4 ms·
This exact scenario happened in Hawaii, a small regional market for local (inter-island) flights. There were 2 airlines (Hawaiian and Aloha) competing on price
by 205guy 7y ago
This exact scenario happened in Hawaii, a small regional market for local (inter-island) flights. There were 2 airlines (Hawaiian and Aloha) competing on price and service, but it was essentially a duopoly with moderate and almost identical prices. Then both started expanding their routes to the mainland US, got overextended when the next downturn hit and declared bankruptcy one after the other (they kept flying at the same prices while restructuring). One potential acquirer was Mesa Air, but they only looked at the books and started a 3rd competing airline (called Go) with $5 fares. So they started a price war, and Aloha never recovered and shut down (as they probably intended), but Go had only small jets and somehow Hawaiian kept them away from the good gates, so nobody liked them at the regular price. Now only Hawaiian is left, but at 50-100% more of the old equilibrium price. An archipelago like Hawaii needs air connections, but with too many players or too much price war, it's not sustainable.
- sbierwagen 7y agoI do not see how this is an example of what GP was speculating about. Flights between Hawaiian islands still exist, they just cost more now. What GP seemed to be gesturing at is price competition killing an entire market segment, and nobody moving in afterwards to occupy it again.
- wpietri 7y agoYou say it isn't sustainable, but you also say Hawaiian is still going. Which is it? The claim was "kills an industry", but from what you say, the industry's still going. And you say the critical factor was "kept them away from the good gates", which is exactly the kind of thing that is solved with careful regulation, not deregulation.
- edouard-harris 7y agoI think the parent comment is saying that the situation of having a price war between too many players isn't sustainable. And it seems not to have been here, since all but one of those players either died or exited the market as a result, leaving the remaining one with monopoly pricing power.
- wpietri 7y agoSure, wars aren't supposed to be sustainable. That's why people start them. I agree a monopoly over a small market niche sometimes happens even in antitrust contexts. That can happen with or without price wars. I also agree monopoly pricing power is bad. (Although not nearly as bad in a niche, because other well-funded competitors get an incentive to step in the more prices get out of line.) But none of this is proof of the death of an industry.