Why Does United Airlines Still Exist?
James Kwak
868

Well this here is perfect capitalism. Companies can grow big and become risk-avoiding, monopolistic entities maximizing their turnover and earnings on the back of the customer. What is missing here is some good old-fashioned market economics.

Air transportation is not a contestable market. Sunk costs are too high and network economics dictate that size matters. The world yet has to see an airline starting on day one with 100 aircraft. The one time something like this happened with fly i , United lowered its prices, opened new routes and priced the start-up out of the market, based on their ability to take losses and make money elsewhere.

Look at what Virgin America had to endure before take-off. Look at how politicised airline shareholding is in the US, given the strategic reserve airlines offer to the Pentagon. Look how hard a time a US airline like Hawaiian has to get flights to Japan when American or Delta want some too, in what is not a free Transpacific Market but a bureaucratic nightmare.

All this lobbying is very capitalistic but it eliminates the free market, especially when the very same is not contestable by nature. Instead of mergers and repeated Chapter 11 filings, bankruptcies which free slots, gates, aircraft, staff and assets would serve the market, keep it fluctuating and more competitive. But also here capitalist interests stand in the ways, namely those of shareholders and banks who feel entitled to earnings and protection from market dangers and financial losses in an “industry of national interest”.

So United hangs in there with Frontier and Spirit as one of the three worst airlines in the US. They are nevertheless being chosen on price, schedule or for customer retention reason (FFP or Corporate Rates). That makes them an airline of choice. They exist because people choose them. And the lower their expectations, the better the chances for United to do better than that. Hope may indeed be a key reason why people fly with any of the “US3", AA, DL or UA.

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