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Oil Prices Fell, But Should Fall More

August 06, 2008 11:19 AM

ABC News's Bianna Golodryga reports: Oil prices fell Tuesday to below $120 a barrel --  some $26 off of its highest level. That and a decision by the Federal Reserve to keep a key interest rate steady lead to a big rally on Wall Street Tuesday.

Neil Cavuto, of the Fox Business Network, said today on "Good Morning America"  that although prices have dropped, they should come down even more.

“What's been happening is something of a run-up very akin to the run-up we had in real estate prices and the run-up we had in Internet stocks years before. It was a frothy mentality that didn't justify simple supply and demand,” Cavuto told Diane Sawyer. “Having said that, I'm not smart enough to think these levels are where we stick, but many people far smarter than I have said that a realistic price for oil is probably under $100 a barrel, so we have a way to go.”

Oil was just part of the picture. There was plenty of good news and bad news behind the stock surge.

The Fed kept interest rates unchanged, despite the threat of inflation, because there's a growing fear that the U.S. and global economies are slowing. A slowing economy would, in theory, demand less oil. As for the Fed's dilemma: Raise rates to fight inflation, which, by the way, would most likely bring us into a recession if we're not there yet, or keep rates steady but raise the risk of dealing with a major inflation problem down the road.

The Fed chose to go with option A. Only time will tell if it made the right decision -- or rather, the lesser of two evils.

But I promised you good news, and here it is. Lower oil prices and interest rates are good for consumers. Who, despite what they may be telling pollsters about their feelings toward the economy, continue to show resilience. Consumer spending was higher than expected for June, and consumer-driven Proctor & Gamble reported better than expected earnings.

Skeptics may attribute that to those rebate checks, and thus the continued spending patterns for consumers may be different in the coming months. But one thing is for sure: If oil and gas prices continue to fall, then the consumer will have more wiggle room to continue spending money.

As for the sentiment among traders on the floor of the New York Stock Exchange, well, they are just waiting to see where the day takes them, with little earnings or economic news on tap today. As to where oil prices are headed -- between Iran, hurricane season, and economic data -- it's a total crapshoot. But as for what can be expected from the Fed, well, that's a bit easier to read.

In his morning note, Art Cashin, head floor operations for UBS, wrote that the markets "saw through the charade the Fed had employed. For all the statements blustering about inflation, there was only one vote in dissent. If the FOMC was really so concerned about inflation, one might have expected two or even three dissents."

And with a rate hike out of the cards for the near term at least, expect the major focus for the next few months to continue to be oil.

August 6, 2008 | Permalink | User Comments (10) | TrackBack (0)

Drips Keep On Coming

August 05, 2008 5:54 PM

ABC News' Charles Herman reports: Another drip in the Starbucks story.

Have a cup of steaming hot coffee in the morning and get a second cup of chilled coffee for only $2 after 2 p.m.  Called the “treat receipt,” it covers any grande cold drink – from coffee to frappuccino – and that could be a discount of more than half off the regular price.

With store traffic falling and sales declining, it’s another attempt to get customers to come back to Starbucks and spend their money.  Many retailers have been hurting as consumers struggle to pay higher prices for food and gas.

“They are trying to drive traffic and make it part of the afternoon,” said Patricia Edwards, managing director with Wentworth Hauser & Violich, who has followed the company for many years.  She said Starbucks hopes customers will build an afternoon visit to Starbucks into their routine.

Trying to figure out what Starbucks drinkers want, the company is even offering people a chance to win $1,000 if they share their thoughts with the company.  Recently, after ordering two coffees and coffee cake, I was handed a super-long, 14 inch-long receipt (I checked) with a request from the company to share my comments at www.StarbucksCustomerVoice.com.

Checking out the site, I found it asks you if you took your order to go or stayed at the store.  Did you purchase a hot or cold drink and what type, specifically?   There are also questions about other items you may have purchased, followed by your opinions about the service, how friendly the baristas were, and how the drink tasted.  Then the survey asks you to judge the overall value for the price you paid and if you would recommend this Starbucks.  Toward the end, Starbucks wants to know if that particular store feels like part of your local community, if you prefer this store to other stores and if the “experience was uplifting.” 

But it’s not over there.  Next up are questions as to whether or not the employees engaged you in personal conversation, did they recognize you, focus on your needs and make you feel welcome in the store, perhaps saying your name.  Look out baristas!  You could be getting a secret review of your service as my receipt had a five-digit store number and that was the first series of numbers I had to input. 

And that is the goal.  A Starbucks representative said the survey will get direct feedback from customers about specific stores and the baristas at the store, so “we know and they know how they can serve their customers better and what they are doing well.”  Or not so well, as the case may be.

The sweepstakes began a few days ago and each month it is running, the company will pick ten people, each winning a $1,000 prize.

I’m wondering, though, how many people get receipts at Starbucks?  It’s a crucial step for both of these promotions.

But, fear not, if you want to enter the sweepstakes, it’s “no purchase is necessary.” If you check out the rules section on the Web site, you can submit your name on a 3 x 5 card.

Reduced prices?  Sweepstakes?  Starbucks?  Is the premier coffee company acting like a traditional retailer in these tough economic times?  “It might lose a little cache,” said Edwards, “but cache is not selling today.”

August 5, 2008 | Permalink | User Comments (17) | TrackBack (0)

World’s Largest Passenger Jet Makes U.S. Debut

August 01, 2008 4:41 PM

ABC News’ Scott Mayerowitz reports: Some of my earliest childhood memories involve my tiny face pressed up against the inside of an airplane, looking down at the passing land below.

While flying these days is often a hassle with long lines, frustrating security and a complete lack of service, there is still that little kid in me pressed up against the window.

Today that little kid got a big treat: A close look at the first U.S. landing of the A380, the world’s largest commercial airplane.

The double-decker plane flown by Emirates Airlines touched down at New York’s JFK airport at 4:29 p.m.. Crowd of reporters and VIPs cheered and then eagerly waited as the mammoth plane taxied to the terminal.

More than 70 ground crew were on hand to quickly unload and then reload the plane for its return to Dubai. Many had cell phone cameras out to capture the moment.

The plane was escorted in by police cars and dwarfed everything along its way. The A380 was also greeted by two airport firetrucks with water cannons that gave it a ceremonial wash.

The A380 is unlike any other plane before.

The average first class ticket on the route goes for $14,635, business for $9,571 and coach for $1,477. While that is the same as the service on the airline's Boeing 777 routes, there are substantially more of these high-end seats to sell.

The four-engine jumbo jet can carry up to 850 passengers, although most airlines plan to fly closer to 500. The plane put an end to the Boeing 747’s astonishing 40-year reign as the world's largest passenger jetliner.

 

Emirates configured its A380 for 489 passengers. Most are in coach but there are 76 business-class seats and 14 private suites in first-class with electronic doors for privacy. They also get showers, their own mini-bar, a 23-inch high-definition TV screen, your own wardrobe and meals on demand.

Singapore Airlines was the first to fly the A380, launching service in October. It now flies the planes between Singapore and London and Sydney and Tokyo.

Dubai-based Emirates is the second to fly the jet, but the largest of Airbus’ 17 customers.

By the way, not one of them is an American airline.

The jet is meant to carry large groups of people on very long trips.

Emirates currently runs two daily nonstop flights from New York to Dubai on Boeing 777s. One of those jets will be replaced on Wednesdays, Fridays and Sundays with the larger A380.

With oil prices near record highs, the A380 also offers airlines a bit of much-needed relief.

“The A380 is about 15-20 percent more efficient on a seat-mile cost than any civil aircraft flying at the moment. The fuel consumption is very low,” Nigel Page, senior vice president of commercial operations for Emirates in the Americas, told me.

He said that given the number of people it can transport, it is actually more efficient than the Toyota Prius hybrid. Maybe, but remember the Prius doesn’t seat 500.

Emirates will also be able to charge more for flights on the A380. Mann said that Singapore Airlines already charges 15-20 percent more for flights on the A380.

Robert Mann, an airline industry analyst and consultant based in Port Washington, N.Y., told me not to expect the plane on U.S. routes.

Simply put: American fliers like frequent service between their cities and airlines would basically have to replace three flights on smaller jets with one on the A380.

“The last 30 years of route development, subsequent to deregulation, has been frequency, frequency, frequency,” Mann said. “That’s what you want and that’s means smaller and smaller aircraft size.”

August 1, 2008 | Permalink | User Comments (29) | TrackBack (0)