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.
Cruise ships, yes, but airlines are nearly unique in that the unsold
capacity turns worthless the minute a plane takes off. It's worse
than the fish business in that regard. So the industry has all kinds
of pricing dilemmas: fill up the seats in advance with discount
fares, that may be money-losing, and hope for some last-minute sales
at very high rates. But there's also a great temptation to fill seats
at low rates, that can result in that ruinous competition we heard
about in the 19th century. It's a crazy business, which is why it was
regulated in the first place.
Doug
