James Robinson wrote:
"Reef Fish" wrote:

Again, to re-iterate, Robert Cohen started this thread saying
Eastern's surmise was easy to predict because it was overpaying the
pilots and a few other extravagent spendings.

I disagreed, in general principle, on the Free Market principle that
no salary is too high, and cited examples in sports where the teams
didn't go bankrupt because they pay some players millions of dollars a
year -- which *I* think is ridiculous, but that's what the market will
bear.

Not entirely. Many of the weaker teams cannot afford the higher salaries
of the star players. Even with a redistribution of broadcast income,
they may not be able to survive. A recent example was the sale of the
Montreal Expos, which could not generate sufficient income to pay the
salaries of really good players. They would lose any standouts to
higher paying teams, leaving them with second string players.

That's PRECISELY how the FREE MARKET principle works at its best!
No salary is too high for THOSE who can afford to pay, and they DO.

When a midget tries to act like a giant, in business, that's exactly
what "mis-management" is about! You have in fact exemplified my point.


Again, in GENERAL principle, any business that fails ultimately can be
blamed on the owner of the business (or its management).

Perhaps in a general sense, but there are examples which defy the rule:
The management of transatlantic steamship companies could do very little
to counter the introduction of the jet airliner. The rules of the game
changed overnight, and they lost the majority of their passengers just
that fast. No reduction in fares would have been sufficient to retain
the business.

How did they DEFY the rule? The wise management would have immediately
gotten OUT of playing the game! Reduction of fares would be wishful
thinking and just another example of mis-management! No different in
the case of horse-and-buggy business when automobiles changed the
rule of the game. They are still IN BUSINESS, but pretty much limited
to the tourist rides in Central Parks and other amusement markets
and the regular market for the Amish (in the USA) who have not yet
yielded to the modern evils of using electricity, automobiles, and
other things we call necessities.


James blames it all on deregulation.

That's a bit too black and white,

Agreed. I could have changed "all" to "mostly" and it might have
been a more accurate characterization, except what I read was ALL
blamed on dereg.


though I certainly feel that
deregulation was the root of their problems. They fell sooner than
other airlines because of bad timing and bad luck, which has some
management overtones. While a different management strategy might have
helped somewhat, it would have only delayed the inevitable. A company
like Eastern could not change quickly enough to react to the effect of
deregulation.

If it were a completely deregulated industry, then it would have been
the Free Market, and that would be the perfect business environment
for competition and survival of the fittest. Unfortunately the
deregulation is only PARTIAL, and the airlines are subject to all
kinds of regulations which restricted their "free" choices!

Again, the rules can change fast enough that they still can't compete.

The Free Market principle is MORE than just how to compete! It
partly entails jumping out of a boat that's rapidly heading down the
Niagara Falls!


I am somewhat sympathetic to the theory of blaming it all on the
change of rules that is bring down the entire airline industry,
leaving no airline unscathed.

If that WERE the case, then the airlines themselves are to blame for
the collective stupidity of not getting OUT of competition that kills
everyone, winner and loser! There is no regulation against an airline
selling itself (while it was still profitable) and get into other
industries of better fair-competitions among large and small
companies.

It was too late to get out. Once deregulation established the lower
cost, all of the airline's assets devalued to the point where the
companies were defacto in bankruptcy.

I don't think that was true -- that it was a sudden catastrophy that
put all the airlines in defacto bankrupcy. Even if it WERE, it
would have been the time to bail out, rather than hang on futilely
for the inevitable.

Look at it this way. If ALL of the airline except ONE bailed out
immediately, don't you think that surviving airline would have been
the surviver today? UNLESS of course some NEW airline (in the Free
Market) found the Achille's heel?

All they could do is cut and run,

Then that's what they should have done!

but that also assumes that the management of the company has the benefit
of seeing what eventually happened to the industry. Eastern, and their
shareholders, thought they could survive by expanding to gain a critical
mass that would support their high cost structure.

Then the shareholders CONTRIBUTED to the mismanagement. I owned
at least 10,000 shares of Eastern at the time if was still worth
$7 or $8 a share. I bailed out. Not sure how much I lost in
that investment. BUt it sure was better than waiting until Eastern
was belly up completely. :-)


Therefore, their options were to declare immediate bankruptcy, or try
the alternative of growing to profitability. The tried the latter, and
the financial downturn of the Gulf war was their eventual undoing.

To me, that's the bottom line of "the buck stops at the Management".

That's very convenient, and simple to say, but luck also enters into the
picture. Business is usually a gamble, and certainly never a sure
thing. Some people take the risk and win, others lose. If they only
ever bet on the sure things, our economy would be dead.

Of course all businesses are GAMBLES. That's the "axiom". I stressed
that point in my teaching of statistics, risks, and I used that axiom
against those ignorant preacher who equates gambling to "sin" while
the church engages in all kinds of business gambles in "investment".
:-)

Hero or goat, the glory or blame goes to the decision maker.

That's what capitalism is about. However, there are also those who
begrude the winners the glory when they make it big. Look at the oil
companies and their profits.

So what's your point.

It's interesting that I think we see eye-to-eye on what BUSINESS is
all about -- undertainties, gambles, ...

yet we DIFFER on how one can GET OUT (or BAIL OUT) of a sinking
ship -- which is always ONE of the available decisions -- to
abandon ship before it's completely sunk.


That's how K-Mart, S-Mart, and other Marts all lost to the
better-managed Wal-Mart. Walmart didn't get big (like American)
overnight. It just grew by leaps and bounds because of better choice
of products, better layout for that kind of market, etc. It's unfair
competition to other retail store NOW -- that's for sure!

Nothing unfair about it. That is how all business operates. WalMart
simply is winning by a better strategy and deserve credit for their
accomplishment. Unlike the airline industry, they did not sweep over
their competitors because of a parallel to airline deregulation. Rather
than a revolution, the retail industry simply evolved.

What's fair and unfair is of course in the eyes of the beholder.

I call it "unfair" because the VOLUME discounts Walmart gets from
the manufacturers that are NOT available to mom-and-pop stores makes
it "unfair" to the small retailers of the same products!

OTOH, I AGREE with you that it is FAIR in the "survival of the
fittest" though somewhere alone the line we would get into the gray
areas of "monopoly" and Uncle Sam would again have to stick its
nose in the bidness as it did in the airline and other bidnesses.


I am back to the Free Market principle via the same route! Every
business has a CHOICE to compete or not, or how to compete, in an
unregulated market seemingly dominated by one BigBoy. The computer
and software industry seems to be doing quite well, with many
companies going down the tubes against Big Blue or Microshaft, while
other companies are competing successfully in the industry dominated
(past or present) by those Big Boys. Untimately the one-time Big Boy
of Big Blue had to re-evaluate its market to start as a Little Boy to
compete against Bill Gate's Big Boy.

That's the way free competition should be. The USA is hardly a
perfect Free Market, but is about as good as it gets, in practice.

That's nice to say in theory, but it is rarely the case in a high
capital cost industry like transportation. snip

Any mention of theory vs practice always reminded me of one Flash
Gordon (his real name) whom I met in 1993:

To quote Flash Gordon, M.D., who posted these immortal
words in his .sig, in 1993:

FG in theory, there is no difference between
FG theory and practice. but in practice, there is.
FG flash gordon, m.d.

Flash is a PRACTICAL Man (and M.D.) of many interests:
http://www.motosites.com/Detailed/396.html

and I believe both he and his wife are practicing M.D.s in
San Francisco now.

-- Bob.