Apr
28
What’s wrong with United?
Filed Under Sunrise on KGMB9 | 2 Comments
Almost as soon as rumors took off about Delta Air Lines merging with Northwest Airlines, we also heard talk of United Airlines merging with Continental Airlines. It wasn’t just speculation. The two carriers confirmed talking. As recently as last week it was widely assumed that the deal would come together rapidly.
Over the weekend, however, Continental CEO Larry Kellner, in a letter to employees, said Continental had unique financial, organizational and cultural advantages in the industry which merging would put at risk. Most analysts would agree, and in less diplomatic language:
- Financial — Continental lost $80 million in the first quarter. United lost six times that. Continental avoided post-9/11 bankruptcy. United emerged from its lengthy Chapter 11 with financing that requires it to meet specific financial targets, and its CFO Jake Brace says “the trajectory of our covenant coverage is downward,” which means UAL is getting closer to missing those targets as jet fuel soars.
- Organization — Continental has an industry reputation for being well-managed by executives who really understand the airline business; United’s CEO Glenn Tilton never worked for an airline before and hadn’t flown commercial in years when he was tapped to head the company. Wall Street knows these things, and the New York Times said if the merger had gone through the CEO would have been Kellner.
- Cultural — Continental has better labor relations than United does, and is seen in the industry as being more nimble than most other carriers because of this.
Continental loses less money and is widely regarded as being better run, but it’s harder to run United well due to its size (though still-larger American is losing less). It is interesting to note that the only other major U.S. carrier with a reputation for being as well run as Continental, is the only other major U.S. carrier to say it’s not interested in merging at present — Southwest.
Glenn Tilton could make millions by marrying United off, because his compensation is tied to stock price. I don’t think he is motivated by that; I shall credit him with wanting to do what he considers best for UAL. But I think chief executives in general, and especially chief executives hired from without who don’t have the knowhow to closely manage operations, tend to be overly attracted to “the big deal,” leaving the post-deal details to lower-ranking executives, distracting them from day-to-day operations and tactical thinking.
This is all a concern for Hawaii. United still flies more seats to Hawaii from the U.S. mainland than any other airline. In normal times it would never even consider reducing its Hawaii airlift, if only because it’s the most popular route for frequent fliers to burn up frequent fliers. But these are not normal times and the fuel bills on such flights continue to mount.
Apr
26
Lingle’s take on the economy
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Governor Lingle spoke Friday to the Hawaii Economic Association and complained that the media highlight negative economic news, repeating them like a drum beat throughout the 24-hour news cycle.
The truth, she said, is that what happens on the mainland stays on the mainland, at least some of the time, so it’s important to distinguish between mainland economic developments and those in Hawaii.
I obviously agree or I wouldn’t be reporting mainland developments in so flippant a vehicle as “Crisis at a Glance.” Lingle correctly asserts that “attitudes shape actions…and actions affect the economy.”
Lingle then admonished the economists: “This is why the information YOU share and the statements YOU make, as economic leaders in Hawaii, are so vital.”
Actually, I think our local economists have been fairly measured in their comments. Even our daily newspapers are fairly measured in their articles, even if their headline writers sometimes march to a different drummer.
The governor said the closing of Molokai Ranch and the shutdown of Aloha Airlines and ATA were unfortunate but cannot be blamed on the fundamentals of the economy.
Hmmm. Actually, tight credit markets arguably played a role in all of these developments. In a normal capital market Aloha Airlines might have found a buyer, Molokai development foes might have found enough investment capital to bid for Molokai Ranch, and even ATA might felt able to make a lower bid for the huge military charter contract it lost.
(Tight credit markets may help Gov. Lingle with her creative plan to acquire Turtle Bay, flip part of the property, and save the rest from development. The current owner is willing to talk turkey with the state government to a degree that would certainly not be the case if it had private investors banging on the door.)
Lingle meant that these things weren’t caused by any Hawaii economic conditions, and that is so. But to the extent that they were affected by scarce credit, expensive fuel, and so forth, they show that some of what happens on the mainland does not stay on the mainland.
To some extent, though, this is a quibble — at bottom, Lingle is merely trying to show that it’s a textured situation, not all good or bad, and since two thirds of economic activity is consumer spending there is no advantage in painting an inaccurate picture of an economy descending rapidly to lower latitudes in a handbasket.
Apr
25
What’s ahead for Sea Life Park
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Cancun-based DolphinQuest, which owned Sea Life Park for four years, has decided to sell it and concentrate on its marine parks closer to home in the Gulf of Mexico and the Caribbean.
The buyer is a Madrid company that is Europe’s biggest operator of animal theme parks. It announced the purchase Thursday and specified it will keep the staff and management and invest in the park, which got 300,000 visitors last year.
Sea Life Park had grown long in the tooth under the owner before DolphinQuest, a New York investor who grew tired of his Hawaii investments when he had trouble unloading his Waimea Valley park. Even the animals were old.
DolphinQuest was both sensible and creative once it acquired the park. It made a virtue of the animals’ age, allowing penguins to roam freely — when younger they bit too much for that — and charging extra to let people swim with the dolphins. It crunched the numbers and discovered that tourists alone would not make the park profitable, so they developed programs to encourage a couple trips a year by local families, adding a luau program at a spectacular location on the east end of the property.
These directions should prove fruitful in time, but in a slowing economy it was probably wise to retrench, while the larger company that bought the park is more able to invest in some new infrastructure and advertising.
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