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Saturday Quiz: Aloha Airlines Flights   (April 5, 2008)


Question: how many passenger flights does 61-year old Aloha Airlines fly daily in Hawaii?

Answer: None. Aloha Airlines ended its passenger flights on March 31, 2008. It is selling its air cargo and contract services businesses and shutting down, laying off 1,900 employees. It's competitors (Hawaiian Air and Go!) have announced openings for about 60 new hires. Aloha began in 1946 with war-surplus DC-3s.

ATA Airlines also closed its doors this month, laying off 2,300 employees.

The recession has yet to be officially announced, and already long-established companies are going under. Note the multiple pernicious effects of such closures. Of course the loss of high-paying jobs is a body-blow to the employees' families--we have relatives and friends who worked for Aloha. The odds of finding employment in the airline industry in a recession are not promising.

Then consider the supply-demand impact. While a recession will certainly cause demand for travel/tourism to decline, the closure of these airlines immediately reduces supply. The net result is the survivors can raise prices--at least until demand falls below the reduced supply and another airline perishes, reducing supply further.

This cycle can be expected to occur in many other industries: a double-whammy of rising prices and widespread lay-offs/company closures.

Knowledgeable analysts John Mauldin and Mish have both predicted 6% unemployment by the end of 2008. Who knows what the "official" rate will be--the number will certainly be manipulated to understate the reality--but I would guess "real" unemployment will be more like 9% by year's end.

In one tiny corner of the economy--air travel to and from Hawaii--over 4,000 people just lost their jobs, with virtually no prospect of finding a similar position within the industry. (Who adds flights in a recession? Tourism is the first luxury to go, along with eating out.) That's 4,000 families who won't be going on vacation, buying big-screen TVs, buying new vehicles, going out to eat, etc.

And that means fewer meals served, fewer tips for servers at restaurants, and so on. The shock of major lay-offs will trigger an avalanche of lay-offs in the years ahead.

Many of the closures will be as sudden as Aloha's demise. Aloha counter employees just completed training on a new software system in January--clearly, the owners/management considered the company a viable business proposition at that time. What changed in just a few months?

I don't know, but I suspect it is as simple as expectations for the future: as recession looms, how long will it be before losses end and the business returns to profitability? If the answer is "a long time," then why keep pouring good money after bad? The quicker you shut down, the quicker you stem the losses. That's simply sound business. It's sad for the employees, but when a business loses money every month, somebody has to foot the bill. And they have to ask: when will this turn around?

I think a lot of smart people are refusing to drink the Kool-Aid offered by the Fed and the financial media about a "short, shallow recession." they see the likelihood of a prolonged, painfully deep and pervasive double-whammy consumer and business recession, and so the decision is unavoidable: shutter the business now, not later.

Regarding yesterday's post on hoarding, insecurity and grain shortages: correspondent U. Doran submitted this story: 'Silent' famine sweeps globe:

Yesterday, the Hong Kong government tried to put a stop to panic-buying of rice in the city of 6.9 million as fears mounted over escalating prices and a global rice shortage. Shop shelves were being cleared of rice stocks as Hong Kong people reacted to news that the price of rice imported from Thailand had shot up by almost a third in the past week, according to agency reports.

Global food prices are even hitting home in New York City, according to a report in the Daily News. Food pantries and soup kitchens in the city are desperately low on staples for the area's poor and homeless.

The Food Bank for New York City, which supplies food to 1,000 agencies and 1.3 million people, calls it the worst problem since its founding 25 years ago.

Last year, the Food Bank received 17 million pounds of food through the Emergency Food Assistance Program, less than half of the 35 million pounds it received in 2002. And donations from individuals and corporations are also down about 50 percent, according to the report.

Readers Journal has finally been updated, with 30 new Readers commentaries on a huge range of great topics and three new incisive, fascinating essays (links to your right); Read them all!

Also, check out a new feature in the right sidebar below Readers Journal, "This Month's Highlighted Books."




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