19th C. railroads & airlines follow the same pattern. Yes, bankruptcy lowers the debt load & then the process commences anew. The difference between the examples you gave & the other businesses is that airline travel became a commodity.
A niche airline that caters to a small client base of very rich people can survive unless a flood of entry contaminates that business. On Thu, Sep 22, 2005 at 10:00:53AM -0700, 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. > > It is a metaphysical certainty that at a certain level of fixed cost, the > investment will lose money. But there is going to be an income stream, and > that income stream is going to be profitable assuming a certain level of > fixed debt. If the fixed debt is too high, that's what bankruptcy > reorganization is for. > > David Shemano -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
