Saturday, April 05, 2008


The feds have intervened so badly in our economy, we need something different

by Larry Geller

The Star-Bulletin editorializes today that Federal action is needed to stabilize airline industry, but they stopped short of suggesting what that action might be.

I have a couple of suggestions:

1) Stop the war in Iraq
2) End the subsidies to hugely profitable oil and energy companies, tax their windfall profits while prices remain high
3) Quit antagonizing Venezuela and instead "make nice"
4) End harassing passengers with overbearing search tactics at airports

You might have a few ideas of your own in mind.

As to federal intervention, the feds intervened already, ending whatever "free market" existed in Hawaii and giving us abnormally high air fares that negatively affected the economy. Here's a snippet from a Maui News article containing comments by economist Paul Brewbaker, Aloha’s departure leaves interisland market muddled:

Aloha and Hawaiian were “near perfect substitutes” for each other, Brewbaker said.

They flew similar planes, on similar routes from similar terminals.

State decisions reinforced their special status. The Department of Transportation, which owns the airports, provided them with adjacent terminals with (in Honolulu) parking nearby and elevators providing direct access to the ticket counters and baggage claim areas. Competitors got less attractive digs.

They were such twins that, back in the days when interisland customers could buy coupons, the two would sometimes accept each other’s coupons and settle the accounts in the back office later.

In that environment, which Brewbaker calls a “noncollusive duopoly,” they reached a pricing “kernel” at $60 as an average price for a passenger’s flight segment.

Because they were not collusive, they cooperated not by fixing prices but by arranging schedules that did not unduly aggravate each other.

But after Sept. 11, 2001, Sen. Dan Inouye arranged an antitrust exemption for Aloha and Hawaiian, and that allowed them to reach a new equilibrium, because it made it less likely that a new third, outside threat would arise.

The new equilibrium settled at $90 a trip.

In comes go!, entering a shrinking market:

Leroy Laney, professor of business and finance at Hawaii Pacific University, said Tuesday that it was obvious that Hawaii could not support three interisland airlines and that it might not even support two. The market is so small (and has been shrinking) that fixed overhead costs made it difficult for either of two airlines to get enough business to get into profitable territory.

So back to the Star-Bulletin editorial.

Working on the factors that produce high fuel costs (to the extent that's possible, should oil supplies be peaking) might be helpful. Artificially propping up a business fated to fail might not, unless the state determines that having two or more airlines is so very much in the public interest (in which case maybe we need a state-run airline?).

The anti-trust exemption didn't help, in the end it may have hurt. $90 wasn't the worst of it, one airline followed the other upwards, tit for tat.

It's not just airlines. The actions of our federal government work against a variety of business interests (excluding oil, pharmaceuticals, tobacco, etc.). You'd think, if corporations really ran this country, they'd be getting together about now and pushing for change. Or even for regime change.

Small and large businesses in Hawaii might think similarly. Imagine having leaders in the Chamber of Commerce or Small Business Hawaii who were willing to work at the root causes of business failure here?


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