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WEDNESDAY, NOVEMBER 7,2001
THE WALL STREET JOURNAL CAMPUS EDITION.
THE WEEK OF NOVEMBER 5, 2001
WSJ.com
What's News-
In Business and Finance
Slump Hits Hard At White-Collar Jobs
white-collar workers, among the biggest winners of the 1990s boom, are feeling an unusually heavy share of the pain now that the economy is slowing.
During the past year, the nation's pool of unemployed managers and professionals has swelled 65% to 1.2 million. A former software manager who was laid off twice says he has gone from Plan A to Plan B to Plan C, and is now on Plan E: delivering pizzas for one-tenth his former salary.
Employment held up surprisingly well in the early stages of the slowdown. But last week, the Labor Department reported that the jobless rate leapt half a percentage point in October to 5.4%, up from a low of 3.9% 13 months earlier. Service industries, usually less volatile than manufacturing, were especially hard hit as companies realized they had hired too many people in the late stages of the recent boom.
The unemployment report erased almost any doubt that the country is in recession, which could jolt politicians in Washington to move more quickly on a package of measures to stimulate the economy and aid jobless workers.
With chicken outdoined pizza and burgers in fast-food sales growth, two of the top poultry players are vying for the bigger part of that wishbone.
Boston Market, KFC Heat Up Rivalry
©2001 Dow Jones & Company, Inc. All Rights Reserved.
Boston Market, owned by McDonald's Corp., is remodeling all of its 680 stores and later this month will begin opening new restaurants for the first time in four years. The company plans to open as many as a half-dozen new stores in the U.S. by the end of the year and 40 more by the end of 2002.
The other big change is eliminating paper boxes and serving food on black plastic plates — similar to what Boston Market does. KFC's signature bucket, however, will remain.
KFC, a unit of Tricon Global Restaurants Inc., recently started a $200 million ad campaign and is giving its 5,300 U.S. stores a facelift. In September, it rolled out nationwide its "Hot and Fresh" program, in which it tosses chicken that has sat for more than 90 minutes. Before, some restaurants would fry batches of chicken and let it sit for several hours.
Corporate spending won't rescue Silicon Valley anytime soon.
For Tech Spending. A Bleak Outlook
Executives polled by CIO Magazine, which is aimed at chief information officers, expect their information-technology budgets to increase an average of 4.7% over the next 12 months. By comparison, poll respondents said their budgets had grown an average of 7.2% in the past 12 months.
Moreover, only 35% of the executives expect budgets to increase at all. Nearly one-quarter of the respondents expect budgets to shrink, while 39% expect budgets to remain flat.
The Bush administration announced plans to overhaul student visa procedures as part of its response to the Sept. 11 terror attacks.
Is Overhaul Needed On Student Visas?
In a recent presidential directive, the White House said it wants to "end the abuse of student visas," as well as to "prohibit certain international students from receiving education and training in sensitive areas."
But many education officials say some of what the White House wants
A U-Turn
Source: Thomson Financial/Datastream
to accomplish already exists. The State Department, whose consular officers issue visas to prospective students, maintains a "technology alert list" that includes 16 sensitive fields of study. Students face careful scrutiny if they want to study in those fields.
"If you are from Pakistan or India, it's futile to try to come here and study nuclear engineering," says Terry Hartle, senior vice president for the American Council on Education, a Washington-based association of colleges and universities. "The State Department routinely denies those visas."
A Bond's Demise Could Spur Recovery
The Treasury Department halted sales of 50-year bonds, and financial markets reacted by sending long-term interest rates tumbling—something Alan Greenspan hadn't been able to achieve despite the Federal Reserve's many cuts in short-term rates.
With no new supply of 30-year bonds coming from Washington, investors scrambled to buy up the remaining securities, pushing up their prices—which pushes down interest rates.
The move also effectively forces investors to buy up shorter-term investments such as 10-year Treasury notes, which help determine mortgage rates, and corporate bonds. More buying demand means lower rates on these securities as well. And lower long-term rates could provide a powerful stimulus to the economy.
Magazines Rethink Flour Power
After years of using cornstarch-based products to help ink dry faster and reduce static cling, magazine publishers have a problem; Cornstarch is one of the many formerly inoffensive products now being regarded with dread in the wake of recent anthrax events.
Most publishers have told their printers to stop using cornstarch. "Before we sell a magazine, we have to convince consumers it's not going to kill them," says Thomas O. Ryder, chief executive of Reader's Digest Association Inc.
Hands Down: World-wide shipments of hand-held computers fell 9.5% in the third quarter...Slow Going: An emergency government plan for terrorism insurance is bogging down in Congress, raising concerns about whether legislation will be approved before the Thanksgiving break...States are now free to tax Internet-access charges, but they're holding off while they pursue a higher priority: congressional authorization to tax e-commerce transactions.
Odds & Ends
By Don Arbour
How to contact us:
Campus Edition@wsj.com
Selective Air Fare Cuts Tempt Few Fliers; Safety Measures Stall
have airlines cut fares enough to win travellers back to the skies? Not according to the latest passenger figures. So will the airlines slash prices even further? Probably not.
The sharp decline in demand for air travel after Sept. 11 has reversed a bit, but domestic flights still flew only $65%$ full in October, according to early estimates from the Air Transport Association, the U.S. industry’s trade group. That applies to flight schedules most carriers had already cut $20\%$.
By Wall Street Journal Staff Reporters
most carriers that have aircraft. Some carriers, including United, American and Continental Airlines, have introduced discounts of 25% to 50% on business fares in the weeks since the Sept. 11 attacks. But many of those discounts come with 10- to 21-day advance-purchase requirements, making them of little use to road warriors who don't like to plan that far in advance. In addition, many of the discounts are nonrefundable or require one- or two-night stays.
Scattered Reductions
Rigors of B-School Tax a Liberal-Arts Mind
Tax & Library
Columnist Nancy Rosen reports on returning to the classroom after six years in the working world. She shares her strategies for balancing tedious M.B.A. course material with that which she says is truly interesting but beyond her grasst
WSJ.com College Journal
THIS WEEK AT:
COLLGEJOURNAL.COM
In leisure fares, consumers have been offered a hodgepodge of price reductions, many of which are no different from the ones offered before the terrorist attacks on Sept. 11. Many of the discounts are scattered and somewhat difficult to find, as carriers ratchet up sophisticated yield management systems that selectively reduce fares in various markets.
Airlines say cutting business fares usually doesn't stimulate a lot of new demand, and much of the downturn is the product of the economic slowdown. "Until we see some uptick in the economy, we think we'll continue
- Finding Welcome Mat Is Tougher for Minority Grads Economic cutbacks and recruitment cost-cutting mean minority candidates will face a more difficult job hunt this year. We have
suggestions to make your search more effective,
from THE WALL STREET JOURNAL.
Two Law Schools Seek New York's Top Spot
New York top opt
Bragging rights: Separated by a 30-minute subway ride, the Columbia University and New York University law schools vie for students and faculty. Which one will come out on top this year?
Net earnings/loss for U.S. scheduled airlines, in billions
Losing Altitude
REVENUE OPERATING EXPENSE$ GOVERNMENT CASH
American $4,816 $6,183 $809
United $4,107 $6,132 $391
Delta $3,398 $3,820 $171
Northwest $2,594 $2,749 $249
Continental $2,223 $2,379 $243
US Airways $1,989 $3,070 $331
Southwest $1,335 $1,242 $169
America West $491 $590 $60
Alaska Air $583 $571 $29
Total $21,537 $26,736 $2,452
A Wing and a Prayer
Revenue didn't come close to covering expenses for airlines in the third quarter.
1 Excludes government cash, which at most cameras was booked under operating expenses not revenue, because it was money offsetting expenses, not income earned by an airline's business. 2 Nine U.S. majors only for first nine months
Sources: Fitch Inc.; Air Transport Association, company reports
Instead of bargain-basement prices, Continental and other airlines say they've offered corporations discounts and incentives. Continental has also sent executives to out meet with big corporate clients to reassure them on safety. "We are buying Chap Stick 55-gallon drums kissing everyone we know," Mr. Bethune said on an earnings conference call.
The financial carriage for the airlines is so bad that the industry could be headed for a major restructuring, with well-capitalized carriers already sizing up faltering rivals for their gates and facilities. Delta Air Lines Chief Executive Leo F. Mullin has suggested that government regulators will now have to lose their aversion to airline mergers. Airlines will have to address worsening problems with labor costs and the shortcomings of the hub-and-smoke system.
Many travelers are still too afraid
Frequent-flier mileage incentives have provided only small stimulus. Some travelers have cashed in miles out of skepticism, says David Stemler, president of the Air Travelers Association. "People have said, 'I'm going to use my miles before the airlines go out of business.'"
Including last week's grim results from United, the industry's third-quarter losses totaled $2.4 billion—after booking half of the government's $5 billion cash bailout, less taxes. Without that money, losses would have reached $4.2 billion.
"We're losing millions of dollars a day, and I don't see an end in sight," says Tom Horton, chief financial officer at American Airlines. "Costs have probably reached a level, at least in the near term, that is unsupportable."
to fly, faced with airport security breaches and confusion in Washington over how to staff airport checkpoints. Proposed safety measures either have barely moved past the discussion stage or are still many months away from becoming reality. So far the only security enhancement all the major airlines have completed is installing deadbolts and crossbars on cockpit doors. Other stronger measures, such as replacing the current flimsy partitions with bulletproof materials that can't be kicked in, have been undertaken by only a few, mostly small, carriers. The few changes implemented so far merely provide "a semblance of security that's not real," says Stephen Luckey, a retired Boeing 747 captain for Northwest Airlines who is chairman of the Air Line Pilots Association's national security committee. "We need to change that."
Some argue that in addition to better security, the industry needs sharply lower fares. Between New York and Miami, average leisure fares dropped 46% for the week ended Oct. 29, to $50 one way. But other fares dropped minimally, such as a 5% decrease.
cline in a Chicago-to-Orlando flight, to $104 one way.
to see lower business travel," says Continental Airlines Chairman and Chief Executive Gordon Bethune.
George Alcorn, a Houston business traveler, doesn't see much change in airline pricing at all. For a recent trip to Baltimore, Continental wanted $1,700 round trip, he says, which he considered "outrageous." He opted for Southwest Airlines on a $220 fare. Fewer business travelers are flying, he thinks, because of "high prices and increased restrictions."
Desperate though the airlines may be to hire travelers back to the skies, however, they are walking a collective tightrope. If they don't do something to stimulate traffic, they will continue to rack up mammoth financial losses. But discounting fares too deeply runs a risk of permanently devaluing air travel in consumers' minds and setting a mental price point that will outlast the current economic problems.
Setting Expectations
The airlines' reluctance to cut prices stems partly from their own fears, says David Newkirk, a senior vice president at consulting firm Boo-Zen Allen & Hamilton. Cruise ships have gone ahead and slashed fares as low as $299 for a seven-day cruise, he says. "The industry is just scared to death now that people will now think $299 is the price for a cruise."
Ads Pushing Cigarettes Create Stir
Issues of People magazine hitting newsstands this week contain a two-page advertising spread from Vector that touts the new cigarette, called Omni, with the slogan: "Reduced carcinogens. Premium Taste." The ad says that Omni was created to "significantly" cut levels of chemicals that are the "major causes of lung cancer" in smokers. "Now there's actually a reason to change brands," it says.
BV GORDON FAIRCLOUGH
Vector's strategy already is drawing fire from antismoking activists, public health experts and some of its larger rivals in the cigarette business, who say the ads are misleading. "Everything is designed to imply this cigarette is safer, with Vector having no proof whatsoever that this is the case," says Matthew L. Myers, president of the Campaign for Tobacco-Free Kids, a Washington advocacy group. "That has the potential to cause serious harm to consumers."
Vector Tobacco Ltd. is about to become the first cigarette maker to market a potentially less hazardous smoke nation wide.
The whole notion of a less hazardous cigarette is controversial. Proponents say it would be wrong not to try to reduce the harm caused by smoking, which contributes to more than 400,000 deaths a year in the U.S. But some antitobacco activists worry that the newfanded cigarettes will discourage smokers from quitting and entice nonsmokers to light up.
The tobacco in the Omni cigarette is treated with a combination of chemicals, including palladium, a metal most commonly found in the catalytic converters of cars. Vector says that treatment, combined with a new, carbon-filled filter, has resulted in a cigarette that tastes as good as competitors' brands but has lower levels of a number of toxic and cancer-causing compounds.
Vector, owned by Vector Group Ltd. of Miami, the parent of discount-cigarette maker Liggett Group, acknowledges there is no scientific proof that these reductions will make its cigarettes any less dangerous than the average Marlboro or Camel.
In an open letter to be published in magazines and newspapers, Vector's chief executive, Bennett S. LeBow, writes that "there is no such thing as a safe cigarette, and we do not encourage anyone to smoke." But, he adds, "We strongly believe that if you do smoke, Omni is the best alternative."
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