hey tis video kinda explains why oil prices are increasing and how its affecting the consumers and producers
link's below pls watch it if ure free =)
http://youtube.com/watch?v=xbKVJRv-OI4
twinky
Saturday, June 7, 2008
Friday, May 23, 2008
Oil prices fuel tourism downturn, Things could get worse for Hawaii, the visitor industry says
italics- highlighted, in red- comments
By Allison Schaefers
aschaefers@starbulletin.com
Friday, May 23, 2008
Visitor-industry executives and officials are facing worrisome signs that the recent spike in oil prices is starting to hurt tourism to Hawaii.
"We've definitely seen a reduction," said Jack E. Richards, president and chief executive officer of California-based Pleasant Holidays LLC, the largest wholesaler of Hawaii tours. "It's correlated with oil and the price of the fares and fuel surcharges."
The price of oil, which has jumped 13 percent in the past month and has nearly doubled from the prior year, has triggered higher fares and surcharges globally, and carriers that serve Hawaii are no exception.
Oil (fuel) is an important component of the raw materials required in the airline industry. Hence, and increase in oil prices equates to the increase in cost of production. A rise in cost of production will lead to a decrease in quantity supplied. Thus, the supply curve shifts leftward, and equilibrium price increases while equilibrium output decreases. Therefore, the increase in oil prices has triggered higher fares and surcharges globally.
Now there are early indications that the increase is cutting into demand for travel to the islands
When price of air fares increase, quantity demanded for it will decrease more than proportionately. This is because air tickets is considered to be a luxurious good (nature of good) and consists of a high proportion of income spent. Hence, there will be an upward movement of the original equilibrium point on the demand curve, resulting in a decrease in quantity demanded for air tickets caused by the increase in price.
While both May and June look strong for Pleasant Holidays and its sister company Hawaii World, bookings for July and August are weak, Richards said.
"The booking window is 90 to 120 days out, so most of the travel for May and June was booked before the worst of the fuel surcharges hit," he said. "The downturn in April's visitor numbers are a sign of what's coming, and it could get worse. If oil goes up to $150 a barrel, the airlines will park their airplanes."
Add to that the country's general economic woes, and "you almost have a perfect storm," Richards said.
State Tourism Liaison Marsha Wienert said no one knows at what point fuel prices will stabilize, but the answer has a huge impact on the local economy.
On top of the fuel crisis, Hawaii's visitor industry was already grappling with the loss of nearly 15 percent of its airline capacity as a result of the abrupt closures of ATA and Aloha airlines last month.
Please refer to Yanjun’s article- Fares will soar, Senate hears, for more details.
Rising fuel costs are only part of the problem, said Rex Johnson, Hawaii Tourism Authority president and chief executive officer.
"You can't attribute our problems to just fuel costs and the loss of ATA and Aloha," Johnson said. "It's all that combined with the mortgage crunch, volatility of the stock market and the U.S. economy about to become recessive. All of those things certainly give one cause to stay up late at night and think."
*Ceteris paribus does not hold true in reality.
“U.S economy about to become recessive”. à When a country’s economy is undergoing recession, demand for inferior goods will rise and hence, the airline industry should raise production of low-end goods (such as introducing or promoting budget airline- low quality of service/no frills/less frequent air travel services provided) so as to increase total revenue and cut down on the cost of production.
Wienert said that airfares are not the only way in which fuel costs can affect potential visitors.
"It's not only about airline costs; travel demand is also influenced by how much it costs to heat or cool your house and drive your car," Wienert said.
Due to the weakening of the U.S economy, quantity demanded of the air tickets will decrease significantly, as people will not want to travel unnecessarily so as to cut back on their expenses. For example, families may not go for their holiday trips (since air ticket is considered a luxurious good), businessmen will avoid overseas business trips etcetera. Therefore, travel demand decreases, which can be illustrated by an upward movement of the original equilibrium point on the demand curve.
In this kind of environment, Hawaii's challenge will be to convince people that travel is good for them, she said.
"Our message is that travel can relieve some of the stressors that people face today," she said.
The HTA, the Hawaii Visitors and Convention Bureau and the rest of the visitor industry will spend between $3 million and $4.5 million on marketing efforts to bring in Hawaii bookings to help protect against further cutbacks, Johnson said.
"To make sure that we will all be in the yield game rather than the market-share game, we need to drive demand," Johnson said, adding that strong demand is the only thing that will position Hawaii to weather any future airline cutbacks.
"My guess is that after the summer season more airlines will be cutting capacity," Johnson said. "We want to make sure that they don't have a reason to cut any of our flights."
Source: http://starbulletin.com/2008/05/23/news/story01.html
Love,
Zijia
By Allison Schaefers
aschaefers@starbulletin.com
Friday, May 23, 2008
Visitor-industry executives and officials are facing worrisome signs that the recent spike in oil prices is starting to hurt tourism to Hawaii.
"We've definitely seen a reduction," said Jack E. Richards, president and chief executive officer of California-based Pleasant Holidays LLC, the largest wholesaler of Hawaii tours. "It's correlated with oil and the price of the fares and fuel surcharges."
The price of oil, which has jumped 13 percent in the past month and has nearly doubled from the prior year, has triggered higher fares and surcharges globally, and carriers that serve Hawaii are no exception.
Oil (fuel) is an important component of the raw materials required in the airline industry. Hence, and increase in oil prices equates to the increase in cost of production. A rise in cost of production will lead to a decrease in quantity supplied. Thus, the supply curve shifts leftward, and equilibrium price increases while equilibrium output decreases. Therefore, the increase in oil prices has triggered higher fares and surcharges globally.
Now there are early indications that the increase is cutting into demand for travel to the islands
When price of air fares increase, quantity demanded for it will decrease more than proportionately. This is because air tickets is considered to be a luxurious good (nature of good) and consists of a high proportion of income spent. Hence, there will be an upward movement of the original equilibrium point on the demand curve, resulting in a decrease in quantity demanded for air tickets caused by the increase in price.
While both May and June look strong for Pleasant Holidays and its sister company Hawaii World, bookings for July and August are weak, Richards said.
"The booking window is 90 to 120 days out, so most of the travel for May and June was booked before the worst of the fuel surcharges hit," he said. "The downturn in April's visitor numbers are a sign of what's coming, and it could get worse. If oil goes up to $150 a barrel, the airlines will park their airplanes."
Add to that the country's general economic woes, and "you almost have a perfect storm," Richards said.
State Tourism Liaison Marsha Wienert said no one knows at what point fuel prices will stabilize, but the answer has a huge impact on the local economy.
On top of the fuel crisis, Hawaii's visitor industry was already grappling with the loss of nearly 15 percent of its airline capacity as a result of the abrupt closures of ATA and Aloha airlines last month.
Please refer to Yanjun’s article- Fares will soar, Senate hears, for more details.
Rising fuel costs are only part of the problem, said Rex Johnson, Hawaii Tourism Authority president and chief executive officer.
"You can't attribute our problems to just fuel costs and the loss of ATA and Aloha," Johnson said. "It's all that combined with the mortgage crunch, volatility of the stock market and the U.S. economy about to become recessive. All of those things certainly give one cause to stay up late at night and think."
*Ceteris paribus does not hold true in reality.
“U.S economy about to become recessive”. à When a country’s economy is undergoing recession, demand for inferior goods will rise and hence, the airline industry should raise production of low-end goods (such as introducing or promoting budget airline- low quality of service/no frills/less frequent air travel services provided) so as to increase total revenue and cut down on the cost of production.
Wienert said that airfares are not the only way in which fuel costs can affect potential visitors.
"It's not only about airline costs; travel demand is also influenced by how much it costs to heat or cool your house and drive your car," Wienert said.
Due to the weakening of the U.S economy, quantity demanded of the air tickets will decrease significantly, as people will not want to travel unnecessarily so as to cut back on their expenses. For example, families may not go for their holiday trips (since air ticket is considered a luxurious good), businessmen will avoid overseas business trips etcetera. Therefore, travel demand decreases, which can be illustrated by an upward movement of the original equilibrium point on the demand curve.
In this kind of environment, Hawaii's challenge will be to convince people that travel is good for them, she said.
"Our message is that travel can relieve some of the stressors that people face today," she said.
The HTA, the Hawaii Visitors and Convention Bureau and the rest of the visitor industry will spend between $3 million and $4.5 million on marketing efforts to bring in Hawaii bookings to help protect against further cutbacks, Johnson said.
"To make sure that we will all be in the yield game rather than the market-share game, we need to drive demand," Johnson said, adding that strong demand is the only thing that will position Hawaii to weather any future airline cutbacks.
"My guess is that after the summer season more airlines will be cutting capacity," Johnson said. "We want to make sure that they don't have a reason to cut any of our flights."
Source: http://starbulletin.com/2008/05/23/news/story01.html
Love,
Zijia
Fares will soar, Senate hears
Aloha Airlines' CEO tells a committee that round trips to Hawaii will go up by $200
By Dave Segal dsegal@starbulletin.com
Red-Highlighted Italics-Comments
The average fare from the mainland to Hawaii could rise by $200 per round trip due to the shutdowns of Aloha Airlines and ATA Airlines, the chief executive of the Hawaii-based carrier testified yesterday at a U.S. Senate committee hearing in Washington, D.C.
Decrease in supply- price increases. Another factor leading to the increase in price may be that there will be fewer airline firms and hence the price elasticity of demand for air transport by these remaining firms will decrease, therefore the firms can increase the fares to increase revenue.
David Banmiller also told the Senate Committee on Commerce, Science and Transportation that interisland fares "certainly" will escalate to the levels where they were before Mesa Air Group's go! entered the Hawaii market in June 2006. Those fares were about $172 per round trip, almost double what they are now for the lowest fares.
In a hearing to assess Hawaii's air-service market, Banmiller testified that "predatory pricing" by Mesa Air Group's go!, along with record-high fuel prices, forced Aloha to cease passenger operations after no potential buyers could be found.
The practice of predatory pricing- selling below cost to drive out competitors.
Cross elasticity of demand- a positive cross elasticity of demand exists between air transport services provided by Mesa and Aloha since the two are substitutes. Hence a decrease in the fare charged by Mesa brought about a decrease in the quantity demanded of Aloha’s services.
Banmiller said he continues to hold out hope that investors would look at resurrecting Aloha's passenger operations, but he is not optimistic. He said there are 40 interested parties, including five that are serious, for the company's profitable cargo business.
Risk-bearing economies- diversification into cargo business apart from passenger airline services, such that the firm may still survive when demand for passenger airline services decrease as this may be offset by higher demand in cargo business.
If mainland-Hawaii tickets do rise by $200, it will not happen right away, said Rick Seaney, CEO of ticket-pricing Web site FareCompare.com.
"I think what happens is in a few months you'll see a shakeout where they will start to creep up, and you won't see any competitive pressure to pull them down," Seaney said. "Two weeks from now, airlines aren't going to raise their price $200 to Hawaii. But it could happen over the next two years if you don't see somebody jumping in to fly those routes. It could be a sticker shock two years from now."
Market structure of monopoly/oligopoly after shutdown of 2 airline companies- lack of competition, demand becomes less price elastic and producers can raise the price of air tickets to increase revenue since consumers are unable to turn to other alternatives.
Banmiller said that although the Airline Deregulation Act of 1978 opened the playing field of competition, deregulation has proved to be potentially harmful in achieving stable air transportation service for smaller regional markets like Hawaii.
Banmiller cited the collapse of Hawaii-based airlines Mid-Pacific, Mahalo and Discovery, and two bankruptcy filings each by Hawaiian Airlines and Aloha.
"Deregulation only (affected) the revenue side of the business, not the cost side," Banmiller said. "And despite deregulation 30 years ago, the airline industry continues to be one of the most heavily regulated and taxed businesses in America."
Deregulation: process by which governments remove, reduce, or simplify restrictions on business and individuals with the intention of encouraging the efficient operation of markets (source: www. wikipedia.org)
Taxation is viewed as an increase in the cost of production by producers.
U.S. Sen. Gordon Smith of Oregon, a Republican, asked Banmiller whether he thought the airline industry should be re-regulated, but Banmiller said it was too late for that.
"I don't think toothpaste can be put back in the tube," Banmiller said. "I think for the state of Hawaii it was a problem because it wasn't geographically considered."
Democratic U.S. Sen. Daniel Inouye of Hawaii, who chairs the committee, asked Banmiller whether the U.S. Department of Transportation was aware of Aloha's concerns about predatory pricing. Banmiller said he had spoken to two directors at the DOT, as well as attorneys for the Department of Justice.
"And what was their action or response?" Inouye asked.
"'We'll look into it,' and that's all l heard," Banmiller said. "When we followed up ... the comment back ... was that predatory pricing is very hard to define, and our interest is for the consumer and low fares."
Michael Reynolds, the DOT's acting assistant secretary of transportation for Aviation and International Affairs, said Aloha's claim was different from past predatory-pricing claims by other airlines because it usually is the new entrant coming into the market that complains about the incumbent carrier lowering prices and dumping capacity.
"At least initially, it didn't have the look of the traditional case we've seen in the past," Reynolds said.
Jonathan Ornstein, chairman and CEO of Mesa, said in an interview last night that "the DOT had it right."
"We entered the market with 7 percent of the capacity, offered low fares, and the incumbent carriers did exactly what the definition of predatory pricing is, and added significant capacity to push us out of the market."
Charles Willis, owner and chairman of Hawaii-based Island Air, testified that his airline has lost $5 million and seen a 30 percent drop in revenue since go! entered the market. Willis said Island Air was forced to cease nonstop service to eight neighbor island markets, cut scheduled flights by 38 percent and lay off 40 percent of its work force.
He said Island Air intends to restart service to the eight city pairs it eliminated, hire laid-off Island Air and Aloha employees and add more routes. He also said Island Air plans to bring in up to three de Havilland Dash 8s for the summer, as well as bring back Q-400s by mid- to late summer if warranted.
The airline industry involves high set-up costs due to the capital and technology involved, hence there is great potential for reducing the average cost of production. There is significant internal economies of scale and the LRAC falls over a large range of output.
Expansion of the firm to enjoy internal EOS:
-Technical Economies: indivisibilities of capital- the firm can spread the fixed costs of aircrafts over larger output levels, lowering unit costs.
-Marketing Economies: bulk purchase of in-flight meals, fuel for engines. Large-scale advertising to differentiate air travel services such that demand becomes less price elastic. The advertising cost per unit per be lower for a firm producing at a higher output.
-Financial Economies: with higher sales volume and more assets to offer as collateral, it will be deemed to be more credit-worthy by lenders. It will also enjoy lower interest rates when it borrows a large sum of money.
-Risk-bearing Economies: with a larger market share, the company can predict the demand for air travel more accurately.
-Administrative and Managerial Economies: with higher output, the cost of administration, which generally does not rise with level of output, will be much reduced per unit of output.
Willis said Island Air needs the committee's support in getting the Hawaii Legislature to pass bills that exempt airlines from the fuel tax and provide loan guarantees.
http://starbulletin.com/2008/04/11/news/story03.html
Yanjun :)
By Dave Segal dsegal@starbulletin.com
Red-Highlighted Italics-Comments
The average fare from the mainland to Hawaii could rise by $200 per round trip due to the shutdowns of Aloha Airlines and ATA Airlines, the chief executive of the Hawaii-based carrier testified yesterday at a U.S. Senate committee hearing in Washington, D.C.
Decrease in supply- price increases. Another factor leading to the increase in price may be that there will be fewer airline firms and hence the price elasticity of demand for air transport by these remaining firms will decrease, therefore the firms can increase the fares to increase revenue.
David Banmiller also told the Senate Committee on Commerce, Science and Transportation that interisland fares "certainly" will escalate to the levels where they were before Mesa Air Group's go! entered the Hawaii market in June 2006. Those fares were about $172 per round trip, almost double what they are now for the lowest fares.
In a hearing to assess Hawaii's air-service market, Banmiller testified that "predatory pricing" by Mesa Air Group's go!, along with record-high fuel prices, forced Aloha to cease passenger operations after no potential buyers could be found.
The practice of predatory pricing- selling below cost to drive out competitors.
Cross elasticity of demand- a positive cross elasticity of demand exists between air transport services provided by Mesa and Aloha since the two are substitutes. Hence a decrease in the fare charged by Mesa brought about a decrease in the quantity demanded of Aloha’s services.
Banmiller said he continues to hold out hope that investors would look at resurrecting Aloha's passenger operations, but he is not optimistic. He said there are 40 interested parties, including five that are serious, for the company's profitable cargo business.
Risk-bearing economies- diversification into cargo business apart from passenger airline services, such that the firm may still survive when demand for passenger airline services decrease as this may be offset by higher demand in cargo business.
If mainland-Hawaii tickets do rise by $200, it will not happen right away, said Rick Seaney, CEO of ticket-pricing Web site FareCompare.com.
"I think what happens is in a few months you'll see a shakeout where they will start to creep up, and you won't see any competitive pressure to pull them down," Seaney said. "Two weeks from now, airlines aren't going to raise their price $200 to Hawaii. But it could happen over the next two years if you don't see somebody jumping in to fly those routes. It could be a sticker shock two years from now."
Market structure of monopoly/oligopoly after shutdown of 2 airline companies- lack of competition, demand becomes less price elastic and producers can raise the price of air tickets to increase revenue since consumers are unable to turn to other alternatives.
Banmiller said that although the Airline Deregulation Act of 1978 opened the playing field of competition, deregulation has proved to be potentially harmful in achieving stable air transportation service for smaller regional markets like Hawaii.
Banmiller cited the collapse of Hawaii-based airlines Mid-Pacific, Mahalo and Discovery, and two bankruptcy filings each by Hawaiian Airlines and Aloha.
"Deregulation only (affected) the revenue side of the business, not the cost side," Banmiller said. "And despite deregulation 30 years ago, the airline industry continues to be one of the most heavily regulated and taxed businesses in America."
Deregulation: process by which governments remove, reduce, or simplify restrictions on business and individuals with the intention of encouraging the efficient operation of markets (source: www. wikipedia.org)
Taxation is viewed as an increase in the cost of production by producers.
U.S. Sen. Gordon Smith of Oregon, a Republican, asked Banmiller whether he thought the airline industry should be re-regulated, but Banmiller said it was too late for that.
"I don't think toothpaste can be put back in the tube," Banmiller said. "I think for the state of Hawaii it was a problem because it wasn't geographically considered."
Democratic U.S. Sen. Daniel Inouye of Hawaii, who chairs the committee, asked Banmiller whether the U.S. Department of Transportation was aware of Aloha's concerns about predatory pricing. Banmiller said he had spoken to two directors at the DOT, as well as attorneys for the Department of Justice.
"And what was their action or response?" Inouye asked.
"'We'll look into it,' and that's all l heard," Banmiller said. "When we followed up ... the comment back ... was that predatory pricing is very hard to define, and our interest is for the consumer and low fares."
Michael Reynolds, the DOT's acting assistant secretary of transportation for Aviation and International Affairs, said Aloha's claim was different from past predatory-pricing claims by other airlines because it usually is the new entrant coming into the market that complains about the incumbent carrier lowering prices and dumping capacity.
"At least initially, it didn't have the look of the traditional case we've seen in the past," Reynolds said.
Jonathan Ornstein, chairman and CEO of Mesa, said in an interview last night that "the DOT had it right."
"We entered the market with 7 percent of the capacity, offered low fares, and the incumbent carriers did exactly what the definition of predatory pricing is, and added significant capacity to push us out of the market."
Charles Willis, owner and chairman of Hawaii-based Island Air, testified that his airline has lost $5 million and seen a 30 percent drop in revenue since go! entered the market. Willis said Island Air was forced to cease nonstop service to eight neighbor island markets, cut scheduled flights by 38 percent and lay off 40 percent of its work force.
He said Island Air intends to restart service to the eight city pairs it eliminated, hire laid-off Island Air and Aloha employees and add more routes. He also said Island Air plans to bring in up to three de Havilland Dash 8s for the summer, as well as bring back Q-400s by mid- to late summer if warranted.
The airline industry involves high set-up costs due to the capital and technology involved, hence there is great potential for reducing the average cost of production. There is significant internal economies of scale and the LRAC falls over a large range of output.
Expansion of the firm to enjoy internal EOS:
-Technical Economies: indivisibilities of capital- the firm can spread the fixed costs of aircrafts over larger output levels, lowering unit costs.
-Marketing Economies: bulk purchase of in-flight meals, fuel for engines. Large-scale advertising to differentiate air travel services such that demand becomes less price elastic. The advertising cost per unit per be lower for a firm producing at a higher output.
-Financial Economies: with higher sales volume and more assets to offer as collateral, it will be deemed to be more credit-worthy by lenders. It will also enjoy lower interest rates when it borrows a large sum of money.
-Risk-bearing Economies: with a larger market share, the company can predict the demand for air travel more accurately.
-Administrative and Managerial Economies: with higher output, the cost of administration, which generally does not rise with level of output, will be much reduced per unit of output.
Willis said Island Air needs the committee's support in getting the Hawaii Legislature to pass bills that exempt airlines from the fuel tax and provide loan guarantees.
http://starbulletin.com/2008/04/11/news/story03.html
Yanjun :)
Thursday, May 22, 2008
Impact of fuel prices not that significant yet
Oil prices at the current levels will not dampen the demand for cars in Malaysia but if they continue to rise, demand for bigger engine cars would be affected.
Second Finance Minister Tan Sri Nor Mohamed Yakcop was recently reported as saying that the review of the subsidies did not necessarily mean a reduction in the fuel subsidies, and stressed that the review was unrelated to the general election.
An analyst with a local brokerage said a fuel subsidy cut appeared unavoidable, but the Government would have to tread carefully on the matter.
MIMB Investment bank analyst Rosnani Rasul expects at least a 30 sen hike in petrol price this year, saying the Government could no longer subsidise the oil price at high levels.
“If price of petrol continues to rise, some consumers might become more prudent in their petrol consumption and would opt for a smaller engine car, thus affecting sales of big engine cars,” she said.
Rosnani also cautioned that PLUS Expressways Bhd was still negotiating toll hikes with the Government and any toll hike would discourage people from using toll highways and buying big-engine cars.
However, she expects a 5% growth in vehicle sales this year.
Analysts said fuel-efficient cars might attract increased interest. They said Toyota's models and Perodua's MyVi might stand to benefit due to their fuel-efficiency.
Fuel-efficient cars may be an (imperfect) substitute for cars. CED>1, and is positive. While they may provide the same level of comfort as ordinary petrol-run cars, it is more difficult to obtain the alternative fuels (such as natural gas) since they are only available at limited petrol stations.
“Consumers might complain about rising petrol prices (if it happens), but without a reliable public transportation system, owning a car is important,” an analyst said, adding that public transportation fares would eventually be increased as well.
He said the rise in petrol prices would not dampen the demand for cars because the cost of petrol relative to the cost of a car in Malaysia was almost immaterial, unlike in other countries where petrol was more expensive.
He also said that petrol prices would not impact the sale of commercial vehicles, as they would be needed to conduct business.
Commercial vehicles are more price inelastic since they are deemed as a necessity especially by businessmen/ salesmen/ people making deliveries, as compared to cars being a luxurious good to most other people.
Analysts pointed out that hybrid cars, which run on petrol and electricity, would be the trend going forward. They believed it was just a matter of time before they caught up to normal cars.
“These (hybrid) cars are still relatively expensive compared with normal cars and have limited support in Malaysia,” he said.
The key factors expected to drive growth include demand from buyers wishing to replace their cars, a favourable economic environment and new model variants throughout most segments.
http://biz.thestar.com.my/news/story.asp?ile=/2008/1/14/business/19975167&sec=business
yuxi :)
Changes in price of related goods will affect consumer demand. In this case, petrol and cars are complements (jointly demanded as they are used in combination to satisfy consumer wants), a rise in petrol price will lead to a fall in demand especially for cars with bigger engines since it will require more petrol.
“Petrol remains affordable because it is subsidised by the Government. While high petrol prices may deter some people from buying a car with a higher cc engine, the impact would be minimal because these vehicles, bought by the higher income group, have lower price elasticity of demand,” an analyst said.
For the higher income, the proportion of income that is spent on big cars (and therefore, petrol) is less than that of the middle/lower income. This makes their demand for cars (and hence, petrol) less price elastic.
On Jan 3, New York's light sweet crude reached a record high of US$100.09 per barrel while London's Brent crude hit a historic peak of US$98.50.
The Government is expected to unveil a new subsidy scheme whereby the rich will pay more for fuel and the poor less.
Subsidization occurs whenever the government uses its power to redistribute wealth or access. It probably aims to narrow the income disparity between the rich and the poor. the provision of such services has a strong moral justification and virtually no environmental side-effects. These are clearly of good subsidies, at least in intent. However, when these subsidies are not well targeted and expensive, substantial public resources are diverted from programs that could be of great benefit to the truly poor in society. (http://www.eoearth.org/article/Subsidies_and_market_interventions)
The current petrol price is RM1.92 per litre.
Second Finance Minister Tan Sri Nor Mohamed Yakcop was recently reported as saying that the review of the subsidies did not necessarily mean a reduction in the fuel subsidies, and stressed that the review was unrelated to the general election.
An analyst with a local brokerage said a fuel subsidy cut appeared unavoidable, but the Government would have to tread carefully on the matter.
MIMB Investment bank analyst Rosnani Rasul expects at least a 30 sen hike in petrol price this year, saying the Government could no longer subsidise the oil price at high levels.
“If price of petrol continues to rise, some consumers might become more prudent in their petrol consumption and would opt for a smaller engine car, thus affecting sales of big engine cars,” she said.
Rosnani also cautioned that PLUS Expressways Bhd was still negotiating toll hikes with the Government and any toll hike would discourage people from using toll highways and buying big-engine cars.
However, she expects a 5% growth in vehicle sales this year.
Analysts said fuel-efficient cars might attract increased interest. They said Toyota's models and Perodua's MyVi might stand to benefit due to their fuel-efficiency.
Fuel-efficient cars may be an (imperfect) substitute for cars. CED>1, and is positive. While they may provide the same level of comfort as ordinary petrol-run cars, it is more difficult to obtain the alternative fuels (such as natural gas) since they are only available at limited petrol stations.
“Consumers might complain about rising petrol prices (if it happens), but without a reliable public transportation system, owning a car is important,” an analyst said, adding that public transportation fares would eventually be increased as well.
He said the rise in petrol prices would not dampen the demand for cars because the cost of petrol relative to the cost of a car in Malaysia was almost immaterial, unlike in other countries where petrol was more expensive.
He also said that petrol prices would not impact the sale of commercial vehicles, as they would be needed to conduct business.
Commercial vehicles are more price inelastic since they are deemed as a necessity especially by businessmen/ salesmen/ people making deliveries, as compared to cars being a luxurious good to most other people.
Analysts pointed out that hybrid cars, which run on petrol and electricity, would be the trend going forward. They believed it was just a matter of time before they caught up to normal cars.
“These (hybrid) cars are still relatively expensive compared with normal cars and have limited support in Malaysia,” he said.
Hybrid cars seem to be an upcoming trend yet the demand for such a product will depend on consumers' taste and preference. Advertising by companies producing hybrid cars would help create wants in consumers and create awareness of this type of car.
On the other hand, consumers may expect the price of petrol to go up futher and may consider buying a hybrid car to save on petrol costs in the long run.
However since hybrid cars are 'relatively expensive' they are likely to take up a larger proportion of consumer income, which may deter some consumers from buying it.
He added that although hybrid cars had limited acceptance here, the demand for those cars were very strong globally, especially in the US.
Since hybrid cars and normal cars are substitutes. When the price of petrol decreases, the demand for normal cars will increase, leading to a decrease in demand for its substitute, hybrid cars.
He expects Perusahaan Otomobil Kedua Sdn Bhd (Perodua) to continue to perform while Proton should still do “alright” despite all the negative publicity it had been receiving.
According to the Malaysian Automotive Association (MAA), Perodua remains the best selling car in Malaysia in the first half of 2007 despite a slight decrease in its sales. Perodua sales fell to 75,483 units from 79,738 units previously, with a market share of 34.2%. (1)
Proton was ranked second. Its sales declined to 46,955 units from 60,291 in the same period previously. Its market share also dropped to 21.3% from 24%. (1)
Analysts said the outlook for this year should be positive but manufacturers would still need to keep coming up with new models and market them efficiently. (2)
- Possible market structure of Malaysian cars: oligopoly. Presence of a few dominant firms-- Perodua 34.2%, Proton 21.3% market share, each selling a differentiated product (each car model is different). Entry to industry is restricted due to high start up cost.
- Even when the industry consists of a few dominant firms, they cannot afford to be complacent. They must still engage in R&D leading to product differentiation or to develop new products. They can also engage in advertising campaigns, which once successful, will create a strong brand name and make the demand for that model of car be more price inelastic so that the company can increase price to increase total revenue.
According to Frost & Sullivan, sales in the local motor vehicle industry are expected to improve this year with the total industry volume expanding 7% to more than 500,000 units.
The automobile industry is experiencing external EOS. Automobile firms will likely experience a fall in unit cost of production because the entire industry expands. There could be economies of information where common information services (eg, how to make the most durable cars) are provided and the cost of research is shared. The automobile industry may also choose to spilt up production processes and specialise in a single process (eg, producing tyres, windscreens) as such mass productions lower unit cost.The key factors expected to drive growth include demand from buyers wishing to replace their cars, a favourable economic environment and new model variants throughout most segments.
http://biz.thestar.com.my/news/story.asp?ile=/2008/1/14/business/19975167&sec=business
yuxi :)
Wednesday, May 21, 2008
hello again :D
i dont know if this article is relevant or not, but i think it's really interesting!
:) :) :)
S'pore the second most competitive economy
Sat, May 17, 2008 The Business Times
(SINGAPORE) Singapore remains the world's second most competitive economy but is closing the gap on the top-ranked United States, according to an annual analysis.
Now in its 20th year, the World Competitiveness Yearbook (WCY) by Swiss business school IMD gives Singapore a score of 99.33 in its 2008 study, up from 99.12 last year. The US - firmly entrenched in pole position since 1994 - has the 100 perfect score.
But the latest report has IMD asking if the US run will continue - or go the way of Japan, which was by far the most competitive in 1989, when the WCY was first published but has since dropped out of the top league, beset by numerous domestic economic crises. (In the 2008 rankings, Japan is 22nd, up from 24th in 2007.)
Says Stephane Garelli, director of IMD's World Competitiveness Center: 'In our 20th anniversary edition this year, we may be seeing the US in the number one position for the last time. Singapore is closing the gap with the US and 2008 might be the turning point where the US falls from its leadership of top competitors.'
Taking lessons from Japan's downfall in the 1990s, Prof Garelli says that the present turmoil in the US 'bears some resemblance' with past crises in Japan that followed 'a period of economic boom, real estate price follies and exuberant assets expansion'.
But there are also huge differences between the two economic societies, he notes: Apart from 'notable successes' such as Toyota and Canon, much of Japanese industry was 'paralysed' by the 1990s as 'the Japanese never practised creative destruction'.
The US, on the other hand, 'because of its openness, resilience and entrepreneurship, always seems to find the means to re-invent itself in ways that Japan (and much of Europe) often lacks', he says.
In any case, one takeaway from 20 years of analysing competitiveness: 'No nation, however competitive, is immune to a breakdown, especially when it stems from the financial sector.'
The WCY - which sees competitiveness as essentially the capacity of a country to manage its long-term prosperity - uses a mix of hard statistical data and soft survey feedback for its analyses. In all, 55 economies are assessed on some 330 criteria in four broad factors: economic performance, government efficiency, business efficiency and infrastructure.
Singapore is third on economic performance (up from fourth last year); up to second on business efficiency (fourth in 2007); and retains for the second straight year its first and third places on government efficiency and infrastructure, respectively.
Singapore's challenges are, in the short term, managing costs in a global inflationary environment, and in the medium term, becoming a globalised, entrepreneurial and diversified economy, IMD notes.
According to Prof Garelli, a more advanced economy increasingly focuses on the 'something else' that makes the difference between economic growth and prosperity, such as sustainable development, quality of life, even happiness. 'These objectives, which would not be attainable without economic growth, are very subjective, hard to measure and linked to national value systems,' he says. 'Managing the 'softer' side of an economy is thus a priority for any leader today.'
Competitiveness encompasses all these dimensions, and remains the key to success and prosperity, he maintains.
i dont know if this article is relevant or not, but i think it's really interesting!
:) :) :)
S'pore the second most competitive economy
Sat, May 17, 2008 The Business Times
(SINGAPORE) Singapore remains the world's second most competitive economy but is closing the gap on the top-ranked United States, according to an annual analysis.
Now in its 20th year, the World Competitiveness Yearbook (WCY) by Swiss business school IMD gives Singapore a score of 99.33 in its 2008 study, up from 99.12 last year. The US - firmly entrenched in pole position since 1994 - has the 100 perfect score.
But the latest report has IMD asking if the US run will continue - or go the way of Japan, which was by far the most competitive in 1989, when the WCY was first published but has since dropped out of the top league, beset by numerous domestic economic crises. (In the 2008 rankings, Japan is 22nd, up from 24th in 2007.)
Says Stephane Garelli, director of IMD's World Competitiveness Center: 'In our 20th anniversary edition this year, we may be seeing the US in the number one position for the last time. Singapore is closing the gap with the US and 2008 might be the turning point where the US falls from its leadership of top competitors.'
Taking lessons from Japan's downfall in the 1990s, Prof Garelli says that the present turmoil in the US 'bears some resemblance' with past crises in Japan that followed 'a period of economic boom, real estate price follies and exuberant assets expansion'.
But there are also huge differences between the two economic societies, he notes: Apart from 'notable successes' such as Toyota and Canon, much of Japanese industry was 'paralysed' by the 1990s as 'the Japanese never practised creative destruction'.
The US, on the other hand, 'because of its openness, resilience and entrepreneurship, always seems to find the means to re-invent itself in ways that Japan (and much of Europe) often lacks', he says.
In any case, one takeaway from 20 years of analysing competitiveness: 'No nation, however competitive, is immune to a breakdown, especially when it stems from the financial sector.'
The WCY - which sees competitiveness as essentially the capacity of a country to manage its long-term prosperity - uses a mix of hard statistical data and soft survey feedback for its analyses. In all, 55 economies are assessed on some 330 criteria in four broad factors: economic performance, government efficiency, business efficiency and infrastructure.
Singapore is third on economic performance (up from fourth last year); up to second on business efficiency (fourth in 2007); and retains for the second straight year its first and third places on government efficiency and infrastructure, respectively.
Singapore's challenges are, in the short term, managing costs in a global inflationary environment, and in the medium term, becoming a globalised, entrepreneurial and diversified economy, IMD notes.
According to Prof Garelli, a more advanced economy increasingly focuses on the 'something else' that makes the difference between economic growth and prosperity, such as sustainable development, quality of life, even happiness. 'These objectives, which would not be attainable without economic growth, are very subjective, hard to measure and linked to national value systems,' he says. 'Managing the 'softer' side of an economy is thus a priority for any leader today.'
Competitiveness encompasses all these dimensions, and remains the key to success and prosperity, he maintains.
Hey all :)
This is an interesting video on the topic of cobweb theory- market failure in agricultural markets. I think this theory was mentioned in class before, though not in great detail...yeah, so go take a look to understand it better :D
and here's a second one by the same teacher in the previous video. This one is a revision for the argument on whether monopoly is bad. Note the terms used, such as "contestable markets". haha. happy viewing! :)
Love,
Zijia
This is an interesting video on the topic of cobweb theory- market failure in agricultural markets. I think this theory was mentioned in class before, though not in great detail...yeah, so go take a look to understand it better :D
and here's a second one by the same teacher in the previous video. This one is a revision for the argument on whether monopoly is bad. Note the terms used, such as "contestable markets". haha. happy viewing! :)
Love,
Zijia
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