****Docket number for this case is OST-2006-25612. ****
I ask that the DOT rule in favor of the HAL petition on the basis that this department must reaffirm the institution of property rights. HAL owns its planes and hires its employees without subsidy from the ASG, and it has the right to charge what it wants for its investment into the capital and labor that makes aviation to a remote location like American Samoa possible.
This is the foundation of free enterprise: The expectation of a company to reap the full rewards for the property that they build over time and despite risk drives people to venture into the unknown. Without this motivation, people would not have invented computers, air conditioners, washers/dryers, and all the other countless inventions that have saved us from the backbreaking labor of the past.
However, Governor Togiola’s executive order only serves to reinforce the idea that government can and should dictate the price mechanism of the free market. That if only enough constituents disagree or feel injured from the market price that government through democracy could vote the market price down. In my opinion, this is no different from a dictator ordering prices down upon whim.
We know what is really causing high airfares. US Cabotage laws that prohibit foreign competition, ASG excise taxes on fuel and overtime payments to ASG Customs and Immigration officials.
Instead of focusing its efforts on these issues, the local government thinks that attacking a private company with baseless rhetoric such as “predatory profits” and “highway robbery” is the best course of action. If the rule of law is not applied in American Samoa, then it will be wild-wild-west style politics that determines who gets to do what and at what price and that the only way to do business in AS is to buy some politician a fautasi boat for his district [in reference to McDonalds of AS buying a fautasi boat for the Governor's traditional district, Sua ma Vaifanua -- not included in original testimony].
NOTE: The U.S. federal government's Department of Transportation has a PDF of the above testimony over here while the DOT's profile of this testimony is here.
Thursday, September 07, 2006
Saturday, March 18, 2006
Economies of Scale
If you own a business that sells lemonade, you may charge $10 for one cup. Ten dollars, yeah right! Yet you may want to charge that much if you only had one customer, because you need $10 to pay for the lemons, the water, the pitcher, the spoons, the cups and the overhead. Luckily, a lot of people like lemonade that you can spread your costs on more than one consumer.
You understand that although you have the right to charge $10 for each cup of lemonade you make, you can make more money selling 100 cups for $1 a cup than one cup for $10. Plus, if you could get away with selling a cup of lemonade for $10 than I might just open a stand to undercut your ridiculous price. This is how the profit-motive and open competition set real, fair and moral prices in the marketplace.
What if there is a lemon celebration held one month out of the year? Obviously, you would expect to have more customers for that month, but you know that after the celebration, it will be business as usual. The rise in demand is only temporary, so instead of wasting money on buying more pitchers and spoons and opening more stands, it’s better to just raise the price. The last thing you want to do is buy more capital that you will not use after interest in lemons goes away. Unused capital just adds to the overhead.
But what if interest in lemons continues beyond that one month out of the year? Now you have the potential to sell more than 100 cups. By analyzing the market enough, you find that you can sell 1000 cups for $0.50 (50 cents) a cup. So you figure you can only produce a 1000 cups of lemonade by buying more pitchers and spoons and opening more stands. You make more money selling 1000 cups for $0.50 each than 100 cups for $1 each.
This proven economic model explains a couple of things for us. Peak times, like summertime for air travel or hurricane seasons for batteries, are only temporary rises in demand in those markets. Businesses know their markets enough to know when demand is temporary and when it is not. Like with the lemonade owner, businesses are not stupid to buy more capital in an attempt to meet a demand that will just disappear in no time.
Therefore, a higher demand in the short-run raises prices while a higher demand in the long-run lowers prices when there is an economies of scale, which is the lowering of average costs over more units sold.
Economies of scale also explains why Hawaiian Airlines charges different prices between different ports. There are more people traveling between Honolulu and California than there are between Honolulu and American Samoa. Thus, HAL profits more from its lower priced tickets to California than its higher priced tickets to American Samoa.
Yet HAL needs a competitor. But after deregulation of the US airline industry, spoiled American companies have not been able to adapt to life without welfare support. American Samoa is going to need a foreign competitor servicing its people, but we’re going to need a declaration of independence from US cabotage laws and the Jones Act that prohibit such competition.
Where is Togiola, Faleomavaega and Moliga on the Jones Act? If they can’t get us an exemption, then we should lay the blame for the high prices of our roundtrip tickets where it belongs -- at the feet of big government.
You understand that although you have the right to charge $10 for each cup of lemonade you make, you can make more money selling 100 cups for $1 a cup than one cup for $10. Plus, if you could get away with selling a cup of lemonade for $10 than I might just open a stand to undercut your ridiculous price. This is how the profit-motive and open competition set real, fair and moral prices in the marketplace.
What if there is a lemon celebration held one month out of the year? Obviously, you would expect to have more customers for that month, but you know that after the celebration, it will be business as usual. The rise in demand is only temporary, so instead of wasting money on buying more pitchers and spoons and opening more stands, it’s better to just raise the price. The last thing you want to do is buy more capital that you will not use after interest in lemons goes away. Unused capital just adds to the overhead.
But what if interest in lemons continues beyond that one month out of the year? Now you have the potential to sell more than 100 cups. By analyzing the market enough, you find that you can sell 1000 cups for $0.50 (50 cents) a cup. So you figure you can only produce a 1000 cups of lemonade by buying more pitchers and spoons and opening more stands. You make more money selling 1000 cups for $0.50 each than 100 cups for $1 each.
This proven economic model explains a couple of things for us. Peak times, like summertime for air travel or hurricane seasons for batteries, are only temporary rises in demand in those markets. Businesses know their markets enough to know when demand is temporary and when it is not. Like with the lemonade owner, businesses are not stupid to buy more capital in an attempt to meet a demand that will just disappear in no time.
Therefore, a higher demand in the short-run raises prices while a higher demand in the long-run lowers prices when there is an economies of scale, which is the lowering of average costs over more units sold.
Economies of scale also explains why Hawaiian Airlines charges different prices between different ports. There are more people traveling between Honolulu and California than there are between Honolulu and American Samoa. Thus, HAL profits more from its lower priced tickets to California than its higher priced tickets to American Samoa.
Yet HAL needs a competitor. But after deregulation of the US airline industry, spoiled American companies have not been able to adapt to life without welfare support. American Samoa is going to need a foreign competitor servicing its people, but we’re going to need a declaration of independence from US cabotage laws and the Jones Act that prohibit such competition.
Where is Togiola, Faleomavaega and Moliga on the Jones Act? If they can’t get us an exemption, then we should lay the blame for the high prices of our roundtrip tickets where it belongs -- at the feet of big government.
Saturday, January 07, 2006
Blue Sky: the Sacrificial Lamb
I admit that my last letter (BYE BYE BLUE SKY) was overtly sarcastic, but everyone concerned should rest assured that the target of my sarcasm was not Blue Sky Corporation but the ASG. Thanks to Nancy (MISSED THE POINT) for helping to clarify, but I think it’s necessary to state more directly the essence of my last letter.
The $10 million LBJ loan puts Blue Sky at precarious odds with public sentiment. Public employees’ retirement checks are at stake. In the minds of many people, Blue Sky is not only an “enemy” of ASTCA, but also of LBJ and retirees. And all Blue Sky wants to do is make an honest buck servicing telecommunication consumers.
Government intervention, elaborate schemes and their plotters have gone too far this time around.
ASTCA has to beat $10 million plus 8% interest out of Blue Sky. ASTCA can do so in one of two ways: the moral way or the immoral way.
First, the moral way: Through its own efforts, ingenuity, creativity, productivity, efficiency and reliability lower its own costs and provide superior customer service, cooler products and lower prices.
The immoral way: Whine for federal and local funds and taxes to pay for their costs, borrow tax money from other government programs, use tax money to advertise, and/or lobby the ASG to do something about Blue Sky Corporation.
And the ASG has options: price controls, quotas, and meaningless regulations and licensing requirements. I wouldn’t be surprised if they’re sharpening their pens right this moment. I’m afraid ASTCA will settle for immorality.
My sincere hope is that Blue Sky Corporation continues to do what it does best. I hope they feel no qualms about lowering their prices or providing cooler cell phones or better customer service than ASTCA. I hope they maximize profits so that others would want to compete as well.
My sincere hope is that this whole redistribution scheme blows up in the government’s face. The ASG could have found money for LBJ by selling its government-owned boat (MV Sili for $4 million), selling the Governor’s airplane (Sega’ula for $500,000), not donating our $200,000 for Katrina relief efforts, selling its shares in the Rainmaker Hotel, recalling all its questionable DBAS loans, selling the jungle of a golf course, privatizing all public parks, and resisting increases in Fono allowances.
Instead of making its own sacrifices, the ASG decided to sacrifice Blue Sky.
The $10 million LBJ loan puts Blue Sky at precarious odds with public sentiment. Public employees’ retirement checks are at stake. In the minds of many people, Blue Sky is not only an “enemy” of ASTCA, but also of LBJ and retirees. And all Blue Sky wants to do is make an honest buck servicing telecommunication consumers.
Government intervention, elaborate schemes and their plotters have gone too far this time around.
ASTCA has to beat $10 million plus 8% interest out of Blue Sky. ASTCA can do so in one of two ways: the moral way or the immoral way.
First, the moral way: Through its own efforts, ingenuity, creativity, productivity, efficiency and reliability lower its own costs and provide superior customer service, cooler products and lower prices.
The immoral way: Whine for federal and local funds and taxes to pay for their costs, borrow tax money from other government programs, use tax money to advertise, and/or lobby the ASG to do something about Blue Sky Corporation.
And the ASG has options: price controls, quotas, and meaningless regulations and licensing requirements. I wouldn’t be surprised if they’re sharpening their pens right this moment. I’m afraid ASTCA will settle for immorality.
My sincere hope is that Blue Sky Corporation continues to do what it does best. I hope they feel no qualms about lowering their prices or providing cooler cell phones or better customer service than ASTCA. I hope they maximize profits so that others would want to compete as well.
My sincere hope is that this whole redistribution scheme blows up in the government’s face. The ASG could have found money for LBJ by selling its government-owned boat (MV Sili for $4 million), selling the Governor’s airplane (Sega’ula for $500,000), not donating our $200,000 for Katrina relief efforts, selling its shares in the Rainmaker Hotel, recalling all its questionable DBAS loans, selling the jungle of a golf course, privatizing all public parks, and resisting increases in Fono allowances.
Instead of making its own sacrifices, the ASG decided to sacrifice Blue Sky.
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