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]
