued of any major currency.
Investors from Japan have also kept a lid on bond yields in the rich world. They own almost a tenth of the sovereign bonds issued by France, for instance, and more than 15% of those issued by Australia and Sweden, according to analysts at J.P. Morgan. Japanese insurance companies own lots of corporate bonds in America, although this year the rising cost of hedging dollars has caused a switch into European corporate bonds. The value of Japan’s holdings of foreign equities has tripled since 2012. They now make up almost a fifth of its overseas assets.
What happens in Japan thus matters a great deal to an array of global asset prices. A meaningful shift in monetary policy would probably have a dramatic effect. It is not natural for Japan to be the cheapest place to buy a Big Mac, a latté or an iPad, says Kit Juckes of Société Générale. The yen would surge. A retreat from special measures by the BoJ would be a signal that the era of quantitative easing was truly ending. Broader market turbulence would be likely. Yet a corollary is that as long as the BoJ maintains its current policies—and it seems minded to do so for a while—it will continue to be a prop to global asset prices.
Rabbit’s sales patter seemed to have a similar foundation. Anyone sceptical of his mileage figures would be referred to the April issue of Consumer Reports. Yet one part of his spiel proved suspect. The dollar, which he thought was decaying in 1979, was actually about to revive. This recovery owed a lot to a big increase in interest rates by the Federal Reserve. It was also, in part, made in Japan. In 1980 Japan liberalised its capital account. Its investors began selling yen to buy dollars. The shopping spree for foreign assets that started then has yet to cease.
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