> From its deregulation in 1978 to the end of 2025, the airline industry has cumulatively lost money: its net profit over those 47 years sits at negative $37 billion.
That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits. My understanding is that before regulation, routes were allotted by the government. So an airline might own New York to Boston, so they didn't have to compete. Obviously de-regulation changed that.
The article doesn't go into it, but unions are also a challenge. Much of the airline industry is unionized. So you have situations where pilots that have been there a while get a lot more money. You have people doing essentially the same job but some are getting paid 3x as much just because they've been there a long time. In most industries, there is higher pay for senior talent, but that's because they're more effective at their job, and produce higher output. In this case it's just a legacy cost that makes some airlines incredibly uncompetitive through structural features.
A race to the bottom on pilot pay won't help anything. Well it may lead to less qualified pilots. You can ask Boeing how well screwing over labor has worked for them if you like.
All US airlines have the same labor costs for pilots and it isn't their highest cost anyway. That would be fuel.
If you want to divvy up costs that way: Boeing is probably the biggest problem. Both them and Airbus eat up all possible excess profit on the back end via the cost for airliners. Break up Boeing, bring back competition in airliner manufacturing. People who want to screw over labor don't usually frame things in those terms for some reason.
How exactly does Boeing drive up the cost? The cost of the aircraft is less than 20% of the lifetime cost of operating an airliner and a lot of the maintenance cost is not related to the cost of parts from Boeing, since most parts that get replaced on an aircraft are not made by Boeing and airlines do not go through Boeing to buy them.
For US commercial airlines it is my understanding that there are effectively no non-union pilots. That's good for the pilots (higher wages), but bad for the flyers (higher ticket prices).
> was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits.
That's because this assertion is economically illiterate. Deregulation can lead to increased profits where otherwise companies have monopoly power. But often, the regulation was there in the first place to ensure that companies had sufficient profit to invest in expensive infrastructure. (E.g. railroads).
For passengers, yes, but primarily it’s poor for passengers because the infra is owned by freight companies that aren’t interested in passenger service. And rail freight service in the US is mostly pretty good.
And, at the time, they needed a lot of rail across huge distances. The transcontinental rail lines were hugely expensive and had immense amounts of graft involved in every step of their construction, but they got built. Also enabled the crushing of Native Americans, which was a usually-somewhat-tacit (though sometimes very explicit) goal in Washington.
The U.S. has the best rail infrastructure in the world. It’s just designed for moving cargo across what used to be the world’s largest industrial center instead of moving passengers around.
The second sentence of your article addresses my point:
> As tourists and students studying for a semester we aren’t going to interact with electrical or plumbing related infrastructure that acts behind the scenes as long as it works. The infrastructure we are most concerned about as people traveling is transportation, specifically passenger transportation.
The U.S. isn’t a tourist country and hasn’t optimized its rail infrastructure for moving tourists around. Its infrastructure is optimized for moving raw materials and finished products around a huge single market.
The US, before deregulation, had a whole lot of railroads going bankrupt. This was partly because factories closed but the railroad couldn't abandon the line that served those factories, because of regulation.
I mean, they are still regulated, and they still have to go through regulators to abandon a line (IIUC), but it's much faster than it was.
> That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits.
It really depends on the market. In a potentially competitive market, deregulation can work as a function to drive down margins.
Air travel is such a market. Prior to deregulation, routes were set by government action and competition was limited. With deregulation, it's not that hard to setup a commercial scheduled airline, and new airlines popup relatively frequently to address routes where there is margin. It doesn't take that much capital to start an airline; you can lease the aircraft and contract out maintenance (might be part of the lease) and start with a single round trip per day. You don't need to start with a big network or a lot of aircraft. It's not so easy to get slots at busy airports, but you don't have to start there either.
Where deregulation ends up leading to outsized profits is where the market leads to natural monopoly and regulation provides an upper bound on margin, rather than a lower bound. Things like last mile utilities, where it's difficult to run multiple networks in the same space: ex water, sewage, electricity, telecom. In situations like that, to promote competition you want to do regulated unbundling, so there's one organization that runs the last mile and choices for service over the last mile: ex you pay the last mile for delivery of water per acre foot and also your water supplier who must deliver the same number of acre feet to the water network. (or probably a little more, water networks have shrinkage)
That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits.
I've held the belief that an occasional bankruptcy is basically a sign of healthy competition within an industry: those companies going down literally didn't know how to be any more efficient or they could've survived.
Regarding airline business, a crapload of more people are flying now with better prices than before the industry was deregulated. Sure it must hurt someone at one end, eventually. Part of the business is standing through price wars because someone will always lose: the best companies can endure that. While airline industry probably fluctuates as described in the article there are plenty of other cyclic industries. Churn itself isn't anything new.
The article does discuss union collective bargaining agreements and labor cost structure in several sections.
> Labor costs might seem variable, but they’re actually not: pilot, flight attendant, and mechanic compensation in the United States is governed by the Railway Labor Act of 1926 (which was extended to airlines in 1936), which stipulates that collective bargaining agreements don’t actually expire but rather remain in force until they’re replaced. So even your wage bill is more or less fixed over multi-year horizons.
> Chapter 11 bankruptcy protection—which allows a company to continue operating while it restructures its debts under court supervision—is practically the only mechanism by which an airline can renegotiate its rigid cost structure, from aircraft leases to collective bargaining agreements. Oftentimes this renegotiation takes on a rather predatory character. When United Airlines filed for bankruptcy in 2002 in the aftermath of the September 11th attacks, it terminated its pension plan...
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole. For airlines, bankruptcy rarely culminates with liquidation; airlines that emerge from bankruptcy proceedings, having voided pension obligations and rejected aircraft leases, can operate at a fundamentally lower cost basis than their competitors. So bankruptcy doesn’t really restore the industry to a competitive equilibrium that can cover the cost of capital: it resets the floor at a lower level, from which a new round of ruinous competition can begin.
Airlines are popular employers specifically because they offer a clear vision of future pay increases and better, more prestigious, schedules. People, especially pilots, are willing to put up with a lot early on because they are confident that sticking with the plan will eventually allow them to earn double and triple their early-career salaries.
Same thing happens in law, investment banking, etc... the hardest workers are often the youngest and least-paid. They do it because they know big money may come later.
It's a losing business for exactly the reason they sold us on deregulation in the first place: "Competition drives down prices". It's hard to understand why they fought so hard for it, because they got exactly what they said we'd get.
Consumers compare prices and will always take the cheapest one, even if it's only by a few dollars. They don't think about which airline would be more comfortable, so they make comfort worse and worse. There's very little room in the market for a less-uncomfortable plane. They can auction off exit row seats, but for the most part it's "cattle car" and "first class" at ten times the price (for the people who don't care about price at all).
Frequent flier programs try to stem the flow of people to the cheapest airline, but it doesn't help all that much. They get to charge slightly more than they would otherwise, especially since everybody has a frequent flier program (so everybody gets to raise prices and nobody gives you the even-cheaper alternative). But the various benefits that they use to entice you eat up most of the profits.
Basically they're hoist by their own petard. They promised lower prices but didn't think they'd have to deliver. Instead consumers took them up on it, in droves.
Fascinating article. One sentence jumped out to me:
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole
The American founders writing a uniform federal system of bankruptcy was a stroke of genius that's been paying dividends for 250 years now.
Chapter 11 bankruptcy as well as all modern corporate law has its roots in the tycoons of the late 19th century. They lobbied and wrote it which is why it's corrupt.
The article provides a great example. Airlines are a structurally unstable industry. Yet you can hop on a plane and get anywhere. Bankruptcy law enables airlines to keep operating as they restructure their debts with minor hiccups.
More broadly, our modern world exists because of large scale organizations, the ability for strangers to transact, and efficient markets for allocating credit and capital. Bankruptcy law is a pillar that makes that possible. It enables lenders to extend credit knowing that, if the debtor can’t repay, there will be an orderly process for getting some of the money back. That backstop in turn lowers the barriers to transaction.
Contrast this with what happens in a country without modern bankruptcy law. Businesses in those countries still need to borrow money. But what happens when a debtor can’t pay? Individual creditors have an incentive to harass the debtor and be the first ones to recover their share. Debtors have incentives to pay back certain creditors before others. Creditors might seek to liquidate an otherwise viable business just to get paid. All that means that lending and borrowing is risky. So when people do it, they go through established trust networks, such as families, clans, etc. This dampens business formation and entrepreneurship.
Even if that's true, current bankruptcy law is still really far from socially optimal.
There are a lot more points on the "how does your system respond to business failure" spectrum besides low-consequence ch11/better-luck-next-time and debtors' prison.
What's a country with a more effective system? Not saying that the lack of a more effective system means the US's is optimal, but the outcomes for capital reallocation are far better in the US than the UK for instance.
In the US, workers at a bankrupt company can often show up to the same workplace the next day or week and not skip a beat, the customers might not even know they're doing business with a different entity - only the owners have changed - the old ones get wiped out and their debtors take control.
The more interesting question is why airlines go bankrupt in such spectacular fashion.
Every airline that goes belly up always does it with a bang. All flights cancelled, effective immediately. Stranded customers. Tens of thousands of jobs instantly lost. Every time.
It's not like startups or even established companies wherein the time of death takes forever to get to, despite EVERYONE knowing that the body is a corpse.
Often airlines engage in merger rather than collapse. See US Airways (bankrupt) + America West, and later American Airlines (bankrupt) + US Airways.
I think the bankruptcy process does tend to lead toward spectacular failure when the cost of operating is too far above the revenue from operating. Decreasing operations during bankruptcy makes the company less attractive and may not even significantly help the net revenue situation. You really need to be solvent or nearly solvent to have an orderly winding down. That said, wikipedia says they did reduce scheduled flights by 25% in Nov 2025, and I think they reducsd the size of their fleet in a similar time frame, so it could have been that much more confusion and delay.
On the other hand, Spirit as mentioned in the article stopped making profit in 2019. Some years later, chapter 11 filings and then another round.. That's like a 7-year runway (pun intended) to insolvency.
Because fixed costs are what they are, I think, is the reason you can drive the business quite precisely to the brink of inoperation: it could literally come down to pure luck between how full your planes happen to be and how close you are to the next payment of some critical loan whether you can take off into the air for another month or so.
I'd never given a lot of thought but the proliferation of budget airlines creating a race to the bottom always made it seem like airlines were a bad investment.
One thing it leaves out. For bankruptcies that result in reorganization rather than liquidation, it offers the airline an "out" on its many labor contracts. And freedom to renegotiate that contract with a lot of leverage. Labor is the highest cost they have, other than fuel.
Maybe not related but fascinating: "Annual spending on Delta-branded American Express cards comes out to about 1 percent of U.S. GDP. In 2025, this produced about $8 billion in revenue for Delta, accounting for more than the entirety of its profit."
New revenue model idea: Charge $40/month on a person's credit card; a subscription. This buys the customer miles. Whenever you want to go somewhere, you use your miles. I think it would work based on the fact that people are willing to pay much more money for services if it's spread out and predictable. The fact that it's pre-paid also creates a lock-in benefit for the airline that the 'pay later over time' schemes lack.
I mean a lot of airline point credit cards do something like that. Many have a fee, and you earn miles by using the card & get mileage bonuses for certain things. But these programs only make sense to a consumer if A) you’re good at finding good value for your miles and B) you’re passively earning miles by doing things you’d normally do anyways. (With a bonus for airline loyalty perks, if you fly a lot.)
Thing is, buying miles is normally a really poor use of your money, because the redemption rate isn’t great, and airlines devalue miles all the time. For example, the lowest option at delta is to buy 2000 miles for $70. That’s 3.5 cents per mile, but you can only expect to get a value of 1.25 cents per mile when you redeem them. Which only comes out to $25 in value, loosing you $45 — and that’s assuming you wait to spend miles for a good deal. (Redemption rate is worse during more popular flights.)
Airline miles are just not worth much, which is why people chase like hundreds of thousands of miles at a time through credit card sign up bonuses.
They also have nothing to do with either Imperial miles or nautical miles. Like, a 2,500 mile flight costs something like 70,000 miles. I am irrationally angry about this and therefore refuse to participate in any related credit card scheme.
Alaska Airlines apparently does or did this kind of thing: My sister in law had a “subscription” that was good for monthly tickets between San Diego and wine country.
It might not be that significant of a cost all things considered, but I have always felt the peculiar existence of "professionally happy" cabin crew, in-flight meals, screens and other pointless "comforts" glaringly unnecessary in what's generally meant to be just 2-3 hours of sitting on an average for the passengers. You could just operate a plane like a dumb bus and save up on a lot of costs and turn it into competitive advantage.
Budget airlines have tried all of these things. Planes doing short haul routes often don't have comforts like screens, let alone meal service.
It turns out that in-flight entertainment helps minimize unruly passengers, and flight attendants are there for safety, not just to serve passengers. Same for legroom requirements (egress).
I submitted https://www.thebignewsletter.com/p/who-killed-spirit-airline... but it failed to get traction. tl,dr: Jetblue pulled some illegal moves, Trump's trip to Iran caused gas prices to go up, the big four legacy airlines did a thing, and regulators.
This is capitalism working as intended. Only the best run airlines can survive, and investors are collectively subsidizing air travel for non-investors.
Nothing in the article (or in the real world) even remotely suggests that "the best" airlines survive. Simply, the airlines that survive are the ones that survive.
How much of this is related to the pilots union? It seems like they capture all excess profit in the system during the good times, and fight vigorously to keep their inflated earnings even during the bad times.
The article touches on this. Pilot wages are very similar across major US airlines due to heavy unionization and pattern bargaining, so labor is more-or-less a fixed cost (and not the biggest fixed cost).
Additionally, pilots can and do take pay cuts in lean times. The pilots at my own airline saw a 20% pay cut in the contract following 9/11 and very reduced wage growth for a decade after that. Management took something like a 5% cut and kept the retirement benefits we lost.
Edit: I thought I recognized your name, I see we discussed pilot unions together on HN a few years back. Can I ask what you have against us? Out of genuine curiosity.
It's the same thing I have against government employee unions. I, as a consumer, don't have an option to select a flight without unionized pilots. Every additional dollar a pilot earns in wages is another dollar that comes out of my pocket. Do I get ANYTHING by paying that additional dollar? You're not creating innovation. You're a rent seeking tax on society. The very definition of a zero sum game.
I’m very thankful for the stability and opportunities being a union member has provided my family since I left the tech field, and I wish my friends still in tech could enjoy the same QOL rather than all of us being worse off and upper management being even richer.
How much of your earnings are inflated? Do you safely do a job that potentially risks several hundred people's lives every single day?
Do you realize you are infinitely closer to a pilot than a billionaire or a founder or whomever it is you seem to care more about than working people?
Class consciousness, solidarity, and workers literally fighting and dying earned you an 8 hour day, social security, and all the workplace protections you probably take for granted.
Maybe we need Uber for airlines. Pilots don't lose their skills, passengers always have demand, the issue is that pricing is too predictable. You could see this with skiplagged, there really is room for fare pricing innovation. Start by capturing the private luxury market, work down to commodity.
> From its deregulation in 1978 to the end of 2025, the airline industry has cumulatively lost money: its net profit over those 47 years sits at negative $37 billion.
That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits. My understanding is that before regulation, routes were allotted by the government. So an airline might own New York to Boston, so they didn't have to compete. Obviously de-regulation changed that.
The article doesn't go into it, but unions are also a challenge. Much of the airline industry is unionized. So you have situations where pilots that have been there a while get a lot more money. You have people doing essentially the same job but some are getting paid 3x as much just because they've been there a long time. In most industries, there is higher pay for senior talent, but that's because they're more effective at their job, and produce higher output. In this case it's just a legacy cost that makes some airlines incredibly uncompetitive through structural features.
https://www.thrustflight.com/united-airlines-pilot-salary/
A race to the bottom on pilot pay won't help anything. Well it may lead to less qualified pilots. You can ask Boeing how well screwing over labor has worked for them if you like.
All US airlines have the same labor costs for pilots and it isn't their highest cost anyway. That would be fuel.
If you want to divvy up costs that way: Boeing is probably the biggest problem. Both them and Airbus eat up all possible excess profit on the back end via the cost for airliners. Break up Boeing, bring back competition in airliner manufacturing. People who want to screw over labor don't usually frame things in those terms for some reason.
How exactly does Boeing drive up the cost? The cost of the aircraft is less than 20% of the lifetime cost of operating an airliner and a lot of the maintenance cost is not related to the cost of parts from Boeing, since most parts that get replaced on an aircraft are not made by Boeing and airlines do not go through Boeing to buy them.
> Break up Boeing, bring back competition in airliner manufacturing.
Sounds backwards. Pilots have a total monopoly. Boeing doesn't.
Pilots have a total monopoly... in the occupation of piloting?
For US commercial airlines it is my understanding that there are effectively no non-union pilots. That's good for the pilots (higher wages), but bad for the flyers (higher ticket prices).
Pilot pay has been trending downwards for a while. It's pretty badly paid for how high-stress and high-skill it is.
sure, airlines have a choice among tens of US aircraft making companies other than Boeing... oh wait...
> was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits.
That's because this assertion is economically illiterate. Deregulation can lead to increased profits where otherwise companies have monopoly power. But often, the regulation was there in the first place to ensure that companies had sufficient profit to invest in expensive infrastructure. (E.g. railroads).
That also didn't work well. The US is notoriously very poor in railroads.
For passengers, yes, but primarily it’s poor for passengers because the infra is owned by freight companies that aren’t interested in passenger service. And rail freight service in the US is mostly pretty good.
And, at the time, they needed a lot of rail across huge distances. The transcontinental rail lines were hugely expensive and had immense amounts of graft involved in every step of their construction, but they got built. Also enabled the crushing of Native Americans, which was a usually-somewhat-tacit (though sometimes very explicit) goal in Washington.
The U.S. has the best rail infrastructure in the world. It’s just designed for moving cargo across what used to be the world’s largest industrial center instead of moving passengers around.
Yeah well not everybody agrees : https://sites.lafayette.edu/engineers-in-bonn/2025/04/22/us-...
The second sentence of your article addresses my point:
> As tourists and students studying for a semester we aren’t going to interact with electrical or plumbing related infrastructure that acts behind the scenes as long as it works. The infrastructure we are most concerned about as people traveling is transportation, specifically passenger transportation.
The U.S. isn’t a tourist country and hasn’t optimized its rail infrastructure for moving tourists around. Its infrastructure is optimized for moving raw materials and finished products around a huge single market.
The US, before deregulation, had a whole lot of railroads going bankrupt. This was partly because factories closed but the railroad couldn't abandon the line that served those factories, because of regulation.
I mean, they are still regulated, and they still have to go through regulators to abandon a line (IIUC), but it's much faster than it was.
> That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits.
It really depends on the market. In a potentially competitive market, deregulation can work as a function to drive down margins.
Air travel is such a market. Prior to deregulation, routes were set by government action and competition was limited. With deregulation, it's not that hard to setup a commercial scheduled airline, and new airlines popup relatively frequently to address routes where there is margin. It doesn't take that much capital to start an airline; you can lease the aircraft and contract out maintenance (might be part of the lease) and start with a single round trip per day. You don't need to start with a big network or a lot of aircraft. It's not so easy to get slots at busy airports, but you don't have to start there either.
Where deregulation ends up leading to outsized profits is where the market leads to natural monopoly and regulation provides an upper bound on margin, rather than a lower bound. Things like last mile utilities, where it's difficult to run multiple networks in the same space: ex water, sewage, electricity, telecom. In situations like that, to promote competition you want to do regulated unbundling, so there's one organization that runs the last mile and choices for service over the last mile: ex you pay the last mile for delivery of water per acre foot and also your water supplier who must deliver the same number of acre feet to the water network. (or probably a little more, water networks have shrinkage)
> That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits
Sometimes it does and sometimes it doesn't. It depends on the industry, as the article goes into detail to explain.
That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits.
I've held the belief that an occasional bankruptcy is basically a sign of healthy competition within an industry: those companies going down literally didn't know how to be any more efficient or they could've survived.
Regarding airline business, a crapload of more people are flying now with better prices than before the industry was deregulated. Sure it must hurt someone at one end, eventually. Part of the business is standing through price wars because someone will always lose: the best companies can endure that. While airline industry probably fluctuates as described in the article there are plenty of other cyclic industries. Churn itself isn't anything new.
The article does discuss union collective bargaining agreements and labor cost structure in several sections.
> Labor costs might seem variable, but they’re actually not: pilot, flight attendant, and mechanic compensation in the United States is governed by the Railway Labor Act of 1926 (which was extended to airlines in 1936), which stipulates that collective bargaining agreements don’t actually expire but rather remain in force until they’re replaced. So even your wage bill is more or less fixed over multi-year horizons.
> Chapter 11 bankruptcy protection—which allows a company to continue operating while it restructures its debts under court supervision—is practically the only mechanism by which an airline can renegotiate its rigid cost structure, from aircraft leases to collective bargaining agreements. Oftentimes this renegotiation takes on a rather predatory character. When United Airlines filed for bankruptcy in 2002 in the aftermath of the September 11th attacks, it terminated its pension plan...
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole. For airlines, bankruptcy rarely culminates with liquidation; airlines that emerge from bankruptcy proceedings, having voided pension obligations and rejected aircraft leases, can operate at a fundamentally lower cost basis than their competitors. So bankruptcy doesn’t really restore the industry to a competitive equilibrium that can cover the cost of capital: it resets the floor at a lower level, from which a new round of ruinous competition can begin.
Airlines are popular employers specifically because they offer a clear vision of future pay increases and better, more prestigious, schedules. People, especially pilots, are willing to put up with a lot early on because they are confident that sticking with the plan will eventually allow them to earn double and triple their early-career salaries.
Same thing happens in law, investment banking, etc... the hardest workers are often the youngest and least-paid. They do it because they know big money may come later.
Could it be Hollywood accounting?
These losses are peanuts compared to the externalities.
article:
> its net profit over those 47 years sits at negative $37 billion
EPA social cost of carbon: $190/ton [1]
US aviation annual emissions: 200 million tons/year
Global warming impact of aviation emissions is leveraged[3] 1.7x because burning it in upper atmosphere is worse.
cost: 190 x 200M * 1.7 = 64600M = or ~65 B / year.
And the articles calcualted loss was over the whole 47 years.
(The 190 per ton cost is for today, it's projected to go up as things get worse.)
[1] https://www.epa.gov/system/files/documents/2023-12/epa_scghg...
[2] https://www.eesi.org/articles/view/u.s-and-international-com...
[3] https://ourworldindata.org/global-aviation-emissions#non-co2...
Simply because flying passengers is a losing business.
The ones that make money operate as financial services from selling points to their partners via their frequent flyer programs.
United’s pre-flight safety notices make it appear as if they spared no expense…
But _why_ is it a losing business? The article also mentions frequent flier programs.
It's a losing business for exactly the reason they sold us on deregulation in the first place: "Competition drives down prices". It's hard to understand why they fought so hard for it, because they got exactly what they said we'd get.
Consumers compare prices and will always take the cheapest one, even if it's only by a few dollars. They don't think about which airline would be more comfortable, so they make comfort worse and worse. There's very little room in the market for a less-uncomfortable plane. They can auction off exit row seats, but for the most part it's "cattle car" and "first class" at ten times the price (for the people who don't care about price at all).
Frequent flier programs try to stem the flow of people to the cheapest airline, but it doesn't help all that much. They get to charge slightly more than they would otherwise, especially since everybody has a frequent flier program (so everybody gets to raise prices and nobody gives you the even-cheaper alternative). But the various benefits that they use to entice you eat up most of the profits.
Basically they're hoist by their own petard. They promised lower prices but didn't think they'd have to deliver. Instead consumers took them up on it, in droves.
All commodities are losing businesses, because the margins become low through competition. This is great for us fliers.
Fascinating article. One sentence jumped out to me:
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole
The American founders writing a uniform federal system of bankruptcy was a stroke of genius that's been paying dividends for 250 years now.
Chapter 11 bankruptcy as well as all modern corporate law has its roots in the tycoons of the late 19th century. They lobbied and wrote it which is why it's corrupt.
U.S. bankruptcy law is a foundational social technology that enables the marvelous world around you to exist.
> U.S. bankruptcy law is a foundational social technology that enables the marvelous world around you to exist.
Can you please expand? This is an expansive claim.
The article provides a great example. Airlines are a structurally unstable industry. Yet you can hop on a plane and get anywhere. Bankruptcy law enables airlines to keep operating as they restructure their debts with minor hiccups.
More broadly, our modern world exists because of large scale organizations, the ability for strangers to transact, and efficient markets for allocating credit and capital. Bankruptcy law is a pillar that makes that possible. It enables lenders to extend credit knowing that, if the debtor can’t repay, there will be an orderly process for getting some of the money back. That backstop in turn lowers the barriers to transaction.
Contrast this with what happens in a country without modern bankruptcy law. Businesses in those countries still need to borrow money. But what happens when a debtor can’t pay? Individual creditors have an incentive to harass the debtor and be the first ones to recover their share. Debtors have incentives to pay back certain creditors before others. Creditors might seek to liquidate an otherwise viable business just to get paid. All that means that lending and borrowing is risky. So when people do it, they go through established trust networks, such as families, clans, etc. This dampens business formation and entrepreneurship.
Even if that's true, current bankruptcy law is still really far from socially optimal.
There are a lot more points on the "how does your system respond to business failure" spectrum besides low-consequence ch11/better-luck-next-time and debtors' prison.
What's a country with a more effective system? Not saying that the lack of a more effective system means the US's is optimal, but the outcomes for capital reallocation are far better in the US than the UK for instance.
In the US, workers at a bankrupt company can often show up to the same workplace the next day or week and not skip a beat, the customers might not even know they're doing business with a different entity - only the owners have changed - the old ones get wiped out and their debtors take control.
> Even if that's true, current bankruptcy law is still really far from socially optimal
A 787 isn’t an optimal airplane either, but it’s a damn good design and it’s silly to compare it to things that don’t exist yet.
Is the marvelous world in the room with us right now?
We’re literally arguing with each other over it.
The more interesting question is why airlines go bankrupt in such spectacular fashion.
Every airline that goes belly up always does it with a bang. All flights cancelled, effective immediately. Stranded customers. Tens of thousands of jobs instantly lost. Every time.
It's not like startups or even established companies wherein the time of death takes forever to get to, despite EVERYONE knowing that the body is a corpse.
It's as hilarious as it is depressing.
Often airlines engage in merger rather than collapse. See US Airways (bankrupt) + America West, and later American Airlines (bankrupt) + US Airways.
I think the bankruptcy process does tend to lead toward spectacular failure when the cost of operating is too far above the revenue from operating. Decreasing operations during bankruptcy makes the company less attractive and may not even significantly help the net revenue situation. You really need to be solvent or nearly solvent to have an orderly winding down. That said, wikipedia says they did reduce scheduled flights by 25% in Nov 2025, and I think they reducsd the size of their fleet in a similar time frame, so it could have been that much more confusion and delay.
On the other hand, Spirit as mentioned in the article stopped making profit in 2019. Some years later, chapter 11 filings and then another round.. That's like a 7-year runway (pun intended) to insolvency.
Because fixed costs are what they are, I think, is the reason you can drive the business quite precisely to the brink of inoperation: it could literally come down to pure luck between how full your planes happen to be and how close you are to the next payment of some critical loan whether you can take off into the air for another month or so.
It's a tough business. Capital intensive, operationally complex, commodity product, unionized workforce, highly regulated...
I'd never given a lot of thought but the proliferation of budget airlines creating a race to the bottom always made it seem like airlines were a bad investment.
One thing it leaves out. For bankruptcies that result in reorganization rather than liquidation, it offers the airline an "out" on its many labor contracts. And freedom to renegotiate that contract with a lot of leverage. Labor is the highest cost they have, other than fuel.
This argues airlines are undifferentiated. In the aggregate, maybe that's true. Personally, I have a long list of airlines I try to avoid flying.
Southwest was very different and I personally preferred it. But Now it’s undifferentiated itself.
I have no reason to prefer it anymore other than if it’s the best on route and price. After all, it’s undifferentiated now.
Maybe not related but fascinating: "Annual spending on Delta-branded American Express cards comes out to about 1 percent of U.S. GDP. In 2025, this produced about $8 billion in revenue for Delta, accounting for more than the entirety of its profit."
New revenue model idea: Charge $40/month on a person's credit card; a subscription. This buys the customer miles. Whenever you want to go somewhere, you use your miles. I think it would work based on the fact that people are willing to pay much more money for services if it's spread out and predictable. The fact that it's pre-paid also creates a lock-in benefit for the airline that the 'pay later over time' schemes lack.
I mean a lot of airline point credit cards do something like that. Many have a fee, and you earn miles by using the card & get mileage bonuses for certain things. But these programs only make sense to a consumer if A) you’re good at finding good value for your miles and B) you’re passively earning miles by doing things you’d normally do anyways. (With a bonus for airline loyalty perks, if you fly a lot.)
Thing is, buying miles is normally a really poor use of your money, because the redemption rate isn’t great, and airlines devalue miles all the time. For example, the lowest option at delta is to buy 2000 miles for $70. That’s 3.5 cents per mile, but you can only expect to get a value of 1.25 cents per mile when you redeem them. Which only comes out to $25 in value, loosing you $45 — and that’s assuming you wait to spend miles for a good deal. (Redemption rate is worse during more popular flights.)
Airline miles are just not worth much, which is why people chase like hundreds of thousands of miles at a time through credit card sign up bonuses.
They also have nothing to do with either Imperial miles or nautical miles. Like, a 2,500 mile flight costs something like 70,000 miles. I am irrationally angry about this and therefore refuse to participate in any related credit card scheme.
Miles refers to how they are generated, not spent. Absent multipliers or other bonuses a 2,500 mile flight generates 2,500 miles.
All rewards programs are phrased like this. You save up 10 nights at a hotel by staying there 10 times and you can spend it on a single stay.
> I am irrationally angry about this
Did you notice that the 2,500 mile flight earned/generated/conjured 2,500 miles?
(I know, I know, things can change the number you get...)
Alaska Airlines apparently does or did this kind of thing: My sister in law had a “subscription” that was good for monthly tickets between San Diego and wine country.
High fixed costs, lack of product differentiation, low marginal costs, and sharp economies of scale sound similar to AI companies.
I wonder if empty core will apply to the AI business.
Great post. Thanks for sharing.
I always wondered why airlines were always running bankrupt… Now I know.
It might not be that significant of a cost all things considered, but I have always felt the peculiar existence of "professionally happy" cabin crew, in-flight meals, screens and other pointless "comforts" glaringly unnecessary in what's generally meant to be just 2-3 hours of sitting on an average for the passengers. You could just operate a plane like a dumb bus and save up on a lot of costs and turn it into competitive advantage.
Budget airlines have tried all of these things. Planes doing short haul routes often don't have comforts like screens, let alone meal service.
It turns out that in-flight entertainment helps minimize unruly passengers, and flight attendants are there for safety, not just to serve passengers. Same for legroom requirements (egress).
I submitted https://www.thebignewsletter.com/p/who-killed-spirit-airline... but it failed to get traction. tl,dr: Jetblue pulled some illegal moves, Trump's trip to Iran caused gas prices to go up, the big four legacy airlines did a thing, and regulators.
Capitalism doesn't work for big infrastructure projects? Who knew?
This is capitalism working as intended. Only the best run airlines can survive, and investors are collectively subsidizing air travel for non-investors.
Nothing in the article (or in the real world) even remotely suggests that "the best" airlines survive. Simply, the airlines that survive are the ones that survive.
How much of this is related to the pilots union? It seems like they capture all excess profit in the system during the good times, and fight vigorously to keep their inflated earnings even during the bad times.
The article touches on this. Pilot wages are very similar across major US airlines due to heavy unionization and pattern bargaining, so labor is more-or-less a fixed cost (and not the biggest fixed cost). Additionally, pilots can and do take pay cuts in lean times. The pilots at my own airline saw a 20% pay cut in the contract following 9/11 and very reduced wage growth for a decade after that. Management took something like a 5% cut and kept the retirement benefits we lost.
Edit: I thought I recognized your name, I see we discussed pilot unions together on HN a few years back. Can I ask what you have against us? Out of genuine curiosity.
It's the same thing I have against government employee unions. I, as a consumer, don't have an option to select a flight without unionized pilots. Every additional dollar a pilot earns in wages is another dollar that comes out of my pocket. Do I get ANYTHING by paying that additional dollar? You're not creating innovation. You're a rent seeking tax on society. The very definition of a zero sum game.
I’m really sorry you feel that way.
I’m very thankful for the stability and opportunities being a union member has provided my family since I left the tech field, and I wish my friends still in tech could enjoy the same QOL rather than all of us being worse off and upper management being even richer.
I'm sorry you don't see your arrangement as parasitic to society. And I apologize for being the first person to point it out to you.
How much of your earnings are inflated? Do you safely do a job that potentially risks several hundred people's lives every single day?
Do you realize you are infinitely closer to a pilot than a billionaire or a founder or whomever it is you seem to care more about than working people?
Class consciousness, solidarity, and workers literally fighting and dying earned you an 8 hour day, social security, and all the workplace protections you probably take for granted.
None of my earnings are inflated. My wage is set by the market, not by a group of people threatening to paralyze the economy.
Every pilot I've spoken to is against school teachers unions and yet doesn't realize that pilots are just bus drivers in the sky.
And yes, this does influence me. When a pilot makes $600k/year instead of $300k per year, my ticket price goes up 10%.
Maybe we need Uber for airlines. Pilots don't lose their skills, passengers always have demand, the issue is that pricing is too predictable. You could see this with skiplagged, there really is room for fare pricing innovation. Start by capturing the private luxury market, work down to commodity.
That sounds like a nightmare.