Howzit Howard

The real unemployment story

Both the federal and state governments disgorge monthly unemployment reports, but the real story doesn't always appear in those figures. This is especially true in times of complex economic developments. Like now. Friday's reports -- 5.1% national unemployment, 3.1% state unemployment -- have long since been overtaken by events. They were figures from March, before the Aloha and ATA Airlines shutdowns here, and before tens of thousands of mainland layoffs by financial services companies alone. If all of the Aloha employees stayed here and stayed out of work, that alone would send the Hawaii jobless rate up several tenths of a percent. Fortunately a large number will find jobs because they're really well qualified for thousands of jobs that have long gone unfilled for lack of qualified people to do the work. But there is another hidden story on the jobs beat, hidden because official employment rolls include people who work part-time, regardless of how few hours they work. A separate report from the U.S. Labor Department that usually gets no attention works up an average work week, and it just shrank for the first time since early 2001. You certainly recall Hawaii's short-lived but hard-hitting tourism crash in the months after 9/11, but earlier that same year there was a travel industry recession, and airlines were hurting because businesses cut back sharply on corporate travel. It seemed like a big deal at the time and has been forgotten by most people only because the collapse of the World Trade Center and its aftereffects were so much worse. If you missed my report on this (it aired on the 5 p.m. Friday KGMB9 newscast) you can get the gist of its meaning from the lead story in the Saturday editions of The New York Times, whose editors evidently agreed it was a very big deal indeed: "Workers Get Fewer Hours, Deepening the Downtown," the headline read. "Vanishing Overtime and Smaller Paychecks Are Taking Bigger Toll Than Layoffs." This bears watching in Hawaii, where -- despite the understandable angst about layoffs by airlines, Weyerhauser, Molokai Ranch and the Ilikai -- the jobless rate remains one of the lowest in the country. We can have a low unemployment rate and still suffer economic hardship if a lot of people have their hours cut back, even if it only happens to their second jobs. For many businesses, those that sell non-essential items to regular consumers, the message is, reach out to your public right away and tell them why they really want to have what you're selling. Or they may not be buying.

My day off

After working long hours for a couple weeks because of the collapse of Aloha Airlines and ATA Airlines, I was told to take a day or two off, and decided to take off Wednesday of this week. I was going to work on a project, a personal blog on classical music that I'd like to do, but Bernadette said she needed to go update her state photo I.D. so I agreed to accompany her. I made several misjudgments, including parking in the First Hawaiian Center, which charges a great deal of money for parking there for anything other than banking business (more if you want an aisle seat), and not bringing a book, which led to my reading the book Bernadette brought. But the big mistake was thinking it would take an hour because of bureaucratic slowness. It took almost three hours in spite of the employees doing what struck me as being a pretty good job. With the exception of one surly manager, the employees behind the counter and the guard assigned to be taxpayer-wrangler were attentive and friendly -- I had plenty of time to sit in the corner and observe -- and on the whole it was an amazing performance of professional aloha given the fact that they had to deal with a number of impatient and frustrated citizens. No, the problem wasn't the people, it was the system. The office was short-staffed, and it was jammed into an office that clearly had not been designed for the purpose. If the fee were $25 instead of $15 -- Bernadette asked how many people they handled in the average day and was told 200, would would mean weekly revenue would rise from $15,000 to $25,000 -- they could hire some extra people and move to space in one of the malls where there is plenty of free parking. The main thing that struck me about this is that the system gratuitously, unnecessarily mistreats and annoys virtually all voters eventually, so one would assume it would be in the interest of elected officials to make this problem go away. Still, it was encouraging to see the employees doing all they could to make the farcical set-up work. The next time I hear someone whining about state workers who don't know what it means to work hard or work fast, I'm going to remember this crew, working both fast and hard and even showing some friendliness to their understandably irritable customers.

Two hundred posts!

We passed the milestone a few days ago. Since launching this blog in September 2006 I've tried to post something almost every day, and sometimes more than one a day if there is a lot going on. I'm taking the trouble to tell you this because I assume you're busy enough not to want to bother visiting a blog in case it's going to be informative or entertaining, or at least updated for goodness's sake, as often as you come to it. I visit just two blogs daily myself -- Ian Lind's www.ilind.net and a very funny blog by Scott Adams, the fellow who draws Dilbert. You can link to it from the Dilbert website, www.dilbert.com. 

Unplugging the crystal ball

It is customary for companies to forecast what their earnings will be in the next quarter. Analysts then form their own opinions. When the actual earnings are reported later, Wall Street reacts, not to the actual amount of profit or loss, but to the amount by which the company beat or missed the consensus expectation. So it was interesting to see that JCPenney has decided not to forecast what will happen to it for the rest of the year. It's making no prediction at all. "This is not enough visibility to give something meaningful," the company said. Translation in plain English: "The economy is so thoroughly screwed up, we have no freaking idea what our sales will be." It's not just JCPenney, either. Macy's and Starbucks are two other companies that have now decided to skip an earnings forecast altogether. "Seems like a wise move to me," writes Karl Borgstrom of the Associated Builders and Contractors of Hawaii. "When you look at how irrationally market reacts to good and bad news, not to mention the unpredictability of the variables that will impact the next few quarters, maybe it is better to stick to the facts of actual performance." While we're on the subject of the current and varied economic crises, there was a fair amount of important news Thursday. Southwest Airlines reported its quarterly profit fell two thirds from year-before levels, to $34 million, despite 15% more revenue. And Continental Airlines swung to an $80 million loss, despite 12% more revenue. A day earlier, American posted a $328 million loss on revenue up 5%. American said 35% of all its costs were jet fuel bills. Marriott International reported its own quarterly profit fell 34% to $121 million despite revenue rising from $2.8 billion to $3 billion. Revenue per available room rose as Marriott hotels flew fuller despite higher room rates, but it wasn't enough to cover soaring electric bills.\ Pfizer Pharmaceuticals profits fell on generic competition and slowish sales of Lipitor. Merrill Lynch posted a $2 billion loss and announced 4,000 job cuts. JPMorgan said it needed to raise cash and do a $6 billion offering. But IBM profits rose, and United Technologies posted 22% higher earnings. United Technologies makes Blackhawk helicopters, Otis elevators, and more air conditioners than anybody else.

My rice bowl versus yours

In his tannya masterpiece "Step Right Up," Tom Waits sings one generic advertising slogan after another -- "it never needs winding...it's new, it's improved, it's old-fashioned...it gives you an erection, it wins the election" -- and then goes into a list of ailments it cures. When he gets to "heartbreak of psoriasis" he interrupts his own stream of slogans and yells, "Christ, you don't know the MEANING of heartbreak!" It is the essence of an economic downturn that millions or billions of people may be affected, but some take a much harder hit than others, and the rest of us don't know the meaning of recession. In the current situation, if you keep your job and your house, you'll still be affected, through higher prices and perhaps through worry that one of the favorable conditions stipulated above might change. But clearly you won't know the meaning of trouble compared to the financially semi-literate consumer who got talked into a subprime mortgage he couldn't afford. A young Aloha Airlines pilot who finds a high-paying gig in China will, happily, never know the angst of a senior colleague who is also thrown out of work, is impelled by family considerations to remain in Hawaii, and never serves as a flight officer again. All this came to mind Tuesday after reading more than a dozen online news reports concerning the price of rice. Your rice bowl may be more affected than mine, even though we're all mildly interested in others. It started with surging rice futures prices on the Chicago Board of trade. They're up almost two thirds since the year began. A 20 lb. bag of rice that costs $8 in Hawaii today will cost $10 by the end of the year. I think mainland readers of this blog understand that rice is a much bigger part of the Hawaii diet than is the case on the mainland. But not as big as in the Philippines, where 13 rice distributors face criminal charges for hoarding. Or Haiti or Bangladesh, where there have been riots over the soaring price of rice. Not as big as in Cambodia, where relief agencies have stopped giving rice to the poor because their own suppliers cut them off after learning they could sell the same grain elsewhere for a much higher price. Grain prices are rising for several reasons:

• Hawaii buys mostly specialty rice from Japan, and the yen hasn't been so strong in living memory. Even if the sellers did not raise their price, it would take more dollars than before to meet the price in yen. Since the dollar has weakened as a result of the mortgage default crisis, it is entirely fair to blame Hawaii's soaring rice prices on aggressive sellers of subprime home loans.
• Energy prices are still rising -- crude oil went to $122 a barrel Tuesday -- and the price of petroleum figures heavily into the price of food because petroleum is a major component in both the fertilizer used to grow the crops and the plastics used to package them for sale in supermarkets.
• Biofuels based on food crops like corn and wheat are competing for the available supply of grain crops. Not only is a great deal of corn being diverted to ethanol production, but farmers who want some ethanol revenue are planting corn instead of whatever they grew before.

The administration dismisses biofuels as a major factor and principally blames energy prices. Ironically, the administration official trotted out, as spokeswoman on the issue, Secretary of State Rice.

Is money, in fact, not everything?

From time to time one of the newspapers will do an article on how much our local CEOs are paid. The Advertiser did it Sunday. There is something about seeing a photo of some person you know and seeing a figure like $2 million next to his or her name that makes you think long and hard about your own income. But after thinking long and hard about my wages -- I work three jobs and I'm pretty sure I make less than my son does -- I find that my view of money remains the same. There is a minimum amount of money without which you will sneer at someone saying "money isn't everything" or "money can't buy happiness." I believe I have ascertained that amount of money in a clearly definable way. This is what you need:

1. Enough money that when you are sick you can go to a doctor.
2. Enough money that when your car breaks down you can fix it.
3. Enough money that if you are thrown out of work you can survive for several weeks while you look for more work.

Many people know what it's like to get sick and not have the cash for a doctor visit. Some prosperous businesses duck their health care responsibilities by hiring "contractors" instead of "employees." This makes health care more expensive for responsible employers, since most of the uninsured are young and healthy, and 80% of health care services are used by 20% of people, so the removal of young, healthy people from the health insurance universe raises the burden for the rest. In my twenties I worked for a radio station in Arlington, Va., commuting from my apartment in Washington, D.C. My car broke down and I didn't have the money to fix it for about a month. The walk across the Potomac River on Key Bridge was frigid because this was in the middle of winter and my shift began at 4 a.m. (That's when I first grew my beard. When I got to work it had frost on it.) How long you can be out of work is variable, of course. But there is enormous comfort in having enough money saved to be able to maintain your life during such a period. Any amount of money above this is gravy. But there are a lot of people in Hawaii who, despite having marketable job skills, don't meet these criteria.

Musical chairs in airline seats

Mainland consumers who want to take a vacation to Hawaii this summer could find themselves playing musical chairs if we keep losing passenger seats. But what's not yet clear is just how much capacity will be gone. Let's face it, most people don't know where the capacity has been coming up, much less what the collapse of Aloha and ATA took out of the mix. The state does a seat count every month, adding up the current month and the next two, using official published airline schedules. I never even mentioned the April-May-June count on the air because it has been so overtaken by events. First, let's look at what has changed:

• The shutdown of passenger operations by Aloha Airlines took capacity from Sacramento, Oakland, Las Vegas, Orange County and San Diego.
• The collapse of ATA, after its lost its huge Air Force charter contract, took capacity from Oakland, Los Angeles, Las Vegas and Phoenix. Southwest Airlines sold tickets to Hawaii over ATA, so some of ATA's passengers came from points east.
• United, Northwest and Delta have all grounded some of their older jets to save on their jet fuel bills and will reduce mainland capacity as a result, affecting transfer options if not directly impacting their Hawaii routes.
• The collapse of Frontier will affect transfer options, and to a lesser extent this is also true of smaller regional carriers that have gone or will go belly-up due to soaring jet fuel bills or, in Frontier's case, a credit card partner withholding more funds.
• Hawaiian Airlines has added a daily flight to Oakland, Alaska Airlines has added an extra daily flight from Seattle, and United Airlines has kept the capacity to Hawaii that carried NCL passengers, apparently hoping to fill the seats with other people.

Now let's look at the three-month capacity figures in the last report from the state, with parenthetical notes from me; I've rounded off the figures to the nearest thousand and the percentage changes from a year ago are rounded off to remove fractions:

• Los Angeles: 534,000, up 3%. (Six of every 10 LAX flights to Hawaii go to Honolulu, two go to Maui, and one apiece go to Kauai and Kona. Discount-priced ATA seats are gone. We don't know if they'll be replaced at all, much less by cheap seats.)
• San Francisco: 264,000, down 8%. (The decline represents ATA moving its hub across San Francisco Bay to Oakland last year. United, Northwest and Hawaiian are major SFO players.)
• Phoenix: 175,000, up 20%. (ATA was a player in this market, along with Hawaiian and US Airways. Neither has yet announced a service ramp-up. Of every 10 seats, one went to Lihue, one went to Kona, three went to Kahului and five to Honolulu.)
• Seattle: 167,000, up 36%. (Northwest and Hawaiian are the main players, but Alaska Airlines is adding a second daily flight in July. Half the seats go to Honolulu; of the remainder, three go to Maui for every one that goes to Lihue.)
• Oakland: 127,000, up 35%. (All of this capacity was ATA or Aloha. Hawaiian has added a flight here. ATA flew 14,000 seats every three months to Hilo, the only direct mainland airlift there.)
• Las Vegas: 85,000, up 8%. (Hawaiian, Aloha and ATA served this corridor, in which, as you might imagine, most of the traffic it eastbound, then westbound, about a quarter of it from Maui but none from Kona, Hilo or Lihue.)
• Chicago: 77,000, up 3%. (United and American fly to Hawaii from here. O'Hare isn't as big a deal as it used to be because many United passengers from the U.S. East now fly to Denver or San Francisco before transferring.)
• San Diego: 73,000, up 20%. (Hawaiian and Aloha were the main players in this corridor, though United flew from here to Hawaii for awhile.)
• Portland: 69,000, up 1%. (Northwest joined Hawaiian in this corridor; more than half the seats fly to Maui.)
• Dallas-Ft. Worth: 60,000, up 1%. (American flies to Hawaii from its headquarters hub; two thirds of the seats go to Honolulu, one third to Maui.)

The remaining domestic markets, each accounting for about 50,000 seats or less in a three-month period, including Atlanta (50,000, Delta), Houston (47,000, Continental), Denver (45,000, United), Salt Lake City (43,000, Delta), Sacramento (37,000, Aloha), Orange County (34,000, Aloha), Minneapolis (27,000, Northwest), San Jose (24,000, Hawaiian and sometimes a mainland carrier), Newark (22,000, Continental), and Anchorage (8,000, Alaska). When you look at the actual capacity count, you can see how important Seattle, Phoenix, San Diego and Portland have become to Hawaii. These four cities together have accounted for 484,000 seats, more than San Francisco, Oakland, San Jose and Sacramento combined, and more than all the airlift from Japan and Korea combined. For purposes of comparison, here are some foreign points of origination:

• Tokyo: 288,000.
• Osaka: 71,000.
• Vancouver: 70,000.
• Nagoya: 44,000.
• Sydney: 41,000.
• Seoul: 28,000.
• Guam: 23,000.
• Manila: 20,000.
• Majuro: 9,000.
• Pago Pago: 8,000.
• Taipei: 8,000.
• Nadi: 4,000.
• Tahiti: 4,000.
• Christmas Island: 2,000.

Is it just me, or do you think we ought to be able to induce a lot more people to come here from Sydney, Seoul, Taipei and Manila?

Separation of biz and state

What do Turtle Bay, Ko Olina, Waikiki Beach Walk, Aloha Airlines, Hoana Medical, Hawaii Superferry and the former Magoo's Pizza on Kapahulu St. have in common? They're all situations where the government took some kind of action that affected a business. Each one has its own lesson on how the state can help or hurt a business depending on the circumstances and the state's competence or lack thereof.

• Turtle Bay: Gov. Lingle proposed to buy the property, flip the resort, and preserve the rest of the land. Initially dismissed as a sound bite, the idea is taken seriously by the owners and has won the endorsement of former Gov. Ariyoshi.
• Ko Olina: The developer got millions in tax credits to build an aquarium, didn't, promised to give the credits back, didn't, and now offers to pay the money back IF the legislature takes action for affordable housing on Leeward Oahu.
• Waikiki Beach Walk: This project would never have happened without government intervention, threatening use its right of eminent domain for the public good. Some land owners wanted to lease rather than sell their property. Outrigger couldn't get financing without clear title.
• Aloha Airlines skidded off an uneven playing field, in which (a) a federal judge decided that a deeper-pocketed competitor engaged in predatory pricing, and (b) the state levied an excise tax on interisland jet fuel but not on fuel burned leaving the state.
• Hoana Medical, availing itself of state technology tax credits, invented a smart hospital bed that automatically measures pulse and blood pressure and knows if the patient gets up, falls out, or wets himself, transmitting all this information to a nursing station using off-the-shelf computers.
• Hawaii Superferry, proposing to increase intersisland shipping competition while offering a lower-cost sightseeing alternative to an ocean cruise, benefits from the state building some ferry infrastructure.
• Magoo's Pizza, ordered to go down to two parking spaces in order to make one handicapped space, closes altogether. The owner leaves an angry note on the door.

Everyone in business has a horror story about martinet inspectors or lawmakers that don't understand the difficulties of running a company -- the moral always seems to be that the government is a confederacy of dunces and should keep its mitts off private enterprise -- but there are also horror stories, and sometimes from the same people, about unfair foreign competition and persistent threats by lawmakers to take back the technology tax credits because someone is abusing them. Bill the Businessperson will tell you he believes in the free market, but when pressed Bill reveals that he does feel the proper role of government is to dump on his competitor Bob like a ton of bricks when Bob breaks laws that Bill obeys. David Carey, head of Outrigger, can probably think of some instances where government officials got in the way of running his business, but he readily owns up to the fact that Beach Walk wouldn't have been renovated if the city hadn't rattled its eminent domain saber at recalcitrant land owners. Jeff Stone, developer of Ko Olina, got his private sector financing in part because he had those tax credits in his back pocket, creating jobs that did a lot of good for the Leeward side. As for his current position, pressing lawmakers do encourage affordable housing on the same coast, I'm of two minds. Good cause, but his borderline abductive stance -- push for more housing or you'll never see this $3.4 million again -- could backfire by getting legislators' backs up, legislators being only human. What business and government need from each other is reasonable, practical, consistent behavior. The government, which sets the rules of the "free enterprise" game, needs to make sure those rules are consistent. When consistent language produces inconsistent results -- a legislative argument can be made for taxing interisland fuel but not trans-Pacific fuel that makes perfect sense on paper, just not in the real world -- then it behooves all sides to have a clear understanding why a particular case in exceptional. I'll add this: those who oppose big government and want the least regulation possible should be the most ardent in supporting reasonable exceptions, because unreasonable sidelining of government -- as when the Justice Departnment sat still for arguably predatory pricing against Aloha Airlines -- is the one thing that could cause a pendulum swing back to activist regulation.

The real news in the Hill hearing

Senator Inouye called a hearing on airline bankruptcies and everyone played up the angst of Aloha Airlines CEO David Banmiller, which we already heard outside the courthouse last week. But the real news was who wasn't there and what wasn't said. The U.S. transportation secretary didn't come, sending an underling instead. The underling made it clear that the department sat out the Hawaii fare war because predatory pricing is hard to prove. The U.S. attorney general wasn't there and didn't send anyone, missing an opportunity to say the Justice Department was investigating the case, raising the possibility that it isn't. Predatory pricing is indeed hard to prove -- usually. But in this case a business plan surfaced which explicitly refers to giving Aloha Airlines a push to turn a three-airline market into a two-airline market. The memo, once dismissed by Mesa Air Group's CEO as a joke, was written by his chief financial officer and came complete with charts and graphs. If this isn't a provable case for predatory pricing, it can't EVER be proven. The Justice Department may be investigating but it hasn't said so. It should have opened an investigation the minute Hawaiian Airlines filed suit against Mesa. If Mesa did engage in predatory pricing, and if it can be proven -- Hawaiian persuaded a federal judge it happened -- then the entire global business community should know that U.S. officials will prosecute the crime from time to time. Even an administration that prefers to leave the business community alone should make an example from time to time so everyone else will behave when left alone. (I think Voltaire's phrase, explaining the British Navy shooting an admiral, is that harsh action is good from time to time "pour encourager les autres.") On the other hand, suppose Mesa has proof, not previously presented in the Hawaiian Airlines civil suit against the airline, that it was just kidding and wasn't deliberately pushing Aloha Airlines out of business. Most observers would say this beggars reality, but still. Just suppose Mesa can get off. Well, then that, too, would encourage the others. It would send a clear message to the business community that the rule against predatory pricing effectively doesn't exist. And everyone would understand that this, then, is how the game is played.

Back on track: Aloha Air Cargo

Hmmm -- can you use a railroad metaphor about an airline? Never mind, mustn't get sidetracked. FlightStats.com, a website that posts highly specific arrival and departure information on all domestic flights nationwide, said four Aloha Air Cargo flights didn't go overnight. That would have been good news, meaning the majority of flights did run, and I said so on the air. But Aloha Airlines spokesman Stu Glauberman now says Aloha doesn't follow the information thus posted, and reports that in actuality the full schedule ran, which of course is even better news. I'll mention this Friday morning on the air but I know a lot of business people read this blog and the information could get to you faster this way. I have made a request to the airline to tell me what happens, bad or good, over the next several nights.