Um, that's perfectly good business.
Since the planes are running at 50%+ empty, you have to put 150% (or a lot more) capacity in order to actually capture the full demand.
Only flying one route is the surefire way to high profitability. Since so many overhead costs are related to the number of routes you have, flying (and dominating) a single route is a way to highly maximize one's profitability and a great way to get CI up in a hurry since your Marketing costs in particular are very low. This is a strategy that many of the most successful players in the game use.
And a million in the red? So? I've been as much as $4M in the red in this game -- I'm also making about $1M/week in profit thesedays too. It's called loans; you know the game enough to understand that. The guy probably borrowed money to buy that "ton" of DC3s.
I've got planes flying at 10% LF that yield a gross profit. The only way to lose money in this scenario is to buy planes and then not put them on a route, because you put them on a route, any route, and they will make you money.
If the guy is truly sitting at a negative cash situation and/or his value position slides into the -$2M range (i.e. negative cash flow), then he'll quickly start missing C-Checks and it'll be all over from there for him in relatively short order.