Re: bankruptcy questions

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

19th C. railroads & airlines follow the same pattern.  Yes, bankruptcy lowers the debt load
& then the process commences anew.  The difference between the examples you gave & the
other businesses is that airline travel became a commodity.

A niche airline that caters to a small client base of very rich people can survive unless a
flood of entry contaminates that business.


On Thu, Sep 22, 2005 at 10:00:53AM -0700, David B. Shemano wrote:
> Michael Perelman writes:
>
> >> The basic flaw is that the cost of flying one more passenger is minimal.  According
> >> to basic economic theory, competition drives prices down to that level, which cannot
> >> support the fixed costs.
>
> I suppose the same problem theoretically exists for hotels, theaters, cruise ships.  Again, I don't see any evidence that entrepeneurs, investors, lenders, etc. agree with that it is impossible to make money in these industries.
>
> It is a metaphysical certainty that at a certain level of fixed cost, the investment will lose money.  But there is going to be an income stream, and that income stream is going to be profitable assuming a certain level of fixed debt.  If the fixed debt is too high, that's what bankruptcy reorganization is for.
>
> David Shemano

--
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu