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Travel and tourism stocks
show unexpected resilienceMY FORMER managing editor credited his own rapid rise through newsroom ranks to a management technique: Leave really stinky problems alone. If you don't make the all-too-common mistake of trying to fix them, he observed, many crises solve themselves.
Intervention usually causes more problems than it solves, he said: "Just look at Vietnam."
Whether through ineptness or wisdom, our Legislature seems to be taking his advice, responding to Hawaii's post-Sept. 11 economic crisis with little besides an emergency package of short-term health and welfare measures.
Meanwhile, we've had to hope that the resilience built into the U.S. economy does the job for us, and there is now welcome evidence that it will -- if it hasn't already.
A story in Thursday's Wall Street Journal, headlined "Stocks Rebound Defies the Pundits," spelled out what has happened to the value of company stocks in industries that were clobbered by the fallout from Sept. 11 terrorist attacks.
The National Bureau of Economic Research declared the nation was in recession shortly after the attacks, but the Journal now reports "the actual downturn appears to have been mild and already may have ended."
Now that the dot-com and Enron bubbles have burst and stock prices once again reflect company profits or the reasonable expectation of profits, the market is a credible economic barometer. Surprisingly, the Dow Jones Industrial Average is up 8.1 percent since Sept. 10.
The Dow hovered at about 10,200 this week after dipping to about 8,600 during the week of Sept. 17. That's a gain of 18.6 percent from last fall's trough.
More important for us in Hawaii, stocks of many travel and tourism companies are doing even better than the stock market as a whole. Immediately after the attacks, hotel stocks dropped 32 percent and casinos 31 percent.
Since then, hotel stocks have surged 22 percent and casino stocks have done even better, gaining 25.7 percent -- not from their post-Sept. 11 lows, but since Sept. 10!
Even the Walt Disney Company, which was expected to suffer for months, has recovered all its losses and is up since Sept. 10, albeit a meager 2 percent.
The significant exception is the airline industry. Overall, airline stocks are still down more than 9 percent since Sept. 10, despite the infusion of $15 billion in cash by the federal government.
United Airlines, for example, saw parent UAL Corp.'s stock drop to $9.40 a share, from more than $30. On Friday it closed at $15.74, still down more than 50 percent. Hawaiian Airlines' stock has fared little better than United's. Aloha isn't publicly traded.
Hawaiian lost $10.2 million in the fourth quarter of 2001 despite being bailed out to the tune of $22.3 million. Aloha received $7.7 million from the feds and still posted a quarterly loss of $12 million.
Besides enduring the post-Sept. 11 drop in passengers, the two airlines racked up $9.2 million in expenses from their failed merger attempt. Aloha says it paid $6 million for merger-related legal, professional and consulting fees while Hawaiian reported it spent $3.2 million.
Without these merger costs, Hawaiian's loss would have been $7 million and Aloha's $6 million -- bad, but we've seen worse. In the fourth quarter of 2000, for example the two airlines lost a combined $22.7 million.
Despite this, Hawaiian posted a profit of $5 million for all of 2001, and Aloha CEO Glen Zander says, "Most of the bad news is behind us. We actually have quite a cash reserve of $30 million."
Reassuringly, there have been no major airline bankruptcies since Sept. 11 and the industry appears to be re- covering after bottoming out. Lucky for Hawaii, the problem isn't that vacationers aren't flying again, but that business travel is still down.
Like deer frozen in the headlights, most of us watched our 401(k) balances tank last fall and failed to seize the opportunity. Many investors sold stock at garage-sale prices or moved retirement money out of stock funds, worried that values would continue to fall.
The experts say this behavior is normal following a cataclysm like a declaration of war. The result is that savvy investors snap up shares at bargain prices. As John D. Rockefeller said, "The way to make money is to buy when blood is running in the streets." Profiting from disaster is ugly, but historically it's been part of the healing process.
So is just waiting out the crisis, resisting the impulse to fix it.
John Flanagan is the Star-Bulletin's contributing editor.
He can be reached at: jflanagan@starbulletin.com.