Previous airline flops like this prompted an old saying - possibly untrue - remarking that the airline industry has lost money since the Wright Brothers first flew.
They've also inspired tall tales of time-traveling bankers from the future having been seen at Kitty Hawk on Dec. 14, 1903 trying to shoot down Wilbur Wright and prevent the whole economic disaster from taking place.
Yet, investors keep putting money into these operations.
For anyone who hasn't yet learned to avoid airlines, let me give you this look into the industry's hopeless economics. You'll see there's no change of fortune ahead - and no confident signs of profitability for investors.
The Odd Economics of TransportationThe airline business has peculiar economics.
It is very high in fixed cost, both for initial operation and per flight, but the marginal cost of an additional passenger is almost zero. Pricing can be infinitely arcane, but service is very difficult to differentiate. Labor costs tend to be very sticky downwards - especially in unionized operations like AMR Corp.
This dismal economics is not unique. Two other industries have shared it: railroads and shipping.
With railroads, the initial railroad construction boom was when fortunes were made. This is largely because the revenue available from a sound railroad when completed was more than able to amortize the railroad bonds used to construct it.
But once the U.S. railroad network was substantially complete by 1890, shippers found they could play competing railroads against one another to hold down freight rates. In single-railroad "monopoly" areas, the Interstate Commerce Commission prevented the monopoly railroad from raising rates. With the marginal cost of shipping an additional passenger or additional ton of freight being so low, tariffs were forced down towards this marginal cost, preventing railroads from servicing their debt or providing an adequate return on their stock.