Originally Posted by
mikeef
Part of the beauty of the capitalist system, though, is that demand will eventually find an equilibrium. Las Vegas has benefited from cheap airfares and huge capacity growth, and now the opposite is happening. Eventually, capacity will rightsize itself. With supply down, airfares will go up. As airfares begin to rise again, supply will come back into the market to meet the demand. Don't worry, we'll get there. It'll just sting some in the meantime.
Mike
What you are missing though is that oil, one of the main the inputs into production in the airline business, has increased. New supply will not come back into the market to meet demand if it cannot do so profitably. If a trip to Vegas now costs a new entrant $400 to run on a given route then they need $400+ a profit margin to startup and serve that route. If $400+ is more than the general public is willing to pay to get to Vegas then you can see the problem.
Sean