Howzit Howard

Tourism report: what slowdown?

Hawaii tourism will probably slow this year -- the official forecast this week from the state was for slightly fewer visitors but a new record high in visitor spending -- but it most assuredly did not slow in January. The wrap-up report on January tourism from the Hawaii Department of Business, Economic Development & Tourism said there were more visitors, more visitor days, and more visitor spending, than in the same month last year. Roughly 600,000 visitors spent roughly $1.1 billion. Japanese arrivals fell 5% from year-before levels but Japanese honeymoon traffic actually increased. California arrivals eased but traffic from Portland, Seattle and Vancouver (where the Canadians fly from) all rose in double digit percentages. We also got more visitors from foreign countries other than Japan and Canada, and from east of the Rockies. This is not to say we might not yet experience a serious slowdown. We get more Californians than any other brand of visitor, and the California economy is tanking. But most of our California visitors come from the prosperous coastal cities of the Golden State, while most of the state's economic problems come from the central agricultural part of the state including such cities as Fresno, Merced and El Centro. What I'm trying to say is that there has not been any mainland economic development to impel mainlanders to cancel plans for a Hawaii vacation. We will begin to lose domestic visitor traffic if and only if mainlanders whose personal finances are strong begin to FEEL less prosperous because of everything they watch on CNBC. Two-thirds of U.S. economic activity is consumer spending, much of it discretionary, so the mood of consumers isn't merely a touchy-feely thing, it's a concrete economic indicator with measurable effects on business.

The crafters return to Thomas Square

After several shows at Kakaako Waterfront Park, the Pacific Handcrafters Guild has returned to its old home of years standing, Thomas Square. The crafters will encircle the huge banyan tree again this weekend. The show runs from 9am to 4pm Saturday and Sunday with free admission and food and music as well as the crafters themselves, who do everything from garments to jewelry to woodcrafting to pottery. The guild has been holding these shows for more than 33 years. Its July, October, November and December shows will all be at Thomas Square.

How Hawaiian Airlines flew in the black

Hawaiian Airlines made a $7 million profit in 2007, on revenue that grew 11% to $983 million. That's only one dollar profit on every 140 dollars of revenue, but still. With a fare war bleeding all profit and then some from interisland service, and jet fuel bills soaring, the amazing thing that Hawaiian didn't end the year in the red. This breakdown of 2007 revenue (with 2006 revenue for comparison) shows that the lion's share of the revenue came from Hawaiian's regular long-haul service to the mainland:

• Passengers: $889 million. ($797 million.)
• Cargo: $31 million. ($32 million.)
• Charter: $12 million. ($10 million.)
• Other: $51 million. ($50 million.)

This breakdown of 2007 costs (with 2006 costs for comparison) shows that the fuel bill is now one third bigger than payroll:

• Wages/benefits: $222 million. ($228 million.)
• Fuel and lubrication bills: $292 million. ($242 million.)
• Aircraft rent: $98 million. ($110 million.)
• Maintenance and materials: $93 million. ($70 million.)
• Jet and passenger servicing: $54 million. ($53 million.)
• Commissions and sales costs: $54 million. ($49 million.)
• Depreciation/amortization: $46 million. ($29 million.)
• Landing fees/other rentals: $28 million. ($26 million.)

Hawaiian CEO Mark Dunkerley says it's gotten really hard to fly profitably and the key is to target even the smallest incremental cost adjustments. By adding capacity and selling most of the extra seats, Hawaiian brought its fourth quarter operating cost per available seat mile down 1.5% from year-before levels -- 13.4% if you leave out jet fuel, which Dunkerley would dearly love to do. (Inventors: get cracking on a wind-powered jet.) Hawaiian's jet fuel costs are running 45% higher than last year and account for more than a third of all its expenses. Buying three jets about a year ago led to lower aircraft rent costs and higher depreciation costs. This is interesting: a favorable adjustment to workers comp liabilities cut a few million dollars from expenses. Repeat after me, bean counters everywhere: "Safety first!"

Raymond Kaleoalohapoinaoleohelemanu Kane, 1925-2008

Ray Kane, 82, died Wednesday night at Kaiser hospital. Kane died only a few days after his cousin Genoa Keawe. To lose both of these legends in less than a week shows the importance of something Kane stressed for years -- passing along musical techniques and traditions to the next generation so performance practices aren't lost. Aunty Genoa was particular about getting the Hawaiian lyrics right; Kane was particular about slack key performers teaching their tunings to the young. When he was young, he had trouble getting anyone to teach him slack-key because musicians didn't want their tunings kapu'ed. Though understandable to a degree, this proprietary view of the tunings and techniques led to slack key almost dying out. Ray Kane was determined not to let that happen. He loved teaching and did it whenever he could. This enriched modern slack key tradition for a couple reasons. For one thing, Kane favored a couple of tunings that not many others were using. For another, he favored a sweet, mellow style (and sometimes very lightly syncopated) without showing off. Just listening to Kane probably made younger performers esteem that style more highly. It probably didn't hurt that Kane was an amiable man who liked to tell stories. Sadly, that particular tradition hasn't carried over to all of the excellent young slack key performers. Maybe they'll pick it up eventually.

Negative economic news on parade

I warned you! I told you there would be a lot of negative economic news this week. Here's your executive summary:

• The pace of January new home sales nationwide, despite the biggest decline in median prices in three years, fell to a nearly 13-year low.
• The nation's largest luxury homebuilder, Toll Brothers, swung to a quarterly loss on a 23% plunge in its sales.
• Fannie Mae, America's biggest guarantor of home mortgages, posted a $3.6 billion quarterly loss.
• The euro rose to a new all-time high against the dollar. Now, granted, "all-time" only means "since 1999," when the euro came into being as a going concern, but still. It takes a buck and a half to buy a euro now.
• Orders for durable factory goods are down more than 5% in the latest monthly report from the Commerce Department, more than was expected by Wall Streets analysts, apart from a few who are perched on ledges regarding the traffic below.
• Crude oil traded above $100 a barrel this morning after gushing two bucks higher still on Tuesday.
• Heinz Co. is playing ketchup (thank you) after posting flat earnings. I just threw this in for seasoning.

Small wonder that Fed head Ben Bernanke, testifying Wednesday morning before the House Financial Services Committee, sent new coded messages that the Fed will cut interest rates again at its March 18 meeting. He will do the same thing Thursday before the Senate Banking Committee, if that's your idea of a good time. This is not an exhaustive list of all the bad economic news Wednesday, yet I am exhausted, so I'll stop here, except for a few remarks about why you shouldn't fret none about this. You see, most of this stuff doesn't really tell us anything new, and not only that but Hawaii even benefits from some of it. The higher the euro goes, the better for us. How much do we buy from Europe? You can be moved to sobs if you own the local Volvo dealership, granted, but apart from that a high euro puts European vacations into the "really expensive" column and maybe some mainlanders will decide they like the Costa del Kihei more. Low interest rates can take some of the edge off Hawaii's housing prices, which haven't fallen back all that much, unlike prices in many mainland locations. Even the new official state economic forecast, with its several "more worserer" revisions, is mainly good news. The inflation forecast for 2008 has been raised two tenths to 4%, but that's pretty darn low compared to the 4.8% increase seen in the Honolulu CPI in 2007. Economic growth speed is now expected to be only a little better than 1%, but it beats outright recession. Similarly, wage and salary job growth expectations have been powered a tenth, to 1.4%, but that's still growth. Hawaii's economic glass is half full.

How to be a federal contractor

Federal law reserves a good-sized chunk of government contracting business for companies owned by minorities, women, disadvantaged persons, and veterans. A whole lot of Hawaii business owners qualify on one of those grounds or another. But how do you get started? Bidding for government business is the kind of game where you need to learn the rules, and after that it's not so hard. But where can you learn the rules? The U.S. Small Business Administration's Honolulu district office has been scheduling conferences from time to time that teach this sort of thing. The next one is Thursday at Kapolei Hale. For more information, visit http://www.sba.gov/hi. The SBA and SCORE of Hawaii are also cosponsoring the Hawaii Pacific Lending Conference, March 27-28, at the Honolulu Country Club. Speakers will include Rep. Mazie Hirono, Bank of Hawaii Chief Economist Paul Brewbaker, Kapolei Property Development VP Chuck Hill, and a number of SBA officials and lenders.

Genoa Leilani Adolpho Keawe 1918-2008

Genoa Keawe, one of the most important musicians in the history of Hawaii, died Monday at the age of 89. Aunty Genoa was so influential on successive generations of performers in the islands that her musical family is as large as her own personal family, which includes 40 grandchildren, 98 great-grandchildren and 81 great great-grandchildren. Aunty was usually praised for her superb falsetto style or her impossible breath control, but she also had an unusually large range of Hawaiian songs. And she told me a couple years ago that before she became a professional Hawaiian singer she was a jazz singer in the great age of Hawaiian swing. She found her way into Hawaiian repertory gradually after singing "For You a Lei" on the radio one day to mark her niece's birthday. After that, she said, her Hawaiian repertory, consisting of songs she had learned in her youth, gradually became the core of her act. By 1953, when I was born, Genoa Keawe, then 35, was appearing on the "Lucky Luck Show" and "Hawaii Calls." By 1969 she had her own record label. Soon after I moved full-time to Hawaii, I brought my first wife Marilyn to a "Made in Hawaii" Festival and was intrigued to find that the most interesting thing she saw at the event was Aunty Genoa. Marilyn had been away for decades except for vacation stays and was delighted to see that Aunty, who was hot when she moved to Washington, D.C., was still singing when she moved back. After Marilyn passed away and I remarried, I found that my wife Bernadette was a relative of Aunty Genoa -- whose son Eric is married, if I'm getting it right, to Bernadette's mother's sister's daughter -- and we were so pleased to have the Keawes join us for our wedding last year. Aunty slipped in so quietly I didn't even know she had made it until the end. (We had a wonderful reception party and the lone regret I have about it is that I didn't get to ask Aunty to sing -- she might not have brought her ukulele but Keith and Carmen Haugen were there and they had their instruments. Or the Honolulu Jazz Quartet could have backed them all up, which might have been a first.) The news conference at the Waikiki Beach Marriott Monday was practically a family reunion, with dozens of relatives on hand, not to mention Raiatea Helm and Danny Kaleikini. My heart was so full I could barely ask a question and I noticed Billy V was the same. But with people like Aunty, grief takes a back seat to happy memories. This was a woman who lived her life as she thought best, patient and genial and yet also capable of toughness when she felt it was appropriate -- several friends and relatives have mentioned how passionately she pushed singers of Hawaiian songs to make sure they got the words right. (One of the most enjoyable things about being nice to people is that when something arises that you feel passionate and uncompromising about, people happily pay heed.) Eric Keawe checked his memory and said Aunty last performed in public at the Marriott on Jan. 31, though she sang with her visitors practically to the very end, and last Thursday, on her way home from the hospital, she stopped by the Marriott to enjoy her band performing with her granddaughter taking lead. In that make-up the band will continue to perform. Thus it is that sometimes a person can live on even in this life. The hard news from the news conference: the family has a collection of private recordings of live performances, a gift from a family friend, half a century old and never released in any format, which are undergoing audio processing so they can now be put out on CD. What a fitting finale to the story of a woman so durable that her career lasted more than 60 years. Even now, Aunty Genoa has one more album in her.

Cloudy days for a sunny coast

The management of KGMB is kind enough to allow me to do some outreach from time to time -- career day at Ahuimanu Elementary last Wednesday, emceeing the Quiz Bowl for College Connections a couple weekends ago -- and on Saturday I flew to Kona to address a group called Destination Kona Coast. This is a quasi-chamber of commerce outfit that works to ensure a happy experience for people who visit Kona and avail themselves of members'  services. Members include the Kona operations of Atlantis Adventures and Roberts Hawaii, Captain Zodiac, Kona Joe Coffee and Kapa Fabrics. My usual formula for a speech is to give the latest economic roundup, up to that day and tailored for the audience, and then take questions. This ensures that no two speeches are alike. As you might guess, this group's members were mostly concerned about NCL pulling out two of its three ships. It occurred to me while talking that some of the points I made to my Kona friends, I should also make to you:

• NCL made a business decision. It should be expected to. If it does it will eventually go out of business and Hawaii won't benefit from that.
• The decision had less to do with Hawaii than with Europe. Currency exchange rates made it attractive to deploy a ship in Europe. The money it makes in euros will convert to a lot more dollars. (I didn't think of it while speaking to the Kona audience, but this is roughly analogous to when Hawaiian Airlines pulled out of Ontario International Airport, east of L.A., to launch its Sydney route. The Ontario route was profitable, but Hawaiian could make a lot more money in Sydney and it needed the jet.)
• NCL wants the feds to encumber its competitors by forcing them to spend 48 hours at their international port calls (foreign-flagged vessels must make a foreign call on otherwise all-U.S. cruises, so mainland cruises to Hawaii stop in Ensenada, Mexico, a town that might be described as being like Campbell Industrial Park but without the charm) but simultaneously asserts that its sole remaining ship has a greater economic impact for Hawaii than all rival cruises combined. This is true, and it is precisely why the proposed 48-hour rule is largely irrelevant to NCL. Carnival Corp. and Royal Caribbean Cruises Ltd., the only cruise companies larger than NCL's parent Star Cruises, have been cutting back their Hawaii cruises even with shorter foreign port calls. NCL engineered a near-monopoly on Hawaii cruise business and none of the current or recent economic changes have changed that.

NCL President Colin Veitch made some pissy comments about the move, indicating that he thought Hawaii should stop whining about losing two ships and ask what could be done to keep the third one, but he has since calmed down and specified that the remaining ship -- the Pride of America -- makes a profit and will stay. We now realize Veitch was just kvetching, a forgiveable human trait. On the other hand, it seems fair to note that NCL, far from suffering from Hawaii's infamous anti-business ethos, actually got a sweetheart deal to operate here, with terms of NCL's own devising. Hawaii profitability for NCL was delayed and limited by three factors, two of them beyond the control of either NCL or Hawaii:

1. Hawaii's economy performed so well that NCL had trouble recruiting qualified employees. Many of the best prospective employees already had good jobs on land. The essence of "full employment," defined by economists as 3% joblesssness or less, is that most of the people still looking for work are still looking because they're not qualified, have unrealistic expectations, or have some kind of baggage, like a drug habit. A third of NCL's first wave of applicants flunked the drug test.
2. The Pride of America, the second ship in Hawaii service and the first new one to arrive, sank at the dock in a gale at a Bremerhaven, Germany, shipyard. It took about a year to replace rusty wiring and other problems, because even though only the bottom three decks were submerged that's where the engines are.
3. The third factor, NCL can blame only on itself. It deployed managers who were used to supervising foreign nationals to train and supervise Hawaii residents and other U.S. citizens. Many of these employees proved unsuitable and were dismissed, but others who were making it chose to quit because they regarded the supervisors as martinets. The mostly Filipino personnel whom these supervisors were used to ordering around, tolerated it because they were sending money to be converted into Philippine pesos at a currency exchange rate that made their families affluent. Taking orders meekly made good business sense for them, for the same season that sending the Pride of Aloha to Euroland makes sense for NCL. (NCL did eventually figure out that it could save more U.S. hires and get good work out of them by using supervisors who understood the American character.)

NCL, working with Hawaii officials in a way that belied the seldom-questioned assertion that Hawaii is bad for business, structured a deal that was good for Hawaii and good for itself, and even now it can be argued that both sides benefit. Even a single ship means thousands of direct and indirect jobs and some first-time visitors who will come back again for land-based vacations. And even now the economics of the U.S.-flagged cruise ship enterprise create barriers to entry for Carnival and Royal Caribbean that ensure a stable franchise for NCL. Clearly, however, a two-thirds reduction in capacity will hurt businesses that ramped up to serve cruise passengers, which brings us back to some of the members of Destination Kona Coast. So what do they do? It seems to me that they will wind up working with travel agents and airlines, because in the current uncertain economy it is going to be easier to work for incremental traffic that way than to try to persuade a cruise line to redeploy an entire cruise ship in the islands. (If they can swing it, it will be quite a feat.) And the 48-hour foreign port call rule? The Hawaii Congressional delegation supports it, effectively siding with NCL. Gov. Lingle opposes it, effectively siding with Carnival and Royal Caribbean. This is perfect. Now all three major cruise players feel there is someone in Hawaii officialdom they can count on for a sympathetic ear. But the practical effect will be limited either way. Carnival and Royal Caribbean have been scaling back their Hawaii voyages and a requirement for an extra day in Ensenada won't change the economics appreciably. Neither will it much affect NCL. The market drives this.

Festival of bad news

Cue the dancing bears. Jittery investors, who already know the U.S. economy is cooling, will get so many reminders of it this week that you shouldn't be surprised if the stock market tanks at some point. And if it doesn't, it will show that investors can burn out on bad news and stop listening after awhile. Here's what you can expect this week:

• Mortgage giants Fannie Mae and Freddie Max will post massive quarterly losses. They're the two biggest sources of U.S. home loan financing.
• Three giant investment firms will report quarterly results this week, and all three -- Goldman Sachs, Morgan Stanley and Lehman Brothers -- are expected to announce more giant writedowns of bad debt.
• The National Association of Realtors reported Monday that resales of existing homes had fallen to the slowest rate in a generations -- prices down, too -- and by the end of the week we will have gotten a similar report on new home sales from the Commerce Department.
• The Labor Department will update the producer price index Tuesday. Does anyone think prices won't rise further?
• By the end of the week we'll have the consumer confidence index from the University of Michigan and that Chicago report from purchasing managers, both of which will say people are spending less.
• A bunch of retailers report quarterly results this week, starting with Lowe's, which said Monday its profits were down a third from last year. Remember, two thirds of all U.S. economic activity is consumer spending.

Won't there be anything reassuring? Well, Federal Reserve Board Chairman Ben Bernanke testifies before the House Financial Services Committee (on Wednesday) and the Senate Banking Committee (on Thursday) and is expected to use what the Wall Street Journal calls his most reassuring bedside manner. That means he'll signal yet another interest rate cut in March and find a way to say that the Fed hopes and believes this won't rekindle price inflation. Not every Fed governor agrees. Richard Fisher, president of the Federal Reserve Bank of Dallas, said Friday that policymakers face the challenge of promoting job growth without stirring inflation's embers. But it should be noted that the last Fed interest rate came on a 9-1 vote and the banker from the Lone Star State was the lone dissenter. When it comes to speaking for his colleagues, Fisher is, as they say in Texas, all hat and no cattle. The next Fed interest rate meeting is March 18. The Fed last week revised its economic expectations for the year downward, but still concluded that the U.S. economy this year will grow 1.7% to 2%. While Ben Bernanke reassures the markets, his predecessor is reveling in his newfound plain English and scaring the geese. Alan Greenspan, speaking to an investment conference in Saudi Arabia, said the economy is "at stall speed" and the run-up in oil prices will last "forever."

Keiki water colors

The Honolulu Board of Water Supply is accepting submissions for its 2009 Water Conservation Calendar. Thousands of children sent art in last year and the board would like to get even more, since every child who draws a water conservation message is likely to take the message to heart. The competition is open to all Oahu schoolchildren, kindergarten through sixth grade, with judging broken up into four age groups within that range. First place is a $100 U.S. Savings Bond, second place is a $75 savings bond and third place is a $50 savings bond. For information, link to http://www.boardofwatersupply.com. They're looking for art that is 18 x 24 inches in either landscape (sideways) or portrait (up and down) format, with no three-dimensional entries and no chalk, charcoal or oil-based crayons.