4 ms·
Airlines (and other businesses with very high fixed costs) can be profitable if there’s enough consolidation in the industry. Otherwise they get into price war
by viburnum 7y ago
Airlines (and other businesses with very high fixed costs) can be profitable if there’s enough consolidation in the industry. Otherwise they get into price war death spirals with no way out.
- qubex 7y agoRailways are also often unprofitable, even when a monopoly (because of inflexible ticket pricing and high amortisation, depreciation, and maintenance costs).
- nogabebop23 7y agoha - maybe passenger service but not freight in north america!
- api 7y agoTransportation is critical yet often unprofitable, which is why it's usually heavily regulated and subsidized.
- mathieuh 7y agoFurther, it acts as a multiplier. Which is why I believe rail travel should be nationalised—very few people take a train for the sake of being on a train, people take trains to work or to spend money somewhere else. It makes no economic sense to insert competition into a natural monopoly whose main purpose is to multiply people’s productivity. Everyone loses out.
- api 7y agoThe only benefit and rationale for competition there is to prevent bureaucratic sclerosis. Its easy for any monopoly to become top heavy with corrupt or incompetent chair warmers who just extract from it and barely do their job.
- salawat 7y agoI find it interesting your word choice suggests that the price war is undesirable compared to a destabilizing monopoly.
- yzmtf2008 7y agoI mean, what do you expect happens after airlines die from a price war? It’s not lower prices.
- salawat 7y agoGenerally speaking, I'd hope it wouldn't be "Everything consolidates without bound." Doing that just sets the stage for a monopoly to form, just add time. The price war should be won by the airline that can most efficiently manage resources and adapt different business models to provide stable service with fewer inputs. That is what the Market is purportedly for, no? Consolidation is not good. High variety distributes society's eggs across many baskets, creating fault tolerance. Consolidation leaves us one black Swan away from a potentially unrecoverable calamity.
- yzmtf2008 7y ago> The price war should be won by the airline that can most efficiently manage resources and adapt different business models to provide stable service with fewer inputs. And then what? Is that not a monopoly? I know the classic response to this is newcomers will come up with lower prices, but what if there's economy of scale, and newcomers just can't compete?
- erik_seaberg 7y agohttps://philip.greenspun.com/flying/unions-and-airlines https://philip.greenspun.com/flying/unions-and-airlines is why airlines go bankrupt so often.
- refurb 7y agoThe answer is to look at who controls the pilot's union: very senior pilots. The airline management is mostly interested in what percentage of its revenues are paid out to pilots; the distribution of the money among the pilots does not affect profitability. The very senior pilots on the other side of the table say "We need the most senior pilots to get $300,000 in pay and benefits." The airline's response is "The only way that could work is if we pay the new pilots $16,000 per year." The group of senior pilots responds "We can live with that."
- bluntfang 7y agoand what are executives making?
- refurb 7y agoThey're doing well I'm sure. Doesn't change that the union screws over the new guys in favor of the more senior members.
- viburnum 7y agoI don't know, pro sports are all unionized and they make money. Blaming the workers seems like rightwing nonsense to me.
- jessaustin 7y agoWho is blaming anyone? Link above is just observation. Senior pilots don't have less of a moral right to enrichment than e.g. airline stock investors. If anything the hope would be that the senior pilots might share more equitably with the junior pilots...