Comment of the Week 2003-02-27
By Arnold Kling
This week, I give the award to this comment by Zimran. Talking about the issue of airline profitability, he writes in part
the airline industry also has perennial over capacity. Companies may enter and exit the market, but the planes never leave. It is this that puts downward competitive pressure on prices, not the high-fixed low-marginal nature of the business (all that does is make them lose alot of money when times are bad, and make alot of money when times are good).
I went to a UAL talk at Chicago with the ex-CEO of Northwestern(?) airlines, a Chicago Law banckrupcy expert, and Peltzman (a U Chicago industrial organization guy). They said we should not overestimate the Southwest point-to-point model for airlines. Given the economics point-to-point is more efficient only in about 30% of existing routes, leaving hub-and-spoke still the dominant way to travel.
If you have a further comment on airline bankruptcies, the role of unions, and so forth, you can post to the original thread.