Friday, October 17, 2008
For all graphs and clickable links see:
http://alohaanalytics.blogspot.com/2008/10/oil-price-changing-short-term...

Editor's Note -- An ABC Video has since come out on Oct. 20, 2008 on these matters: http://cosmos.bcst.yahoo.com/up/player/popup/index.php?cl=10291122

"Oil Price Changing Short-term Outlook for Hawaii"

Don't blink while watching these financial markets, you might have missed the significance of what has happened to oil prices.

Of course here in Hawaii we see it at the gas pump, first time in more than a decade that gas prices don't seem to be "sticky" at high prices when the price per barrel of oil came down.

Oil was at it's all time high price per barrel this past July 11, 2008, at $147/barrel, when gas prices in much of Hawaii were about $5/gallon. The state was in real trouble at that point. Now with presumed deflationary events in the wider economy and credit markets, most consumable commodities have come down 30 to 50% in the past 3 months. Oil is at $71/barrel as of today, Oct. 17, 2008, and gasoline in Hawaii is below $4.00/gallon even on the outer islands.

Also of interest and importance, jet fuel is down 48% from its high in July 2008, now equal to the price that it was at in early Sept. 2007, when things started to go south. Marine diesel fuel (MDO) is down 30% from its high in July 2008. Other noteable commodities, such as steel and aluminium, are also off their highs.

Regarding the perceived general downturn in the economy on the mainland, it is worthwhile to note from: http://www.npr.org/templates/story/story.php?storyId=94921465

"There are about 51 million first mortgages in the United States right now — but only about 1.4 million of them are either referred for foreclosure or in foreclosure, said Mortgage Bankers Association chief economist Jay Brinkmann. In other words, fewer than 3 percent of American homes with mortgages are in foreclosure. The problem is this: Those bad loans are having an outsized impact on the financial world. They are mixed with good loans in securities that are crippling investment banks."

We propose that +90% of the homeowners on the mainland are still doing well and can travel this Winter and that the less than 5% under distress were not likely significant travelers to Hawaii anyway.

The vast majority of repeat travelers to Hawaii can still afford to come here and now with jet fuel costs HALF of what they were a year ago, airlines can afford to lower their airfares to Hawaii substantially and have already begun to do so. In fact, in the past week, we are already seeing an uptick in visitors to Hawaii independent of normal seasonality.

We believe what drove down visitor arrivals to Hawaii over the past half year or more was mostly high gasoline and jet fuel costs resulting in higher diminishing marginal return airfares, and we should now move past that at current fuel costs, at least for the time being. We believe this could last at least for this Winter season regardless of macroeconomic events on the mainland, short of a complete market collapse.

It is unfortunate Aloha Air and ATA could not last until now. Amazing that Go! Airline lasted to this point. Look for Go! or another airline to expand their interisland services and for Hawaiian to slowly lower their interisland airfares. Look for flights to and from the mainland to come down by at least 25% from the past Summer's high prices. Now is the time for the Hawaii Visitors Bureau and each island's Visitors Bureau to push some hard marketing pointing out the deals that travelers to Hawaii can get now and increasingly so in the months ahead.

By these events, with total luck Hawaii now has additional time to react to energy events. The outer islands still have to push hard to reduce their dependence upon oil-based energy, as oil prices will go back up again; we now have some breathing room to work with. On Kauai, KIUC needs to act now on the opportunity to begin a hedging strategy that their board and executive officers recently mentioned to the public that they would like to start should prices in the market allow for such a staggered hedging strategy to begin. Well, in the past few weeks, that opportunity at hedging has unexpectedly begun to present itself. It's time to act before that opportunity evaporates away. Furthermore, at these fuel prices, the Visitor Industry has at least a better Winter season to look forward to. Spread the word, happy days are hear again, sort of.

Timely reports and video today on oil and energy markets and expectations:
Report on price and OPEC: http://www.cnbc.com/id/27228164
Video on price expectations: http://www.cnbc.com/id/27236547

For more links to historical and current fuel prices click here.

Aloha, Brad