Howzit Howard

Is Southwest Airlines spoiling Hawaii vacations?

There is a fascinating theory circulating in travel industry circles -- that the reason the airline industry is so messed up is that one carrier was a lot smarter than the others in hedging its bets about jet fuel prices. The airline is Southwest, playing, in this analysis, an even greater spoiler role than usual for legacy airlines, because it hedged most of its fuel needs and is paying way less for it than the other guys. Southwest has always been a force for lower fares because it could afford to charge less than American, United, Delta, Continental, Northwest and US Airways. It flies only one kind of jet -- less training (which is really expensive) and even fewer spare parts to keep on hand. It flies where it can make a profit on lower fares and resists the temptation to fly to more expensive places for completeness. It does not fly to Hawaii and may never do so, because it would need another model of jet, as well as the special authority to fly long distances over water that requires extra equipment and extra training. All this keeps Southwest's cost structure lower than the legacy giants, and I haven't even mentioned fuel yet. Hedging, in the fuel business, works like this. Suppose jet fuel is selling for $2 a gallon, and it's widely believed that next year it could go to $3 a gallon. You're the airline. You approach a supplier, offering to sign contracts for fuel now, to be delivered next year, at $3 a gallon. The supplier agrees. What does this mean? It means he's betting you that prices won't rise that much, and he'll make a windfall profit. And you're betting him that prices will rise MORE than that, which would mean you've actually locked in a pretty good price. You've hedged in your upside exposure and he's done likewise on the other end. (Oh, and both of you have a number certain that you can plug into your budgets, which has its own value in corporate planning.) The actual price of jet fuel has risen, in about a year's time, from $2 a gallon to $4 a gallon. And Southwest hedged 70% of its fuel, far more than the big boys did. One travel industry newsletter estimates that Southwest's overall fuel bill works out to a dollar a gallon less than the big three carriers. As we have seen in the interisland fare wars, if there is one thing all airline executives believe devoutly it is that you cannot charge noticeably more than a rival airline because customers will forsake you in less time than it takes for the oxygen mask to drop down into your face. So the legacy airlines, raising fares to try to cover their costs, can only go so far in mainland air corridors that are also served by Southwest. And now we get to the theory circulating in travel industry circles, which is that this is what has impelled legacy airline executives to nickel-and-dime you to death with $2 charges for formerly free beverages (US Airways) and $15 fees for first checked bags (American, United, US Airways) while parking jets and slashing fall schedules (American, Delta, United, Continental, US Airways, Northwest.) Hawaii is hurt two ways. First, the belief by legacy carriers that they dare not send fares too high where Southwest also flies puts increased upward pressure on fares to Hawaii, where Southwest does not go. Second, as we have discussed before in this space, the fuel surcharges, extra fees for formerly free services, fuller flights, and fewer connections all add up to a nuisance factor that I believe can be, for our affluent bread-and-butter visitors, more of a disincentive to come here than the actual cost. Ironically, if the theory is right, it's all because the people at Southwest were smarter than the people at the legacy airlines, focusing on how to control expenses instead of messing around with merger plans. How can you be mad at people who did their jobs so well?

Fuel prices and the road not (previously) taken

The Hawaii economy still fares better than the mainland economy, but we continue to be at risk of a more profound tourism downturn, triggered by the growing expense and sheer hassle of traveling. Who vacations in Hawaii? People who can afford to vacation in Hawaii. They are affluent. They are unlikely to be put off by soaring air fares because they have been undeterred by years of soaring local hotel room rates. But they might be put off by the fact that flying is an awful experience these days. I have previously posted on the ways that cost cuts have raised the discomfort level. And now I wonder if a Hawaii vacation could be a victim of more general decision to cut back on travel of all sorts, even by households that can still afford to, under the onslaught of the national crisis-catharsis over oil prices, even though most of the mainland media coverage focuses on gasoline rather than jet fuel. NPD Group, a research consultancy that specializes in consumer spending preferences, has been surveying Americans to get a sense of how expensive gasoline is changing their habits. The New York Times published NPD's findings Sunday: The survey question: "Considering the price of gasoline over the past year, which of the following have you actually done?" Some of the answers: 12% have canceled vacations; 8% have vacationed closer to home; 12% have carpooled; 8% have used public transit; 6% have bought a more fuel-efficient vehicle; 3% have sold a gas guzzler; 5% have worked closer to home and 2% have more closer to work. Hawaii's visitor industry could be affected if it's really true that one in five Americans has either canceled a vacation or taken a vacation closer to home. But is it really possible that one in 20 Americans has already changed jobs or moved to shorten the daily commute?

Medical services and the state budget

Hawaii's hospitals and doctors are calling on Gov. Lingle to release funds to fully compensate them for taking care of Medicaid patients. A federal agency in Washington, D.C., which arbitrarily sets federal compensation rates for Medicare-Medicaid cases, has for years deliberately set rates known to be lower than actual costs of providing the services. Health plans have made up the difference through higher premiums by others, but as the pay gap widens this becomes less tenable. Thousands of doctors have said screw it and retired, or exercised their right not to treat the patients in question, further increasing the burden on those who didn't. A year ago Hawaii struck a deal with health care providers to raise compensation to a fair level. The state chips in a few million, a federal match makes up the difference, and doctors get what they say is fair pay. The Legislature approved the plan and authorized the funds. Gov. Lingle allowed the measure to become law without her signature. Virginia Pressler, a senior executive with Hawaii Pacific Health (Straub, Kapiolani, Pali Momi, Wilcox) who is both a physician and an MBA, says the Lingle administration promised in writing that the funds will be forthcoming but last Tuesday an administration official told her the funds would not be released, and the federal matching funds expire at the end of this month. I haven't been following this closely enough to give any flat comment on whether Gov. Lingle is reneging on a promise, but I think it is fair to say that this is what the medical community thinks. The month isn't over yet, however, and there is still time to release the funds. If this is done, it will be good news for the doctors who for the past year have worked under the belief that they will receive full compensation. I am not entirely unsympathetic to the governor's situation. I read the monthly balance sheet on state tax revenues, and each month the fiscal year-to-year increase in revenues has grown smaller. With just this month to be toted up -- the new fiscal year starts in July -- revenue growth has fallen to low single digits, or less than the rate of inflation. The situation is a bit worse than it looks because the state government has a higher rate of inflation than the rest of us do -- its arbitrated labor contracts have for years led to state employees getting better raises than most people in the private sector (on top of better job security) -- so anyone familiar with the state budget can see that money is going to get tight. Both Gov. Lingle and the Legislature, who usually can't agree on the type front for driver's tests, foresaw this and took steps. Lawmakers limited tax cuts during the big surplus years to save funds for a rainy day; Lingle held up a lot of appropriated funds, working the float on monies eventually released. The situation is, as expected, gradually getting more difficult. But for doctors who have treated patients over the past year under the assurance of a specific legislated level of compensation, the time appears to have come to keep some promises.

Inflation, and Howard ' s Law of Exceptional Items

One of the most important things you can learn about economic indicators is that there are always exceptional circumstances. Indicators are nearly always averages or medians, which mean that many of the individual items you're measuring will be different from the main number. The median price of a home in Honolulu is less than $700,000, but half the homes sold in Manoa lately have fetched $1 million or more. The national unemployment rate is currently 5.5% but in Hawaii it's much less than 4%. The Dow was up 113 points as I wrote this paragraph, but many stocks were down, and sometimes all the key stocks of a particular industry will follow a clear trend that isn't reflected in the overall Dow. Anytime you hear that things are going well, chances are you will know someone for whom things are not going well. Hundreds of Aloha Airlines employees found their skills were much in demand and got excellent new jobs, but I saw a woman on the air this week who said she was having trouble finding work because her acuity with Aloha Airlines computer systems were not useful in a marketplace that mostly uses other systems. It can work the other way. Soaring energy prices have been the focus of reports on inflation lately, and should have been, but on Friday I saw an excellent article on the CNBC website listing some consumer items whose average prices have actually fallen in the past year. They include digital cameras, flat screen TVs, both notebook computers and PCs, pajamas, and women's clothing in general. Toy prices, admission to theme parks and the cost of fine cutlery have also fallen over the past year. (And, of course, there are those falling mainland home prices.)

Birth of the (economic) cool

It's still true that the Hawaii economy is stronger and more secure than conditions on the mainland. But as the mainland economy sinks, Hawaii conditions are cooling. The University of Hawaii Economic Research Organization now thinks Hawaii inflation will be about 5% this year, more than previously predicted, while visitor arrivals will fall about 5%, three times its previous forecast. UHERO still thinks there will be a little bit of growth in our construction sector this year, but the overall economy of the islands will experience a small net decline in jobs -- and in real income. In a separate report, the state Department of Taxation says fiscal year tax revenues have topped $4 billion in the past few weeks, but the coffers are only 1.6% fuller than last year at the same time. It's not quite as bad as it looks. Tax director Kurt Kawafuchi explains that the last day of May fell on a Saturday so taxes normally due on that day were not really due until Monday, pushing about $40 million in taxes into June. If you pretend that money was booked in May, then revenue for the first 11 months of the fiscal year was up 2.6% from the previous year. But, and this is the main thing, that's still not enough to keep up with inflation. Governor Lingle has been holding up a lot of state spending that the Legislature appropriated, including some items I think she should release. But this explains why she's being so cautious about releasing funds. On the national scene Friday, the government reported CPI -- the consumer price index -- rose six tenths of a percent in May, more than expected, while the May home foreclosure rate nationwide was 48% above year-ago levels. Not everyone is panicky about that. Jim Glassman of JP Morgan Chase put it this way, according to CNBC: "The economy is not falling apart. It's just stuck."    

Lowering the bar

Once I wrote a daily humor column for UPI called JockStrip (it was for disc jockeys) and one of the regular features on it was "Today's Sign the World is Ending." This item is a good example of the kind of story I would put under that banner. Microsoft and Harrah's have developed a tabletop touch-screen computer for use in bars. You touch the menus to order drinks for yourself. You can also order drinks for people at other tables and send them messages. The menu heading actually says "Flirt." This is not something that will be available at some indefinite point in the future. A bar and casino in Las Vegas called Rio's has got it already. Since our society accepts all kinds of misspellings and poor capitalization in text messaging, it will be impossible to tell from a flirt message how drunk the sender is. hi booful -- in honor of ur booty am sendg this white rushin

The charge of the airline brigade

Airline executives are frantically adding charges for everything they can think of, hoping to whittle away some of their ballooning deficits, driven by jet fuel bills. United Airlines says it hopes to save hundreds of millions of dollars this year by joining American Airlines in charging $15 for the first checked bag. Now you can expect even more passengers to waddle down the aisle schlepping bags that don't really fit in the overhead bins, which they are nonetheless determined to MAKE fit, while you and a dozen other passengers wait behind them. But never fear. At the current rate of increasing fuel prices, it is only a matter of time before the airlines start charging fees for carry-on luggage. I mean it. American Airlines did another $20 fuel surcharge hike yesterday, and Delta Air Lines has already matched it on selected routes that have no discount competition. But the fuel surcharges don't even come close to covering soaring fuel costs, and the incredible run-up in crude oil prices this week won't even figure into airline costs for another 60 days at the earliest. Something to look forward to.

How to prevent extended medical discharge

Has this happened to you? You're in the hospital, treated, scheduled for discharge, awake happy on the morning of your release, shower and dress -- and then wait for hours before the medical bureaucracy is ready to return you to the outside world. I've never been a hospital patient myself but my loved ones have, many times, and I have seen this repeatedly at various hospitals in more than one time zone. Last weekend a loved one waited five hours for release. One of those hours was spent waiting for delivery of a piece of equipment that the hospital had run out of. Let's discount that as anomaly. What happened during the other four hours? What has happened on all of the other occasions when someone I knew waited hours to leave a hospital?

• The first factor is that release of a patient is usually conditional on a fresh series of tests -- ranging from easy stuff like taking the blood pressure to stuff that takes longer like doing a blood test -- which cannot begin until a nurse or nursing aide is ready to do it. Someone in another room who is still sick may command that person's attention more urgently. In other cases there may be a less pressing reason.
• A number of other steps also depend on someone breaking free from whatever else they are doing. This can affect showering, dressing, finding an available wheelchair or finding someone to push it. A few 20-minute delays like this can add an hour to the wait.
• Somewhere there is a doctor who is listed as being responsible for the patient's care. She or he wants to speak to the exiting patient, often is required to, dispensing stern advice of one sort or another. Particularly on weekends the doctor may be called in from elsewhere, but even on the premises there are the distractions of others whose problems are not yet addressed and need more urgent attention. We won't mention doctors flirting with nurses.
• After receiving the doctor's benediction, the patient usually gets some lovely parting gifts in the form of medicine and/or devices, which the pharmacist will want to discuss. Here is another medical professional who has made people to serve, some of whom may more urgently command attention.

Based on my most recent experience in watching a string of short delays turn into an extended cock-up, I have an idea for a possible solution. There may be a reason why it won't work. I'd be happy just knowing that Kaiser and Queens and Straub gave it some thought. Since there is already paperwork to accompany a discharge, a hospital should choose a time at which "the clock starts to tick" on a discharge, generate the form before that moment, and write that time on the form. It can be part of the file number or simply written in the margin. Suppose a hospital decides that the clock starts ticking when the first required step should be ordered (say, taking a shower). For purposes of argument we'll say that's 7:30 a.m. The patient might awaken earlier, but knows the process begins at 7:30 a.m. Everyone in the process sees the form, and everyone knows that the discharge process began at 7:30 a.m. My thinking is that it would be very difficult to invent a system that would guarantee a speedy release, but the individual actions of nurses, doctors, druggists and other medical professionals could speed things up at virtually every step of the process. It's probably sufficient to just give them the information -- it's 12:30 p.m. and this patient has been trying to break out since around seven in the morning -- and empower them to take steps.

Gas prices: The European view

One of your fellow viewers emailed me. He knew Europeans pay more for fuel than we do but he was wondering how much more. Could I look into it? Well, I've got my hands full this week, but the more I thought about it the more I thought I wanted to know, too. Maybe a quick check. Another viewer wanted to know why Kihei gas is cheaper than Wailuku gas. She wanted to know why tourists were paying less than locals. I'll get to that in a moment, but first the European story. The British are paying the equivalent of more than $8 a gallon for BP petrol. Continental Europeans pay even more, led by the Dutch, who pay more than $9 a gallon for their Shell fix. That's right: Europeans pay twice what you do, even now. And they think Americans whining about $4 gas is a hoot. Why are the Europeans so sanguine about paying such stratospheric fuel prices? Two reasons. First: They're used to it. Second: For various reasons, Europe is more suited to driving a smaller car and driving it less often. Have you ever been to Europe? Its city centers are incredibly old, centuries older than U.S. cities, with sometimes labyrinthine streets. Parking is even scarcer than in American urban areas. Not just cars, but also commercial vans and trucks, have for generations been smaller than the norm in America. Europeans drove smaller, more fuel-efficient vehicles for parking convenience for decades before they needed to do it for fuel efficiency. I visited Italy three years ago -- Milan, Venice, Florence, Rome, Naples, and smaller cities like Pisa, Sienna, Assisi -- if you had a big American SUV over there you'd never find a place to put it. Vehicles are banned altogether in the center of Sienna but the surrounding streets aren't congenial to full-sized cars, either. Europe is also replete with excellent rail systems, not just within metroplexes but between them. You can get almost anywhere by subway or trolley in London, Paris, Milan, Zurich, Amsterdam. (To get to Versailles, though, you have to take a bus beyond the end of the rail line.) Over the weekend I thought about this while riding a cool trolley at Hilton Waikoloa Village. Life on the Kona coast would be so much more pleasant if a light rail system ran from Kawaihae to Kealakekua. My place would be as close to the line as I could manage. In Europe, to get back to that, intercity trains are fast, and often are more efficient than flying because the cities are so close to each other. Most U.S. cities are too far apart for this to work, though there are exceptions. The cities of the Northeast Corridor -- Washington, D.C., Baltimore, Wilmington, Del., Philadelphia, New York, New Haven, Conn., Providence, R.I., Boston -- are close enough, and to me it is no coincidence that Amtrak service on that corridor was profitable even when the rest of the national passenger rail system was a mess. (Other U.S. cities close enough for this to work are Los Angeles-Las Vegas and Miami-Orlando-Tampa, but the rail lines don't exist.) Some people equate massive trucks with freedom. The people who sell massive trucks, I mean. "This is our country," the jingle goes. I'm not unsympathetic: I drive a Thunderbird and it is not fuel-efficient, especially gunning it to reach merging speed on your typical tiny H-2 ramp. But I can tell you from my years of driving a Miata that there a great deal to be said for knowing you can fit into the tiniest parking space. Now, what about Kihei gas costing less than Wailuku gas? I don't have specific information on these two communities, but perhaps it will help if I enumerate some factors that affect gasoline prices here. Spurred on by the gas station owners themselves, we tend to talk about gas taxes, which, btw, are way lower than in Europe. Maui has more expensive gas than the other counties in part because it has the highest gas taxes in the state. But there are other factors, which apply statewide. The farther gasoline has to travel to reach a gas station, the more transporting it costs. It costs more money to get gasoline to Hana, Lanai or Molokai than to Hawaii Kai. All retailers try to charge enough for their goods to cover all their costs, including their rents. Gas is cheaper on Leeward Oahu than in downtown Honolulu in part because real estate is less costly. Many gas stations are also convenience stores, and it's not unusual for the store to make more money than the station. Some gasoline retailers are currently using their store profits to cover slimmer profit margins out at the pumps. Surprised? Don't be. Everyone's got sticker shock as it is. Some retailers hope to make it back on the downside by cutting prices a little more slowly than their wholesale costs fall. Of course, that assumes prices ever do fall.

The other way to save money

We tend to think in a linear way. If your labor costs are too high, you cut your labor costs. If your fuel costs are too high, you cut your fuel costs. Only when we are desperate, or feeling imaginative, do we deal with high labor costs by cutting fuel costs, or vice versa. For many people, the increase in their gasoline bill is nothing compared to what they freely spend in other arenas of life. If it tears at you to spend several hundred dollars more on gasoline, but you readily spend thousands more for your trip to Vegas, more complex thinking may be indicated. Most people spend a great deal of money they don't need to on clothes and entertainment, while complaining about the new cost of gassing up that huge stretch pickup that won't fit in any normal parking space. This came to mind Friday while I was preparing a report for Kim's 5 p.m. newscast about the tax rebate. Economists think consumers are spending their rebates at Wal-Mart and Costco, whose same-store sales were far above expectations in May. But one Wal-Mart guy, noting that furniture sales were strong, suggested an alternative explanation -- that people were canceling their vacations altogether because of air fares or gas prices, and spending their vacations funds on lawn furniture or something. Bagging a trip to Vegas saves a great deal of money, and Vegas will always be there next year. If you want to slam a buffet, go to Todai. If you want to gamble and lose, invest in airline stocks. If you want some entertainment, take your Vegas budget and spend it in local shops.