The goal of providing high quality, together with large quantities, at low prices, has been described as the unattainable triangle. In a free market, effective managements seek to balance these contradictory objectives at levels that meet the demands of their customer base, often by providing a choice of, good, better, or best, at appropriate price points. For example, airline managements typically offer a wide variety of seating and service options, with the goal of maximizing revenues while meeting the varying preferences of the passengers.
Currently, strong demand for travel is meeting limited capacity, resulting in higher prices. Historically, fluctuations in demand and the need to optimize capacity utilization, have benefited passengers.
Investors should, not only evaluate management’s ability to adapt to changing circumstances, but be aware of the government’s ability to tilt the scales. For example, regulatory actions and/or price controls could affect a company’s ability to recover costs and, potentially, limit supply.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA