The Weekend Edition

Glamor and ambition in a framework of absolute control. Or: The rise of Emirates as the world’s largest long-haul carrier: Malcolm Campbell asks if Dubai’s Emirates airline “running out of sky,” in an in-depth report for Bloomberg Businessweek. Tracing back the origins of the airline’s founding, Campbell writes about how Emirates “has grown from a two-plane operation at a desert airstrip into a force whose every movement rumbles through global aviation.” He says: “The airline’s growth is inseparable from that of Dubai, with both straining the laws of financial and physical gravity.”

Emirates has become the world’s largest long-haul carrier by never relaxing its grip — on employees, on airplane manufacturers, or on its own ambitions. The scope of Emirates’ reach from Dubai is vast: Two-thirds of the world’s population lives within the radius of an eight-hour flight. While the airline is adamant it never received subsidies since its startup grant, “there’s no question it’s operated in an environment that drives Western airlines mad with envy,” Campbell writes. “For starters, Dubai won the geographic lottery. From a fuel and flight-time perspective, the Persian Gulf is the most efficient place on the planet to connect Europe with Southeast Asia and Australia, and the U.S. with India. Strikes and protests aren’t an issue — unions are banned, and rights to free speech and assembly are severely limited. Corporate and income taxes are nil. And then there are the advantages of being the favored corporation of an absolute ruler whose word is literally law. Unlike Heathrow Airport and Los Angeles International, where the rights of nearby citizens to sleep without jet noise must be respected, Dubai International Airport runs at full speed 24 hours a day, allowing Emirates to optimize connection times for a network that spans from Buenos Aires to Christchurch, New Zealand.”

President Tim Clark, who was been with Emirates since its founding in 1984, has a marked impact on the airline and its performance. His tenure as company president, Campbell writes, “has been defined by bold gestures, and he relishes recounting occasions when a seemingly doomed gamble went his way. He’s claimed credit for silencing naysayers who told him that reviving the Jet Age concept of an onboard bar, in Emirates’ case on the upper deck of the A380, would be an expensive folly that no passenger would bother using. (They very much do.) The same goes for the airborne showers in first class, requiring planes to take off with 2.2 metric tons of water.” However, as most viable routes are already heavily served, Emirates has been forced to go farther afield to keep growing, and Clark concedes that “Emirates’ emergence as a boundary-pushing titan of global aviation was an outcome of an era that may now be at an end.”

The airline is facing a number of new risks. Betting on the growth of what development economists call the Global South — the Middle East, Africa, South Asia, and Latin America — “the airline is at risk if those emerging markets don’t, in fact, emerge.” Besides the tempered demand and economic prospects, US airlines are likely to challenge the Open Skies agreement that allows unlimited flights between the GCC and the US. US carriers Delta, American, and United, along with several industry unions, are already petitioning the incoming Trump administration to revisit the agreement. “Their argument, that deep-pocketed foreigners are threatening American jobs by flooding the market with subsidized capacity, was once seen in business circles as a long shot—but it happens to resonate precisely with President-elect Donald Trump’s stated view of the world. Similar efforts are afoot in Europe.” Campbell sounds an ominous warning, saying: “In the 70-odd years of large-scale commercial aviation, no airline has managed to stay on top for long. Pan Am was the last word in intercontinental glamor in its day, and its day came to an end.”

You can listen to the story being discussed on Bloomberg radio here (runtime 11:25).

Say it ain’t so… Nutella, our favorite snack of childhood (uhm, adulthood) contains cancer-causing chemicals, according to a warning by the European Food Standards Authority (EFSA) back in May. Palm oil, which according to Nutella-maker Ferrero gives the chocolate- and hazelnut-flavored spread its smooth texture, is the primary culprit, The Independent reports. Particularly, a compound known as glycidyl fatty acid esters (GE), which are produced in palm oil when it is heated above 200°C. Dr Helle Knutsen, chair of Contam, the EFSA panel that investigated palm oil, said in May: “There is sufficient evidence that glycidol is genotoxic and carcinogenic, therefore the Contam panel did not set a safe level for GE.” The resulting consumer backlash has hit Nutella sales hard, despite the fact that palm oil is found in hundreds of household-name food brands including Cadbury’s chocolate, Clover and Ben & Jerry’s. Consumer boycott has caused a 3% dip in sales and Italy’s supermarket chain Coop removed the Nutella products that contain palm oil.

Ferrero has responded (as all concerned corporations do) with a marketing campaign designed to reassure consumers. It has also insisted on continuing the use of palm oil, saying that it does not want to degrade the quality of the product. “Making Nutella without palm oil would produce an inferior substitute for the real product, it would be a step backward,” said Ferrero’s purchasing manager Vincenzo Tapella. Substitute oils, derived for example from sunflowers or rapeseed, could be used but would increase the cost of making the product substantially, according to Reuters. All of these revelations are leaving us to wonder: Is nothing sacred?

Swiping your card to pay is nothing like taking cash out of your wallet, and cashless payments are changing consumer behaviour, writes Tom Sandage for The Economist sister magazine 1843. The phenomenon has been observed since credit cards appeared in the 1980s. People tend to spend 12-18% more with credit cards, according to a study by Dun & Bradstreet. Transactions are felt even less with phones which we are always carrying: “It’s like a magic wand you can just wave to pay for stuff.” Economists expect this system of payments to boost spending even more. “Removing constraints on making payments subtly changes our consumption patterns, and the extra calories from all those vanilla lattes add up,” writes Sandage. Technology, as usual, can help. Apps could observe pattern changes by providing weekly summaries and analyses of our expenses, and notify us whenever there is a sharp rise. Fintech opportunity, anyone?

Is your friend just not into music? Maybe you simply don’t feel the beat? Scientists suggest it’s a disconnect between the areas of your brain that process sound (in the cortex) and the nucleus accumbens, a part of your brain’s reward network, according to a press release by McGill University, carried by EurekAlert. The condition is called specific music anhedonia, and 3-5% of the population has it. The idea of the study came from the assumption that everybody liked music, and it turned out to be indeed just an assumption, Robert Zatorre, neuroscientist at the Montreal Neurological Institute at McGill and a co-author of the paper, said on WNYC Studios’ weekly podcast Soundcheck (15:33). “These findings not only help us to understand individual variability in the way the reward system functions, but also can be applied to the development of therapies for treatment of reward-related disorders, including apathy, depression, and addiction,” said Zatorre, according to the press release. Think you might have the condition? Take this questionnaire initially given to Barcelona University students.

Detoxing is a scam: In 2007, a science advocacy group called Sense about Science reached out to the makers of 15 detox health products to figure out what toxin their products were targeting, eventually arriving at the conclusion that there were none, writes Julia Belluz for Vox. The idea that the human body can produce toxic substances that cause disease and need to be expelled dates back to Ancient Egypt. The notion, labeled auto-intoxication, was sent to “the dustbin of medical history” by the early 1900s, according to medical journal the Lancet, but stuck around in the realm of pseudoscience thanks to “archaic misconceptions about how the body works, marketing, and celebrity endorsements” (runtime 4:08).

Obama’s farewell address: US President Barack Obama gave his farewell speech (runtime 51:25) during the week in front of a crowd of supporters in his hometown of Chicago, Illinois, continuing a tradition set in 1796 when George Washington addressed the American people for the last time as president. Obama has described the event as “a chance to say thank you for this amazing journey,” to celebrate the ways the country has changed and “to offer some thoughts on where we all go from here.” CBS News said seven moments stood out in the speech, including how he wants his legacy to be defined, his honoring of the tradition of peaceful transition of power, and his comments about his family and VP Joe Biden. Mentioning Atticus Finch in the speech, The Atlantic says, “evoked a flawed American icon—perhaps to remind America of the best version of itself.” Bill Whalen wrote for Fox News saying the speech wasn’t so much “farewell” as “to be continued” and that Obama used it to “bask in in idolatry rather than say much that will stand the test of time” .

Tracing the origins of coffee back to Sufi Islam: Journalist Abdul-Rehman Malik traces the “forgotten history” of the coffee bean for a BBC documentary. Originating in Ethiopia, finding its spiritual home in the Yemen, evading zealots and Sultans from Mecca to Constantinople, defying prejudice from Vienna to London — coffee made its mark wherever it went, facilitating radical new forms of social exchange. Malik discovers that coffee was popularised by Sufi mystics in the Yemen who used the drink as a way of energising themselves during their nocturnal devotions. On his journey, he finds that coffee was drunk in the sacred Mosque of Mecca itself — until the religious authorities issued a fatwa against it in the 16th Century. The drink that fuels us in early mornings and late nights also had a history of being persecuted by authorities in this part of the world. With no pub-culture, coffee-houses were the very first spaces where people of all social classes could come together to discuss news and gossip. Now coffee has taken over the world and we’re obsessed with it (runtime 29:45).

Trying to predict what will happen in 2017: Bloomberg’s Odd Lots podcast is going down the route many would have avoided after 2016. Hosts Tracey Alloway and Joe Weisenthal are asking their Bloomberg News colleagues to forecast what will transpire in markets, politics, finance, economics, and transactions. One, rather contrarian, forecast: Donald Trump to re appoint Janet Yellen as Fed chair, because presidents “tend to love” low interest rates and have a track record of reappointing Fed chairs appointed by their predecessors (runtime 28:30).

How did big tech companies like Facebook, Google, and Twitter get us to use their products as automatic habits? This concept, known as captology (the study of “computers as persuasive technology,” or CAPT), is the area of expertise of Stanford University psychologist B.J. Fogg, who has been studying behavior change for more than two decades. Based on his findings in captology, Fogg says there are three main steps on the path to forming a new lifelong habit: Identifying your specific desired outcome, identify the easy-win behaviors or small adjustments that are easy to achieve, and finding a behavior that you already do regularly to which to attach your desired new behavior — setting up a Pavlovian conditioning situation of sorts. “‘After I finish brushing my teeth, I will floss one tooth,’” Fogg demonstrates in a program he has developed to help people achieve commonly held goals. “You can see where this is going. [Fogg’s program] works by designing out the need to feel highly motivated to get a task done. Motivational levels come and go with the wind, but flossing a single tooth is achievable no matter the emotional weather. Besides, most days you’ll find yourself flossing a few other teeth because – well, why not?”

Alternatively, you can read psychologist Elizabeth Lombardo’s recommendations of five ways to achieve the sustainable kind of change in your habits that won’t have you abandoning your new year’s resolutions before February rolls around.

Not all exercise regimens are equal, and each person’s body will respond differently (sometimes by not responding at all) to certain exercise routines, Gretchen Reynolds writes for the New York Times. Researchers have found a name for the unlucky group of people who actually stick to their new year’s resolution of working out regularly for several weeks, only to find that they are not losing weight, adding muscle, or even becoming more fit. These poor souls, known as “nonresponders,” simply do not respond to whatever exercise regimen they choose to follow, and often end up getting discouraged and returning to the couch potato life.

One research study back in 2001 examined previously existing data on the effect of endurance training on people’s endurance, and found that, while the general trend showed an increase in endurance, the fine print pointed to “staggering” differences, including some individuals whose endurance improved by 100% and others whose fitness somehow worsened, despite these people following the exact same routine. “Age, sex and ethnicity had not mattered, the researchers noted. Young people and old had been outliers, as had women and men, black volunteers and white. Interestingly, nonresponse to endurance training ran in families, the researchers discovered, suggesting that genetics probably plays a significant role in how people’s bodies react to exercise.”

As these findings paint a rather bleak image for people who are genetically cursed and whose bodies don’t respond to an exercise regimen that worked wonders for someone else, a recent study from the University of Ottawa and Queen’s University focused on determining whether a simple switch to another form of exercise would be the answer to nonresponders’ predicament. Indeed, “importantly, no one had failed to respond at all. Every man and woman had measurably improved his or her fitness in some way after one of the sessions, if not the other. Those who had shown little response to endurance training generally showed a robust improvement after the interval sessions, and vice versa.” What does this all mean? “There is no one-size-fits-all approach to exercise,” and finding the right fit for you is simply an issue of trial and error, rather than giving up on exercise altogether just because those kickboxing classes didn’t quite give you the results you were hoping for.

Amazon is winning the virtual assistant race: With Apple, Google, Microsoft, and Samsung too busy competing over phones, computers, smart watches, Amazon is emerging as the winner of developing the most sophisticated virtual assistant, writes Lisa Eadicicco for Time magazine. The device, called an Amazon Echo, provides a virtual assistant named Alexa. Despite Amazon not officially attending the 2017 Consumer Electronics Show, Alexa attended in the form of Ford’s car infotainment systems, Huawei’s new smartphone the Mate 9, a Ubtech yoga robot, lamps, and even laundry machines. Despite earlier attempts, voice recognition software never really reached its full potential, but is slowly beginning to mature. “You don’t have to pull your phone out or have it relatively close by, that actually makes a difference,” says professor at the Language Institute in Carnegie Mellon’ School of Computer Science Alan Black. “Because it’s in the environment, it changes the way you interact with it. People will expect that it will just be there.”

Google is now playing catch-up with the Google Home, while Apple only opened up Siri to working with other apps in September and is working on its own competitor to the Echo. Microsoft is bringing its voice agent Cortana to Harman Kardon speakers, and Samsung agreed to acquire Viv Labs in late 2016, a startup founded by Siri’s original creator that is now developing an advanced personal assistant expected to debut on the next Galaxy smartphone. By 2019, 20% of all smartphone interactions will take place through personal assistants, and by 2020 most gadgets will be designed to work with “zero or minimal touch,” research firm Gartner predicts.

Voice recognition technology getting more love: Voice commands like the 21 bn per week that Apple’s Siri handles are revolutionizing computing, almost similar to the old days when phones abandoned wires. “Voice will not wholly replace other forms of input and output … But voice is destined to account for a growing share of people’s interactions with the technology around them,” according to The Economist’s print edition. The global consumer market of voice recognition technologies is expected to grow from USD 54.4 bn in 2016 to USD 95.9 bn in 2021, according to a report by BCC Research. “However, to reach its full potential, the technology requires further breakthroughs,” The Economist tells us. Voice technology is not yet able to conduct full conversations with context. Amazon announced last year it is offering a USD 500k prize for making Alexa have a conversation about pop culture and news events, GeekWire reported, with an addition USD 1 mn if the bot can have a coherent and engaging 20-min conversation. On the ethical front, issues of privacy are sticking in voice technology, as “many voice-driven devices are always listening, waiting to be activated,” The Economist says. They start sending audio to the cloud at one recognizable sound like ‘Hey Siri’ or ‘Alexa.’ So you’re not so paranoid if you cover your camera or tell your secrets in a room away from your phone.

Is Uber following the Jeff Bezos model? Uber has lost USD 2.2 bn in nine months, according to Bloomberg. In fact, Uber lost money every year since it was founded in 2009, writes Timothy Lee for Vox. This could suggest that Uber’s core business is unsound and may never show a clear path for profitability, instead only subsidizing people’s taxi rides using USD 11 bn it raised from venture capitalists. Every year between 1994 and 2000, Amazon lost more money than the year before as a result of founder Jeff Bezos’ aggressive investment in growth. By offsetting short term profit, Amazon was able to reduce its costs per book sold far below a conventional bookstore or retail outlet. The case for Uber suggests they have an even more ambitious version of the Jeff Bezos Amazon model, with expansions to new geographic locations and investing into self-driving cars, but it’s tough to say without access to financial results – which Uber is not obliged to publish.

A five-part series blog by transportation industry analyst Hubert Horan delves deeper into the skepticism. Uber just doesn’t have the cost advantage Amazon did, says Horan. Amazon ditched the expensive retail store and clerks, but Uber still has to use cars, drivers, and fuel. So while consumers might feel Uber is cheaper than a conventional taxi, Horan suggests this could merely be a result of Uber subsidizing the cost through its venture capital while taking a loss on every ride. Why? To drive the competition out of business and enjoy a robust monopoly in the taxicab market, of course. Ultimately, it might not matter who wins the conventional ride-hailing market because self-driving cars will disrupt the entire market within the coming decade, says Lee. Driver compensation accounts for over half of a cab ride, so the real prize is becoming the customer’s gateway into the self-driving car market. With good reason to think self-driving cars will be hailed on demand rather than privately owned by each driver, the profitability of the company’s existing ride-hailing business might be beside the point. Even if Uber can never turn a profit charging its current fares with human drivers, the company will definitely be able to turn a profit renting self-driving cars at those rates.

Excluding our CEO Week series, the most-clicked stories in Enterprise in the past week were:

• Note from EIC chief economist suggests EGP will appreciate 14% this year. (EIU)
• Bullet meets delicate glass — bullet loses. (Mystery of Prince Rupert’s Drop at 130,000 fps – Smarter Every Day 86)
• The artificial intelligence revolution. (Wait But Why)
• Amr Adib speaks with President Abdel Fattah El Sisi (Youtube)
• Forbes profile of Hani Rashwan (Forbes)

Yes, there are people out there who spend their days figuring out the best place to retire: In their Annual Global Retirement Index, the experts and International Living (IL) have determined that Mexico is this year’s top choice for retirement destinations, edging out Panama and Ecuador by one-tenth of a percentage point, Richard Eisenberg writes for Business Insider. If you’re looking into retiring abroad, you should note that IL’s rankings are tailored towards US retirees: Out of their top 10, six destinations are “nearby” — this is an American publication, so that’s Latin America — while three are in Europe and just one, Malaysia, is in Asia. IL also encourages individuals looking into moving abroad upon retirement to study the options really, really thoroughly and perhaps spend enough time in the prospective destination to deal with real-life things like setting up Internet access or a bank account, and see how much it fits your personal needs, rather than relying on somebody else’s ranking system. The relative strength of the currency is also an important factor to take note of: “‘The big news for U.S. citizens in the past year regarding retiring around the world was the strength of the [USD]. It has made living in some countries, especially Latin America, incredibly cost effective,’ said [International Living senior editor Dan] Prescher. ‘The exchange rate was outrageous in our favor. The Mexican peso today is 20 to 1 against the [USD], which has made Mexico an incredible deal.” By that same logic, Egypt is an incredible deal too, so what gives, IL?

Levine destroys Twitter, en passant: Our favorite finance writer, Matt Levine, was away for the past few weeks. On his return to the Money Stuff column in Bloomberg View, he took a big swipe at Twitter, opening by saying: “Hi, I’m back! I was away on paternity leave for a few weeks, during which I deleted the Twitter app from my phone, which is the single best use case I have yet found for Twitter. Few internet products have ever given me as much joy as Twitter did, when I deleted it. I don’t know how Twitter can monetize that? Anyway now I’m back … The other appealing use case for Twitter seems to be to become president and then use the presidency, and Twitter, to pursue various revenge whims. That is monetizable, though apparently not by Twitter, and so of course: ‘This app will send you alerts when Donald Trump tweets about stocks you own.’ The app is called Trigger.” This was just the intro to his typically wide-ranging column. Levine wrote about how he believes Bridgewater Associates, a successful hedge fund, to be just “a computer that makes pretty good investing decisions, and 1,700 people whose job is to distract each other so that they don’t interfere with the computer’s investing decisions.” Levine also writes in his column about the insider trading case against Steven Cohen, index funds, and concerns about bond market liquidity, among other topics. On Tuesday, Levine wrote about a number of other issues including a brief, to-the-point explainer of Yahoo is doing by creating “Altaba” and why Uber might be “charging below its cost now.”

Is Seal Team 6 really just another gang of thugs? A deep dive by The Intercept, one of our favourite muckraking outlets, looks at how America’s most celebrated elite fighting group is being investigated for allegedly fostering a culture of battlefield abuse and cover-up. Relying on interviews of former and current Seal Team 6 members, the article catalogs the strings of incidents and the authorities’ inability to rein the unit in. It all started during the Afghanistan war in 2001, when of their own was felled at the peak in the Shah-i-Kot valley in Afghanistan. Before he could be saved, he was killed and beheaded by insurgents. According to accounts, this one act hit at their belief of invincibility and infected the 300-man unit, helping change their own internal rules of how to conduct themselves in war both in Afghanistan and in Iraq. Revenge came 48 hours later when a wedding party was massacred by Chinook helicopters and the dead allegedly desecrated by the Seal Team 6 operators. The Navy reportedly turned a blind eye, setting in motion a culture that the unit could police itself and its own members so long as they got results when on-mission. Subsequent atrocities reportedly include the act of “canoeing” (we won’t go into it). If you know Hollywood’s portrayal of the Seals, The Intercept’s is the polar opposite.