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Let the airlines die

post #1 of 47
Thread Starter 
I need to rant a bit about one a topic away from the headlines. The potential bankruptcy of Northwest Airlines. For years now I have seen some of the major airlines descend further into unprofitability. Despite cuts in manpower and amenities, profit still seems just beyond reach. Their management cites labor woes and fuel costs as major contributors and justifications for their lousy service and panhandling behavior towards the taxpayers of various cities, states and the federal government.

If Northwest comes to the point of bankruptcy, I would not be sad to see it happen. I simply cannot understand how the issue of airlines is so different to any other business in America. In order to make profit, one must spend less than one earns. At some point, the airlines need to start passing off the increasing costs to their consumers, or find ways to cut overhead. The current strike is a result of just such an attempt. Maybe they should have raised ticket prices instead.

I do not believe that the major airlines and indispensable. If Northwest goes under, my hometown of Minneapolis/St. Paul will effectively be cut off from much of the country and the world by virtue of an asinine concession package that has locked us into a Northwest monopoly since deregulation. Still, I refuse to believe that those empty gates at the Humphrey and Lindberg terminals would stay empty for long. There are almost 3 million people in the Minneapolis/St. Paul area that on varying occasions will need to travel. All it would take is an airline with better management and a better business plan to come in and make those routes profitable. If Northwest cannot survive in this business climate, then they should go extinct and make room for a fitter airline to rise up and fill their niche.
post #2 of 47
This is what I don´t understand

When I go to Berlin from Copenhagen I pay $50 for a return ticket with easyjet INCLUDING airport taxes that takes over half of the costs. I have used it for about ten return trips and never been late. They fly new Airbus 219 airplanes and allow as much cabin package as you can carry. The downside? They only have one return flight on that route each day and they don´t serve coffee.

WIth SAS I would pay AT LEAST three times, more likely four times as much. They use OLD McD-Douglass planes. They DO have coffee and three return flights every day.

Easyjet have a robust profit while SAS is burning money. Low cost companies have revolutionized the airline business here in Europe the last three years and they are making profit, at least the largest, Easyjet.

Someone explain this to me.
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post #3 of 47
London->Berlin->Budapest->Geneve->Barcelona->Paris->London

166
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post #4 of 47
The reason most airlines are not profitable in the United States is because the government used to regulate which routes you were allowed to fly your planes along and this gave certain airlines certain monopolies. When unions would come along with work, pension and pay demands the airlines would simply raise the prices on certain routes because the customer didn't have any sort of choice. If you didn't pay you simply didn't fly to that location.

We have since had airline deregulation and now these airlines have to actually compete, which as many have noted leads to lower prices. However they are still required to pay for the former union concessions in the deregulated environment. Much of this is also true of American car makers who are still locked to pension and union agreements they made when they had massive marketshare and no true worldwide competitors.

Nick

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post #5 of 47
Thread Starter 
Quote:
Originally posted by trumptman
The reason most airlines are not profitable in the United States is because the government used to regulate which routes you were allowed to fly your planes along and this gave certain airlines certain monopolies. When unions would come along with work, pension and pay demands the airlines would simply raise the prices on certain routes because the customer didn't have any sort of choice. If you didn't pay you simply didn't fly to that location.

We have since had airline deregulation and now these airlines have to actually compete, which as many have noted leads to lower prices. However they are still required to pay for the former union concessions in the deregulated environment. Much of this is also true of American car makers who are still locked to pension and union agreements they made when they had massive marketshare and no true worldwide competitors.

Nick

Certainly you are correct. My issue however is this: if the airline cannot do much about the overhead, why not raise ticket prices? Is it possible that the major airlines are collapsing under their own weight? If so, why not let them go under? In the short run there would be pilots, mechanics, flight attendants and more who would be unemployed. However, those routes served by the defunct airline would be sitting there unserved. Some other airline would step in and fill their space thusly creating new jobs.
post #6 of 47
Quote:
Originally posted by Kishan
Certainly you are correct. My issue however is this: if the airline cannot do much about the overhead, why not raise ticket prices? Is it possible that the major airlines are collapsing under their own weight? If so, why not let them go under? In the short run there would be pilots, mechanics, flight attendants and more who would be unemployed. However, those routes served by the defunct airline would be sitting there unserved. Some other airline would step in and fill their space thusly creating new jobs.

You are right on ... if the route has costomers, SOMEONE will pick up the flying. Airlines sell transportation... as long as they are selling tickets for less than it costs to provide that transportation, they'll lose money... How hard is that to figure out ???

As for de-regulation ... total de-regulation would have been great, but it didnt happen that way. The airline business is FAR from de-regulated.
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post #7 of 47
The smaller airlines take the more profitable routes. They don't fly as often and outsource their maintenance. Their pilots don't make as much (many are not union) and most tend to be non-frills with fewer flight attendance. Lastly they don't have as big a middle management and have few gates to rent. So all in all it would take a major realignmnet to make some of them profitable OR they could raise their ticket prices and have a chance of no one riding them and going our of business.

reg
post #8 of 47
Thread Starter 
Quote:
Originally posted by reg
The smaller airlines take the more profitable routes. They don't fly as often and outsource their maintenance. Their pilots don't make as much (many are not union) and most tend to be non-frills with fewer flight attendance. Lastly they don't have as big a middle management and have few gates to rent. So all in all it would take a major realignmnet to make some of them profitable OR they could raise their ticket prices and have a chance of no one riding them and going our of business.

reg

I don't know that people would stop flying because the ticket prices go up. I haven't flown a flight in the past ten years that wasn't packed to capacity. And I don't believe that this is because the tickets are cheap. People have no real alternative to flying. There is no high speed rail in the country (outside of the northeast) and driving is too impractical for the greater distances. As another poster pointed out, airlines sell transportation. If they are selling their product at a price that doesn't cover their cost, they can only raise ticket prices, or cut costs. If they are unwilling to raise prices and unable to cut costs, they should die and allow market forces to fill the void.
post #9 of 47
Quote:
Originally posted by Kishan
I don't know that people would stop flying because the ticket prices go up. I haven't flown a flight in the past ten years that wasn't packed to capacity. And I don't believe that this is because the tickets are cheap. People have no real alternative to flying. There is no high speed rail in the country (outside of the northeast) and driving is too impractical for the greater distances. As another poster pointed out, airlines sell transportation. If they are selling their product at a price that doesn't cover their cost, they can only raise ticket prices, or cut costs. If they are unwilling to raise prices and unable to cut costs, they should die and allow market forces to fill the void.

As long as they get periodic bailouts from the government, why would they bother doing either?

As long as we keep giving them money, they will keep on taking it.
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post #10 of 47
Quote:
Originally posted by Kishan
Certainly you are correct. My issue however is this: if the airline cannot do much about the overhead, why not raise ticket prices?

Because as others have noted in this thread, we aren't talking about a small price difference. U.S. automakers for example spend more on pension and benefit obligations than they do on the actual steel in their vehicles. Also when you have other competitors who DO NOT have these obligations, what are you supposed to do? Raise prices and watch the customers run away?

I'm not especially fond of the whole "gotcha" mentality of ticket pricing with airlines and I think they could make some gains in that area but obviously cruise ships, hotels and other industries have that type of pricing structure as well.

Quote:
Is it possible that the major airlines are collapsing under their own weight?

The "weight" you mention is mostly benefit and especially pension obligations. As you yourself have noted, most of the present cost cutting that can be done has been accomplished. However while you can cut the salary of your current pilot you cannot cut the promised benefit from the pilot you had that retired five years ago.

Quote:
If so, why not let them go under?

Would you feel any better when they dump these pensions on the federal Pension Benefit Guaranty Corp and ask the tax payers to take them on?

This isn't just a problem with the airlines. It is a problem with all pension especially with boomer related retirement. As a generation they simply did not invest enough and overpromised.

Quote:
In the short run there would be pilots, mechanics, flight attendants and more who would be unemployed.

So basically unemploy the current generation who they are already cutting to fund the overpromised pension guarantees of the prior generation. Something tells me that won't work. Until the boomer generation faces the music, nothing will get fixed. Look at Social Security which isn't even tied to an airline. It has 8 trillion of future obligations which it cannot meet while the entire federal deficit is already 6 trillion dollars. When you underinvest by 14 trillion dollars over a generation, nothing you can do with the current generation or in the present can fix that. Someone is going to realize that there is no silver bullet but that might cause a lot of boomers to start eating real bullets when they realize what their "golden" years might look like.

Quote:
However, those routes served by the defunct airline would be sitting there unserved. Some other airline would step in and fill their space thusly creating new jobs.

This sort of crash is likely what will occur. My pet scenario is hyperinflation.

Nick

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post #11 of 47
Hmm. What is the fastest train between LA and San Francisco & New York and Washington?
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post #12 of 47
Quote:
Originally posted by Kishan
Certainly you are correct. My issue however is this: if the airline cannot do much about the overhead, why not raise ticket prices? Is it possible that the major airlines are collapsing under their own weight? If so, why not let them go under? In the short run there would be pilots, mechanics, flight attendants and more who would be unemployed. However, those routes served by the defunct airline would be sitting there unserved. Some other airline would step in and fill their space thusly creating new jobs.

Raise ticket prices? They are dying because their ticket prices are too high already and trying to compete makes them cut costs and they lose more money

Jetblue costs me 130 dollars each way to fly cross country. American, Delta, United, etc....costs 300+ each way and usually have connecting flights. jetblue has frequent service and all direct flights

Quote:
Hmm. What is the fastest train between LA and San Francisco & New York and Washington?

LA to SF....cheapest 59 dollars and it takes 10 hours via amtrak. jetblue is often 39 dollars and takes 50 minutes

NY to Washington is the accela and that's very expensive
post #13 of 47
Quote:
The "weight" you mention is mostly benefit and especially pension obligations. As you yourself have noted, most of the present cost cutting that can be done has been accomplished. However while you can cut the salary of your current pilot you cannot cut the promised benefit from the pilot you had that retired five years ago.

So should we let the airlines and automakers declare bankruptcy and stiff their retirees?
post #14 of 47
Quote:
Originally posted by Anders
Hmm. What is the fastest train between LA and San Francisco & New York and Washington?

Trains? In America?! HAHAHAHAHAHA!

As an aside: didn't Amtrak just do something like triple its fares on the big commuter lines?
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post #15 of 47
Quote:
Originally posted by midwinter
Trains? In America?! HAHAHAHAHAHA!

It's a shame trains in america has become the joke it is considering our amazingly rich history of railway travel.
post #16 of 47
Quote:
Originally posted by Anders
Hmm. What is the fastest train between LA and San Francisco & New York and Washington?



um, slow. (Amtrak are at the bottom of the pecking order, as the railroads are owned by the freight companies).
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post #17 of 47
Quote:
Originally posted by trick fall
So should we let the airlines and automakers declare bankruptcy and stiff their retirees?

It doesn't really matter what we "let" them do. It is what is going to happen.

Nick

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post #18 of 47
Quote:
Originally posted by sammi jo


um, slow. (Amtrak are at the bottom of the pecking order, as the railroads are owned by the freight companies).

We can thank Reagan for that one.

On the issue at hand.

Let the companies die, this goes for auto manufacturers and agricultural subsidies as well...

We don't need no stinkin' coorporate welfare when the entire purpose of a coorporation's existence is to be profitable. Free market arguments are perfect when talking about the free market, but nowhere else.
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post #19 of 47
Quote:
Originally posted by trick fall
So should we let the airlines and automakers declare bankruptcy and stiff their retirees?

I think we should take the subsidies we give to these companies and make good on their promises iff they go under when we remove the subsidies.

If they don't go under after the teet is removed then that is great.

If they do go under the government will have all that wasted money they used to subsidized these failures of corporations to make good on the pension plans.
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post #20 of 47
One last thing:

The government would spend its money better by creating employee retraining programs than subsidizing a business type that clearly isn't self sufficient in our economy.
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post #21 of 47
Thread Starter 
Quote:
Originally posted by Bronxite
Raise ticket prices? They are dying because their ticket prices are too high already and trying to compete makes them cut costs and they lose more money

Jetblue costs me 130 dollars each way to fly cross country. American, Delta, United, etc....costs 300+ each way and usually have connecting flights. jetblue has frequent service and all direct flights

I'm not talking about the small carriers like jet blue. I am talking about Northwest, Delta, United, American in particular. To varying degrees, these airlines are all in trouble. I have flown all within the past three years (on domestic routes) and all have abysmal service, old aircraft and employees that act like they are doing me the favor by doing their job. Recently I have had the pleasure of flying America West, ATA, Sun Country and Southwest. Not only were these airlines cheaper to fly, but the service was much better.

Regarding raising the prices, what other option is there for them? As a taxpayer, I am sickened by the idea of bailing them out just so that they can continue their money losing ways. If that means the taxpayers have to guarantee pensions for many of their employees, so be it. It amounts to the same thing as a bailout except that we can let the badly managed airlines die and make room for newer providers that have a profitable structure.
post #22 of 47
Thread Starter 
Quote:
Originally posted by trick fall
So should we let the airlines and automakers declare bankruptcy and stiff their retirees?

maybe these companies should be liquadated and the proceeds be distributed to their employees as pension.
post #23 of 47
Quote:
Originally posted by Kishan
maybe these companies should be liquadated and the proceeds be distributed to their employees as pension.

Isn't that what happens in a bankrupsy? I can't pretend to be an expert, but I know that creditors get paid before stockholders, and it seems that the pension funds would count as a debt that needed to be paid before the stockholders got any money out of the company.
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post #24 of 47
Thread Starter 
Quote:
Originally posted by e1618978
Isn't that what happens in a bankrupsy? I can't pretend to be an expert, but I know that creditors get paid before stockholders, and it seems that the pension funds would count as a debt that needed to be paid before the stockholders got any money out of the company.

I hope that is what would happen, but I suspect that the creditors have a bigger claim.
post #25 of 47
Quote:
Originally posted by Kishan
I hope that is what would happen, but I suspect that the creditors have a bigger claim.

As they should do - if you are owed money by an airline, they should pay you. A lot of the creditors will be small business like food preparation services that are stiffed out of 60 days revenue if they don't get paid back.

You don't want the airline going under to cause a ripple of smaller bankrupsies that affect even more people.

But if there is no money left over after liquidation and paying off debts, then the airline was on the way down, and the sooner you liquidate those assets, the better off everyone would be.
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post #26 of 47
In liquidation bankruptcy, the pensions get dumped on the PBGC early on. Airlines are so heavily leveraged, that creditors will get pennies on the dollar and shareholders get nothing. (Look at United's reorg plan if you don't believe it... current shareholders are getting NOTHING for thier shares... not even shares of the "new" stock.)

When the pensions get dumped on the PBGC, the retirees get about 40% of what they were promised. This is money that they have been promised for their entire career... they have already done the work, but now, the company doesn't want to pay them the agreed-upon price for the work they've already done.

I was EXTREMELY happy when my airline froze it's defined benefit pension plan and moved to a defined contribution plan... at least they can't take that away from me 20 years down the road!
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post #27 of 47
Quote:
Originally posted by KingOfSomewhereHot
I was EXTREMELY happy when my airline froze it's defined benefit pension plan and moved to a defined contribution plan... at least they can't take that away from me 20 years down the road!

That is one of the many reasons that I was glad to get laid off Nortel - I can move my 401K to an IRA now, and my pension to an IRA next spring. I don't trust the company with my retirement money, and the earlier I get it out the better.
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post #28 of 47
Quote:
It doesn't really matter what we "let" them do. It is what is going to happen.

Both the airlines and at least one car company have been bailed out before.
post #29 of 47
Quote:
Originally posted by midwinter
Trains? In America?! HAHAHAHAHAHA!

As an aside: didn't Amtrak just do something like triple its fares on the big commuter lines?

They increased the price of tickets by 3 dollars. Northeast Corridor ticket prices by 4 dollars.


Amtrak could/does have a valuable role to play in our transportation system. By building corridors throughout the US, Amtrak could become a major player in transporation. Look at the Northeast Corridor and the Pacific Northwest's Cascades service. The Cascades service doesn't even make it over 79mph and yet they increased their ridership over 300% over last 5 or 7 years.

Chicago is the next rail hub to come to bloom. Chicago - St. Lois, Twin Cities, Detroit, Omaha....all within comporable time as flying.
post #30 of 47
Quote:
Originally posted by Kishan
I'm not talking about the small carriers like jet blue.
Regarding raising the prices, what other option is there for them? As a taxpayer, I am sickened by the idea of bailing them out just so that they can continue their money losing ways. If that means the taxpayers have to guarantee pensions for many of their employees, so be it. It amounts to the same thing as a bailout except that we can let the badly managed airlines die and make room for newer providers that have a profitable structure.

jetBlue is hardly a small carrier anymore. And they are a great example of how to run an airline or any business for that matter. They even have several international flights now.

What other option is there? Better management. These airlines are run by old fools who are too stuck in their ways to realize the times have changed and they need to follow to stay afloat.
post #31 of 47
Quote:
Originally posted by PowerPC
They increased the price of tickets by 3 dollars. Northeast Corridor ticket prices by 4 dollars.


Amtrak could/does have a valuable role to play in our transportation system. By building corridors throughout the US, Amtrak could become a major player in transporation. Look at the Northeast Corridor and the Pacific Northwest's Cascades service. The Cascades service doesn't even make it over 79mph and yet they increased their ridership over 300% over last 5 or 7 years.

Chicago is the next rail hub to come to bloom. Chicago - St. Lois, Twin Cities, Detroit, Omaha....all within comporable time as flying.

My town is about to get light rail service along the entire Wasatch Front, and we're all tremendously excited about it. Traffic on I-15 around SLC is a nightmare.
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post #32 of 47
I've got a radical idea.. lets turn the Airlines over and make them all Government run.

Make them part of public transit.
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post #33 of 47
Quote:
Originally posted by Bronxite
jetBlue is hardly a small carrier anymore. And they are a great example of how to run an airline or any business for that matter. They even have several international flights now.

What other option is there? Better management. These airlines are run by old fools who are too stuck in their ways to realize the times have changed and they need to follow to stay afloat.


LOL .... do some research.
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post #34 of 47
Quote:
Originally posted by KingOfSomewhereHot
LOL .... do some research.

Care to share?
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post #35 of 47
JetBlue is still a small carrier (comparing to such airlines as Continental or American).
JetBlue doesn't have an international route system. Santiago, DR and Nassau, Bahamas hardly count as an international system They serve a total of 33 cities ... and not all of them are daily service. They use small airplanes with limited range.

Now... lets compare that to the #5 carrier in the US.... Continental Airlines serves 5 of the 7 continents on this planet. And more international destinations than any other US carrier. And at least 4 times as many domestic destinations. Airplanes capable of flying to any point on the globe (nonstop). ... and there are 4 other carriers that are considered larger than that!

As for management being "old fools" .... most major airline mangement these days are in their 40's or 50's ... hardly "old" for that position, and if they were fools, they wouldn't be there. They are constantly trying to revise their way of doing business to account for jet-fuel prices that are TRIPLE what they had planned on ... I have seen the price we pay for jet-fuel rise from 80 cents a gallon to well over $2 in the last two years. Noone expected that to happen, much less for it to remain that high.

Airlines NOT in bankruptcy are having to compete with United and USAirways which have an unfair advantage (being in bankruptcy) which has lasted for 3 years now.... If a coompany can't come up with a plan to get out of bankruptcy in 3 years, they need to just liquidate!! Perhaps the statement about management being fools would be accurate for United and USAirways.

Jetblue will be interesting to watch in the near future.... they are going to lose several advantages. Their fuel hedging will run out and they will have to pay market prices. They also got some pretty good lease deals for their start-up ... deals that are going to make their costs INCREASE shortly. I'm not saying that was bad... in fact it was maybe a pretty shrewd deal for the company as a start-up... I'm just not sure if they are ready to compete when the playing field gets leveled... we shall see.

oh well... the comments by Bronxite were just a bit uneducated.
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post #36 of 47
Quote:
Originally posted by KingOfSomewhereHot
Airlines NOT in bankruptcy are having to compete with United and USAirways which have an unfair advantage (being in bankruptcy) which has lasted for 3 years now.... If a coompany can't come up with a plan to get out of bankruptcy in 3 years, they need to just liquidate!!

What is the advantage of being in bankruptsy? It seems like it would be a big disadvantage - your employees would be nervious, and you couldn't borrow any money from anyone.

Probably cash up front for all purchaces too...
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post #37 of 47
Quote:
Originally posted by Anders
. . .Someone explain this to me.

One of the only profiting airlines in the USA is Southwest Airlines. They use exclusively Boeing 737s to keep maintenance costs down, and have a much more modern flight model that's NOt hub and spoke. At the end of the day, they are also one of the cheapest, often by quite a big factor.

The problem is that the airlines are dinosausrs, and they have come to expect federal government to bail them out of trouble. It's the American version of EU airline/airbus subsidizing.

Quote:
Originally posted by Anders
Hmm. What is the fastest train between LA and San Francisco & New York and Washington?

The Washington to New York route is very profitable. The slow trains do it in about 4 hours. The Metroliners, closer to three, and the Accela, closer to 2. The bonus is that Union Station and Penn Station are very accessible and centrally located, unlike the airports (save Washington National). In the end, the door-to-door transit time from DC to New York on the slow train is about 6hrs, which is similar to what it is by plane.

N.B. I used to frequent that route a fair bit, but it has been a few years and I'm not even sure if the Accela plans have panned out.
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post #38 of 47
The Accela trains were sidelined for several months because of brake problems. They have been coming back and I am not sure if they are all back yet. The DC NYC route was faster than plane because of the wait time at the airports. Leaving NYC by train is so much better than having to get outside of the city to catch a plane. Since my wife doesn't like to fly anymore we have gone by train on several long trips. The view on the east coast is not as grand as it is in the mountain west or Canada. So if you are just trying to get somewhere fast and it is greater than 400 miles take a plane but be choosy and that more than anything else will determine which airlines will survive.

reg
post #39 of 47
If some of the airlines go under, profitable private passenger rail becomes a possibility again...

Quit subsidizing a poor business model with taxpayer money...let the market decide!
post #40 of 47
I think high speed rail would be great but without a major government jobs works it will never happen. NYT had a great article on what plagues the Accela. In a nut shell, because the Accela runs on the same rails as freight, the DOT required it to be over built to survive a crash with a freight train. That tossed the entire design off. Can't go too fast, can't tilt too much and now its breaks are cracking because the thing is so effing heavy. RATHER had they made a line just for the Accela they could have had a system like Europe and Japan. The cost is so high to make a dedicated line that no private effort can fund this much needed work. So why shouldn't the government pay for it? They pay for roads and airports. Plus it will be more good union job at a time when unions are being snuffed out. Simulate the economy in a way that actually works. Let the government build the track and rent it out to private companies to run trains on it. Charge enough to make back the money in 50 years.
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