Chris B

Why Is U.S. Transportation a Losing Investment?

As the author points out, there's no reason to see market share as the cause of the big 3's problems. They still have more than enough share and should, in theory, be able to operate at a profit.

The big problem, as everybody knows, is the health and pension costs. Is it "fair" that Toyota, Honda, Hyundai, Nissan, Kia, etc. don't rack up massive debts to pay for retiree's healthcare or offer pensions? Wrong question. Profitability is profitability, and unprofitable businesses eventually go out of business. Bankruptcy is a function of numbers, not employee relations.

It's the same story with the airlines. They offer a great service, when it's on time, but still cannot make a profit due to their fixed costs being too high, despite the fact that the government built their airports and air traffic control systems for them and indirectly subsidises their fuel costs.

The common thread here is that non-union businesses like Toyota, FedEx, and smaller airlines, have lower costs than GM, United Airlines, or Ford because either their employees have less leverage or their management is less prone to giving in. Thus, they can afford to set market prices lower.

The GM/Ford/Chrysler pension problem was predicted a decade ago, but both management and the union pretended there was nothing wrong until now.

Why Airline Stocks Are So Often Bad Investments

Wow, 14 posters all missed the point of the article about how extreme income demand elasticity combined with a cutthroat pricing and expansion business model means that airlines can't make good money in recessions OR expansions. The detailed observations above miss the forest for the trees. Consistent profitability is impossible where these 2 conditions exist, no matter what the details.

I will only add that if it wasn't for taxpayer funded airports, airport security, air traffic control, and the FAA, none of these companies could even exist. Their revenue seems to come from stock investors, but most of the fixed costs are paid by the government. It's the ultimate socialized industry that ironically benefits the wealthy more than anyone. I'll mention that the next time someone at an airport tells me that single-payer healthcare would be the road to communism! Sorry, but the entire transportation sector is already there.