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Rather than try to pass along higher fuel prices to customers, American Airlines, as noted below, has canceled flights. As Business 2.0 points out, Federal Express has taken a more intelligent tack toward dealing with higher fuel costs:
"So how has FedEx (FDX) -- which runs the largest cargo jet fleet in the world, as well as 700,000 gas-guzzling trucks -- been able to keep its income flying high? Unlike the airlines, FedEx has gotten its customers to foot the bill for gassing up. The company's decision in February to adjust its ground and express fuel surcharges on a monthly basis has done nothing to deter shippers, but it's done plenty to shore up the bottom line: In the most recent quarter, FedEx's revenue jumped 10 percent over the same period last year, to $7.7 billion, while net income soared 9 percent to $448 million."
Posted by dan at 04:20 PM
Faced with skyrocketing fuel prices, companies for whom energy is a major cost have a few choices. They can act as heroic inflation fighters and simply eat the higher costs. Or they can act as rational businesses and try to pass on costs to their customers, which might stimulate some inflation.
American Airlines has found a third way. It's simply cancelling flights.
Isn't that a lot more likely to piss off customers than slapping a $10 or $20 fuel surcharge on tickets? Everybody knows the price of oil is insanely high. And most fliers--especially business fliers, whose tickets are paid for by companies or clients--would probably understand.
Posted by dan at 02:52 PM
Who knew placid Westport, Ct., was such a hotbed of white-collar criminal activity? First Martha Stewart got sent up the river, and yesterday Daniel Marino, the #2 player in the Bayou Management hedge fund scandal, copped a plea.
You can see more about Marino's 7,300-square-foot home and three fancy cars, all of which will soon become government property, at the invaluable Westportnow.com
Posted by dan at 09:03 AM
Since the Justice Department killed Arthur Andersen in the post-Enron days, you would think that accounting executives would have to be on their best behavior. After all, Andersen taught us that if a few partners are condoning or masterminding illegal activity it can kill the whole firm.
On the other hand, some of the regulators are really freaked out at the prospect of losing one of the remaining Big Four accounting firms. And that might give license to accountants to run wild.
Andrew Parker writes in the Financial Times:
Regulators do not have "a clue" how to respond if one of the big four accounting firms were to collapse, William McDonough, head of the profession's US watchdog, admitted yesterday. The chairman of the Public Company Accounting Oversight Board expressed relief that the Department of Justice reached a settlement last month with KPMG over its past sales of tax avoidance schemes to clients.The big four - Deloitte, Ernst & Young, KPMG and PwC - insist one or more of them could be destroyed by their exposure to litigation. . .
He said even if the firms ranked five to eight in the US were rolled into one, the result would not be a business to match the capabilities of the big four.
Lets see if I understand the logic. A vital industry is dominated by an oligopoly of four huge companies. All of those companies have engaged in questionable behavior in recent years and run into regulatory problems. In fact, their issues are so significant that the firms "insist that one or more of them could be destroyed by their exposure to litigation." And yet the nation's leading accounting regulator says losing one of those companies would be a fate too horrible to contemplate.
Given this, and the fact that KPMG escaped with a settlement and not a corporate indictment for selling tax shelters, it seems that the Big Four are, for the near future, effectively immunized from corporate indictment. Is that really a wise thing to say publicly?
Posted by dan at 04:25 PM
Condensed version of Federal Reserve Chairman Alan Greenspan's speech to National Association for Business Economics: I'm too darn good for the economy's good.
Posted by dan at 08:01 AM
In an article in today's Wall Street Journal entitled "Hinterland Ahoy!" urban expert Joel Kotkin suggests that some of the people whose homes were destroyed in the recent Hurricanes consider relocating to the Great Plains.
"More broadly, as a nation, we may want to consider ways to encourage greater develoment further inland. Americans have been crowding into the coasts for generations, even though one of our great assets is the broad interior hinterland. . .Instead of offering "homesteads" or funds for repeated rebuildings on the crowded, and sometimes dangerous, coasts--particularly in below-sea-level New Orleans--it might make more sense to encourage settlement and investment deeper into our nation's interior."
Well, it sure makes sense. And similar arguments are frequently made by tax- and regulation-phobes like the editors of Forbes. Forbes editor Rich Karlgaard also thinks more people should move to the Great Plains.
But this confirmd coast-dweller wonders why the "lets repopulate Montana and North Dakota" meme is frequently promoted by coast dwellers. Kotkin lives in Los Angeles, and is an Irvine Senior Fellow at the extraordinarily worthy Washington, D.C.-based New America Fondation (where I had the great pleasure of being a fellow in 2001).
There are a whole series of excellent economic, psychological, climactic, and political reasons why population is concentrated on the coasts, and why the Great Plains have been losing population. People like to live in and near the cities, where there are lots of good restaurants. It's easier to create businesses near transportation hubs, the better to reach distant markets. People like to eat seafood and sail boats on the ocean. They like to get gigs at foundations and think tanks, which are concentrated in New York and Washington. Or listen to great live music and eat beignets at the Cafe Du Monde, like you (once) could in New Orleans. They like to live in places where the economy is diversified, ane where there are a sufficiently large number of people that you can find and create communities of people who share your interests. In other words, people are jammed up on the expensive coasts because they want, and in many cases, need to be there.
If, as Kotkin argue,"With the Internet and small-jet travel, some of these areas, such as the Dakotas, are already showing signs of becomign more competitive in the national and global economy," why haven't he and more forward-looking intellectuals set up shop in Bismarck?
Posted by dan at 05:44 PM
Georgia's Republican Governor Sonny Perdue made a bold stand against high gas prices last week--by asking public schools to close for two days.
Andrew Ward reports, whilst barely containing laughter, in the Financial Times.
Growing jitters in the US about fuel shortages and surging petrol prices have been exposed in Georgia this week, where schools have been closed for two days to save energy.
Governor Sonny Perdue said the emergency measure would save 250,000 gallons of diesel used by school buses and an undetermined amount of petrol as parents and teachers stayed at home.All but four of Georgia's 181 school districts agreed to the governor's hastily made request on Friday to take a long weekend break until tomorrow. Governor Perdue made his decision as Hurricane Rita bore down on the Texas coast, threatening the heart of the US oil industry.
By reducing demand for fuel, he said, "we will have enough market power to hold down prices".
Imagine how much fuel could be saved if Georgia just shut school for the rest of the year! So what if the kids can't read, with all that market power of idle school buses brought to bear on the market, gas might fall to $1.50 per gallon.
Posted by dan at 04:26 PM
Match the rhetoric on energy conservation with the drifting presidency of a former Southern governor.
1. To further conserve energy, I'm proposing tonight an extra $10 billion over the next decade to strengthen our public transportation systems. And I'm asking you for your good and for your nation's security to take no unnecessary trips, to use carpools or public transportation whenever you can, to park your car one extra day per week, to obey the speed limit, and to set your thermostats to save fuel. Every act of energy conservation like this is more than just common sense -- I tell you it is an act of patriotism.
2. Two other points I want to make is, one, we can all pitch in by using -- by being better conservers of energy. I mean, people just need to recognize that the storms have caused disruption and that if they're able to maybe not drive when they -- on a trip that's not essential, that would helpful. The federal government can help, and I've directed the federal agencies nationwide -- and here's some ways we can help. We can curtail nonessential travel. If it makes sense for the citizen out there to curtail nonessential travel, it darn sure makes sense for federal employees. We can encourage employees to carpool or use mass transit. And we can shift peak electricity use to off-peak hours. There's ways for the federal government to lead when it comes to conservation.
A. George Bush, September 26, 2005.
B. Jimmy Carter, July 15, 1979.
Answer: 1B, 2A.
Posted by dan at 04:19 PM