Re: bankruptcy questions

[Doug Henwood <dhenwood@xxxxxxxxx>]

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.

Cruise ships, yes, but airlines are nearly unique in that the unsold
capacity turns worthless the minute a plane takes off. It's worse
than the fish business in that regard. So the industry has all kinds
of pricing dilemmas: fill up the seats in advance with discount
fares, that may be money-losing, and hope for some last-minute sales
at very high rates. But there's also a great temptation to fill seats
at low rates, that can result in that ruinous competition we heard
about in the 19th century. It's a crazy business, which is why it was
regulated in the first place.

Doug