ABSTRACT
The chapter explores that poor innocent airlines receive too much capacity, are forced to compete recklessly, drop prices to levels which do not cover costs, and eventually lose money. For a professional economist, it is very hard to accept the claim that the reason for the financial losses of the airline industry is that one of its major factors of production is priced too low. While there are some people who believe that aircraft are too cheap, there are at least as many who believe that they are too expensive. The objective of an airline, or for that matter any other business, is to maximize profits, not revenue. Stated simply, an aircraft that takes longer to recover its purchase price is not inferior to one that takes a longer time to accomplish the same mission if the cost of its operation is lower. Modern aircraft have much better operating characteristics and could, other things being equal, lead to higher profits.
