Fabio mentioned the long string of unprofitable airlines in an earlier post. The Feb. 17, 2002 NYTimes Magazine had a good piece by Rich Lowenstein this. Among others, the following points caught my eye:
"One reason the major airlines find themselves in this predicament is that they use huge amounts of *fixed* capital - wide-body jets go for $100 million each and can't be readily liquidated. They also depend on a skilled labor force. The two problems can exacerbate each other. Since airlines cannot afford to let planes sit idle, they can ill suffer strikes. That makes their unions unusually powerful. ... [Comparison with other industries with high fixed costs like steel but replaceable workers or skilled works but little fixed capital as with Microsoft]...Airline pilots (and mechanics too) are not so replaceable. Stringent safety codes strengthen unions further by introducing stickiness into the rules that govern hiring and firing..." An interested related point made later is that "Pilots make good money but lack the free agency of other professionals. If a United pilot moves to Delta or American, he loses his seniority and most of his pay. This makes him utterly dependent on the union - and makes the union a potent force." Alex P.S. A recent piece in Wired (Mar 2002 issue) on the much lower costs of deregulated and de-unionized airlines in Europe is a good companion piece (not online yet but later this month will be available at http://www.wired.com/wired/archive/10.03/). Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
