High Gas Prices Raise Concern; Airline Industry Faces Turbulence; Live Nation Expands

KPCC business analyst Mark Lacter talks about a recent poll which suggested that high gas prices are the biggest economic concern for many people; the airline industry faces a bumpy ride as some airlines go out of business; and the Beverly Hills company Live Nation is betting on some superstars to expand its business.

Frank Stoltze: On Tuesdays we speak with business analyst Mark Lacter about some of the top business stories in the Southland. Yesterday we aired the Iraq hearings in Washington, so we talk to Mark today. Mark, when it comes to the downturn in the economy, there's a lot of talk about the mortgage crisis, the big drop in jobs, but it seems many people are more concerned about something else.

Mark Lacter: That's right, Frank. In the latest CBS News/New York Times poll, one out of five people said gas prices were their big concern, and that's almost double the number who worried about jobs. And the mortgage crisis came in third. This is the same survey, by the way, that had 81% saying that the nation was on the wrong track.

Stoltze: Now you went digging through the poll and found something sort of contradictory to all this hand wringing.

Lacter: Yeah. You know, when folks were asked to describe their own financial situation, 72% said it was either fairly good or very good. That was only down a couple of points from when they were asked the same question two years ago. So we're incredibly pessimistic about the nation's prospects, but reasonably satisfied with our own situation.

Stoltze: So what does that tell us?

Lacter: It seems to match what a few economists have been saying – that the housing crisis is still limited, for the most part, to areas that saw lots of the subprime activity in 2005 and 2006. And that includes, of course many areas of the Inland Empire. But as you get closer to the coast, the numbers are more or less holding up.

Definitely some price declines, but not huge drops. And we still haven't seen the kind of massive layoffs that led to foreclosures all over L.A. in the early '90s. Now, if the layoffs continue to be limited, and that's really a big if, we might start seeing some relief in the not too distant future.

Stoltze: OK, that's the bumpy real estate market; let's talk a bit about another business that's experiencing, uh, well, we'll call it turbulence: the airline industry.

Lacter: Yeah, that's right. Of course, the big news this morning is American Airlines having to cancel a bunch more flights in order to do those maintenance checks on planes. But probably the bigger issue is higher fuel costs, and that's pretty much what doomed ATA and Aloha airlines. Both of them were struggling operations that focused a lot on the Hawaii market and just didn't have enough of a cushion when the jet fuel went through the roof.

But, you know, just as these carriers shut down operations, you're seeing a number of domestic carriers expand their flights out of L.A. For example, you have JetBlue starting daily service from LAX to New York and Boston next month. And Virgin America, which is the upstart domestic airline that's owned by Richard Branson, that's expanding its service out of LAX as well. Two airlines are not run on a shoestring, so presumably they'll be able to weather these huge increases in jet fuel.

Stoltze: Even so, why would anyone want to be in the airline business these days?

Lacter: (laughs) You know, I don't have the foggiest. It's a crazy business, because so much of it is really out of your control, starting with the fuel prices, and, of course, stuff like the weather. Yet, we're always seeing new players enter the market, and there's a good chance that that will happen with the routes from L.A. to Hawaii that ATA and Aloha had been serving.

Stoltze: On to another industry, the Beverly Hills company Live Nation used to just promote events; now it's taken some superstars under its wings?

Lacter: Yeah, that's right, and it shows you how the music business is changing. Live Nation is going to a few superstar performers and basically saying, look, we'll take care of your entire operation. Not just recording music, but promotions, and marketing, and packaging tours, everything. And the company is offering huge amounts of money: Madonna is said to be getting $120 million, and now Jay-Z has cut a 10-year deal worth $150 million. Live Nation is also gonna put up money for Jay-Z's various side businesses. You know, he's already into clothing and has a chain of nightclubs as well.

Stoltze: Thank you, Mark.

Lacter: Thanks, Frank.

Stoltze: Mark Lacter is a contributing writer to Los Angeles magazine and writes a business blog at LAObserved.com.

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