Off the cliff

The invisible, pandemic coronavirus SARS-CoV-2 has gone after the three-legged stool of Alaska’s private sector economy like a big, angry beaver, according to the Alaska Department of Labor.

Jobs in the oil and gas industry, tourism and fishing industries have all taken a beating,  the state agency reports in the September edition of Alaska Economic Trends

“As of mid-July, only four states’ (job declines) were steeper than Alaska’s,” observed Dan Robinson, the agency’s chief of research and analysis. “The grimmest job picture was in Hawaii, still down 16.2 percent from July 2019 levels. New York had the next-largest loss at 13.7 percent, followed by Massachusetts at 12 percent and Vermont at 11.8 percent.”

The only good news is that Alaska isn’t Hawaii.

Tourism is normally a $18 billion a year industry in the tropical islands, according to the Hawaiian Tourism Authority. But SARS-CoV-2 and COVID-19, the disease it causes, scared the travel bug right out of most people, and the few who do decide to travel to Hawaii now face requirements that make it a whole lot less fun and for some impractical.

Hawaii is at this time imposing a mandatory, 14-day quarantine which means, according to the state tourism authority, that “all travelers are required to stay home or in their hotel room for 14 days after arrival and monitor their health.”

Alaska has been more lenient. Tourists are allowed into the state if they can show they have tested negative for COVID-19 in the previous 72 hours. They are, however, expected to practice social distancing for 14 days.

Alaska tourism officials lobbied Gov. Mike Dunleavy for a policy that made visiting the 49th state as easy as possible given the pandemic circumstance. In Alaska as in Hawaii, most tourists vacation for only a week or two, and they don’t expect to spend all that time in a hotel room.

Hawaii’s restrictions have helped massacre its tourism industry.

“In the first half of 2020, total visitor arrivals by air decreased 2,967,703 or 58.3 percent,” the Hawaii Department of Business, Economic Development and Tourism reported. “In the second quarter of 2020, the statewide hotel occupancy rate averaged 12.9 percent, 67.4 percentage points lower than the same quarter of 2019. In the first half of 2020, the statewide hotel occupancy rate averaged 49.7 percent, 30.8 percentage points lower than the same period of the previous year.”

The upside is that Hawaii has to date – like Alaska – managed to largely avoid the deadly fallout from SARS-CoV-2. The Aloha State’s death rate from COVID-19 today stands tied with Alaska at 6 per 100,000, about a tenth of the national average, according to Statista.

Its economy, again like Alaska, is tanking, but it avoided the double curse of human death and economic devastation.

Along with suffering massive job losses, New York has been near the epicenter of COVID-19 mortality in the U.S. Its death rate of 170 per 100,000 is second only to New Jersey at 180 per 100,000, according to Statista. Those rates are double to triple the worst-off of the countries in Europe.

And people visibly dying – for a time New York City had freezer trucks parked on the streets to hold the accumulating bodies – is never good for business. Thus COVID-19 has dealt devasting human and economic blows to New York.

It has been much the same in Massachusetts, where the death rate is lower but still 22 times that of Alaska or Hawaii. Vermont, on the other hand, has had a suffering economy for years. Tourism was one of its strong points, but see Hawaii above.

Not good

COVID-19, of course, hammered the economies of all 50 states after it arrived in the U.S. in force in March.

“Alaska’s job count fell 12.9 percent below year-ago levels in April, and the U.S. drop was slightly larger at 13.4 percent,” Robinson noted. “Among states, April losses ranged from 7.3 percent
for Utah to 23.1 percent for Michigan.

“Right away, one of the key questions was how fast states and the nation would bounce back from
losses of that magnitude, especially given the once-in-a-century nature of the cause and the fact
that the pandemic was ongoing.”

No states have bounced back fully, but 92 percent of them are doing better than Alaska. That’s bad on its face. It worse when one considers summer is Alaska’s strongest season for job growth.

“Every state has a handful of drivers that dictate much of its economic health,” Robinson observed. “Alaska’s shortlist includes oil and gas, federal spending (including the military), fishing, tourism, and mining. To date, the pandemic has hampered tourism most – it was effectively the ‘season that wasn’t’ in a state where nearly all tourists visit in the summer.

“The pandemic has also hobbled oil and gas and disrupted the state’s fisheries, although it’s hard to get a read on those numbers for 2020 because salmon harvesting’s biggest months
are still ahead.”

Robinson wrote that in July before the biggest month for salmon turned into a bust. With the season nearly over, the catches stands at 110 million, according to Alaska Department of Fish and Game figures.

The final harvest appears unlikely to reach the 111.2 million catch of 2016, which the U.S. Department of Commerce officially declared a disaster. 

The city of Cordova at the southern edge of Prince William Sound is already seeking state disaster relief for this year’s season.  The 2020 Copper River drift gillnet fishery harvested only 97,360 sockeye salmon, 91 percent under the 10-year average, the Cordova Times reported, while the pandemic drove up operating costs for processors and pushed down prices paid fishermen for their catch.

Though the catch of high-volume, low-value pink salmon was up compared to the last even-year return, the Alaska Seafood Marketing Institute is reporting big year-on-year drops in all high-value species. Despite another banner year for sockeye in Bristol Bay, the statewide sockeye catch was down almost 20 percent with coho (silver) salmon falling 53 percent, Chinook (king) salmon off 27 percent and keta (chum) salmon lagging by 69 percent.

Prices for most of those species were reported to be near half to two-thirds of last year, and the long term prospects for the state’s salmon fisheries ever returning to the heady days of the late 1980s when Bay sockeye peaked at a 2020 adjusted price of $5.12 per pound have gone from dim to lights out.

Starting prices in the Bay this year were about a seventh of that legendary high in 2020 dollars. The 70-cent initial offer was so low some fishermen were complaining they couldn’t afford to fish. And it seems that almost every week there is news of another shore-based salmon farm starting construction of a recirculating aquaculture system (RAS) to add to the competition in the marketplace.

Dongwon Industries, the company that owns Starkist with its famous tuna, has now announced plans for a $168.5 million farm of that type in South Korea. The farm is designed to produce 20,000 tons of salmon per year, according to the Korea IT Times. 

That’s more than six times the entire Canadian catch of wild, Pacific salmon last year, and about five times the catch of Upper Cook Inlet sockeye salmon in 2019. The competition to produce ever more salmon is good for consumers, but not so good for salmon harvesters in Alaska.

“Dongwon plans to grow the domestic aquaculture industry, which has remained at the level of light industry until now, into a heavy industry…through large-scale facility investment and land salmon farming complexes based on cutting-edge new technologies,” the Times reported.

“The land salmon farming complex will be built as a state-of-the-art facility that introduces smart construction methods based on the environment-friendly “Flow Through System – Reuse” technology and the Fourth Industrial Revolution technology.”

Rocky roads

While the state’s salmon cowboys face ever-increasing competition from salmon farmers penning the product in much the same ranchers fenced in their cattle, the state’s tourism industry is looking at a major need to reboot in the face of COVID-19.

The U.S. Travel Association (USTA) is predicting it will take tourism at least four years to return to 2019 levels, and a lot of travelers look to be shifting from the air to the road – not good news for Alaska which is a long drive from anywhere.

“Road travel has fared significantly better than air travel and has experienced year over year declines of less than 20 percent throughout most of the summer compared to 2019,” the industry association reported at the start of the month.

That stands in stark contrast to air travel.

“The Transportation Security Administration (TSA) updates passenger screening numbers on a daily basis, providing a comparison to the same time last year,” the group noted. “Screenings over the last seven days were 70 percent lower than in the same period last year, the same as in the previous week.”

The only good news is that it could be worse. Alaska did fare better than most states over the course of the summer.

An industry tracking site for hotel and airfare bookings found the state down only 37 percent and doing the fifth-best in the nation, the USTA reported, but that was in summer – Alaska’s high season,

There’s no reason to believe the trend will continue into the fall and winter. The Harris Poll at the end of August found a whole lot of Americans now working from home – 74 percent – would consider taking a “workcation” to get out of the house, but most of them are thinking about warm places like California and Florida even if the COVID-19 risks there are far higher than in Alaska.

Meanwhile, the cruiseship industry – a mainstay of the Alaska tourism business – remains shut down and speculation on what happens to it are all over the place. Views range from dire, death-of-the-industry reports to MarketWatch’s observation that “people have short memories.”

“…Cruising satisfies a couple of basic human wants, to be social and to get away, and it does both at the same time,” Tomi Kilgore wrote there at the end of August. “This not only encourages customers to forget outbreaks, it also makes them very loyal.”

Alaska cruise lines are at least booking for 2021 after being shut down this year, and the companies are busy exploring ways to minimize the possibilities of viral transmissions of all sorts aboard their ships.

“In June, Norwegian Cruise Line announced new health and safety protocols that included the installation of new medical-grade H13 HEPA (High Efficiency Particulate Air) filters across its fleet. These filters are estimated to remove 99.95 percent of all airborne pathogens that are 0.1 microns or larger,” CruiseCritic reported. “The COVID-19 pathogen is 25 percent larger than this standard, coming in at 0.125 microns. For comparison, a single human hair is 75 microns — 75,000 percent larger.”

Better filtered air and more of it fresh is expected to be coming on all cruise ships along with pre-cruise screening of passengers to catch asymptomatic virus carriers. How many people will buy into any safety plan as “safe enough” is the great unknown.

But then the unknowns are everywhere.

As Robinson observed, “looking forward, the most unsettled and state-specific questions for Alaska concern oil and state government. Oil prices have partially rebounded, but job numbers have not, and it isn’t clear when or if some of the big, previously planned investments will materialize.

“State government depends less on oil to fund its service than it did a few years ago, but oil is still a big part of the budget.”

COVID-19 could drive significant changes in oil markets by forcing fundamental changes in how people work. A June study from the Stanford Institute for Economic Policy Research concluded 42 percent of working Americans are now doing so from home. 

The U.S. Energy Information Administration (EIA) reported oil demand down significantly through the middle of the year in part because of the global economic slowdown driven by COVID-19 and in part because of all the former commuters now at work from a home office or the kitchen counter.

If working from home becomes the permanent new norm, global oil consumption could take a hit.

EIA is forecasting “consumption of petroleum and liquid fuels globally will average 93.1 million barrels per day (b/d) for all of 2020, down 8.1 million b/d from 2019, before increasing by 7.0 million b/d in 2021.”

Oil company investment decisions will be driven by the companies’ own assessments of longterm demands and by the costs of production in various oil-producing regions. Alaskans are to this year vote on a ballot initiative to raise taxes on the oil companies that could also enter the decision making process.

Vote Yes for Alaska’s Fair Share argues the state should be paid more for the publicly owned resource extracted from deep beneath the frozen tundra of Alaska’s North Slope, piped 800 miles to tidewater, and then hauled to faraway markets aboard tankers.

Oil industry officials and business interests argue that the costs of oil production in the 49th state are already so high that increasing taxes would discourage new investment needed to increase production, which has been falling steadily since the late 1980s.

As with most public policy questions, this one of too-much or too-little has no perfect answer, but could have major impacts. With the state struggling financially, more oil revenue could go a long way toward maintaining state services and keeping state workers employed if, of course, it doesn’t cause a downward spiral in the private sector that makes the negatives there more than offset any public sector positives.

And the last thing Alaska needs as it struggles through the pandemic is

more negatives.








2 replies »

  1. UPS, FedEx & Amazon are converting to mostly electric delivery vans. Walmart, Amazon & others will switch to drones for small/medium packages.
    The future value of crude oil will continue to decrease. Prices of oil above $60 per barrel is over. Worldwide oil demand will continue to slump.

    New revenues are desperately needed in AK. COVID-19 Fed dollars will help, though not a fix all. Everyone trying to pick the reserve fund carcass clean will not help.
    Time to go back to pre-pipeline spending days, though we probably cannot even afford that. Not a pretty picture.

  2. I won’t bore you with the numbers, but what we are seeing currently is nothing short of the largest “take over” of private equity in the history of America. The trillions of U.S. dollars handed out to the corporate favorites (while small businesses are ordered to close) is nothing but a modern capitalist coup orchestrated by billionaires like Gates, Bezos, Zukerberg, Anderson, Buffett, etc.

Leave a Reply