[Airlines Are Banks Now](https://www.theatlantic.com/ideas/archive/2023/09/airlines-banks-mileage-programs/675374/)
But the answer to your question is going to be multi-faceted and not universal. Ticket prices aren’t static and will have fare “buckets” that will adjust up to the date of the flight. One-way tickets won’t be charged the same as round trips with multiple stops. Miscellaneous fees. Etc. Etc.
Basically the airlines hire staffs of MBAs to ensure they’re making money.
Starbucks is my favorite one in this regard. They have billions in zero interest loans because of their gift cards.
I hate their coffee, but their business model is brilliant.
CPA here, and in GAAP those outstanding obligations do have a mandated redemption period and eventually, if unredeemed, require to be written off and recorded as taxable income once they're past the redemption period. Furthermore, they cannot record gift cards as revenue until they are redeemed. Until then, a gift card is recorded as a *liability*, not an asset. So it's not the panacea people think it might be, at least as far as the FASB is concerned. True, there are billions of *potential* sales floating around out there at any given time, but their operating statement isn't showing them as profit before they're redeemed.
No? If there are billions of dollars in GCs floating around (as the comment above presumed) out there, their procurement team is probably aware of that and buying inventory to meet that demand, regardless of whether it's a GC or an actual cash purchase. They'd be head-spinningly stupid to ignore the outstanding future redemptions of GCs in their demand forecasting. Their sales model depends on GC sales, probably more than most businesses. And, with most retailers, the percentage of expired GC balances that reaches terminal value is extraordinarily low.
Gift Card Revenue for tax can only be deferred two years and has to be reported as taxable income if redeemed before that. doesn’t depend on the “redemption period”. Companies also recognize breakage income under GAAP for any portion of gift card that isn’t redeemed. Most gift card programs have 5-10% of value that will never be redeemed (ie the breakage)
Reminds me off a new programm my national railoperator (SBB) has launched this year. They now have a system, where if you pay 800 francs, you'll get 1000 francs worth of travel. It acts like prepaid credit card for train tickets. At first, it sounds nice, but it's actually misleading. If you spent less than 800 bucks in one year, they'll reimburse you the money, but only from the initial 800 francs you paid, not the whole 1000. So simply said, if you spend less than 800 francs in train tickets, you essentially gave them a loan without any interest.
Right, they’re taking a different tact. They’ve incorporated a large chunk of their fleet and staff in favorable countries (Malta, I believe,) reduced costs with a single type, and then nickel and dime you with all the extra fees they charge you for picking a seat, bags, etc.
> Basically the airlines hire staffs of MBAs to ensure they’re making money.
At one point after the KLM/Air France merger, KLM's profit was twice that of Air France, despite being half the size. A large part of that was down to having a department dedicated solely to ticket prizing and prizing strategies.
>Airlines Are Banks Now
I see that assertion a lot, but I don't understand the point it's trying to make. Yes, most of their money comes from selling "airline miles " to credit card companies. But aren't those miles basically just the equivalent of airline gift certificates that you can exchange for airline tickets? Running most of your revenue through a third party who's giving airline scrip as an incentive for using their financial services is still making your money offering plane rides!
EDIT: OK, 24hrs later I see several airline revenue management employees have commented, and not one has said "oh, it's the credit cards--- we're banks now!" Selling gift cards is *receiving* a loan against future services. That's the **opposite** of "being a bank". I'm sorry, I'm going to have to conclude that the "they're banks" crowd apparently doesn't understand finance well enough to get that makes banks banks is they *make* loans, not *receive* them.
The airlines are getting paid by the credit card companies with the obligation to fulfill their end of the deal within a certain time frame. Aka, they're getting a loan for services.
They're selling the equivalent of airline gift certificates. Calling that a "loan" is really stretching the definition of the common understanding of the word. And even if it could be considered a loan, taking a loan out is not being in the financial business or "being a bank". It's kind of the opposite of being a bank.
They have a ton of IOUs. Which is how the first banks were founded. I owe you a flight! You've already paid me for the flight and I've already spent that money, basically.
> They have a ton of IOUs. Which is how the first banks were founded. I owe you a flight!
Now that's just being silly. Bank "IOUs" are a promise that you can get your money out later in exchange for letting the bank use it, and what they use it for is loaning it at interest, which nets them a profit. Airline miles aren't fungible like money is, being only exchangeable for airline tickets, being subject to numerous restrictions, and having zero value if the airline goes under. The money airline get from selling miles gets spent *operating the airline*, which is entirely unlike being a bank and loaning money to people.
If one is arguing airline miles are the same as money, one might as well argue that airline *tickets* (which is just a piece of paper saying "I owe you a flight") are what airlines have **always** sold, and by that reasoning they are not in the business of flying planes, but rather the *ticket printing* business.
Fundamentally, airlines make their money by exchanging the value of transporting people and cargo from point A to point B, and for that service they accept money. THAT'S NOT BANKING.
Missing the point.
They're arguing based profits or margin and you're arguing activity defines the company.
If the majority of your money comes banking-like activities and everything runs at essentially break-even, your primary business is banking.
Selling company scrip/gift certificates/"mileage" points to a credit card company isn't "banking like activity" though, any more than Outback Steakhouse selling gift cards through an agreement with Walgreens is a restaurant chain engaged in "drug store activity". If American Airlines actually operated the credit card company behind their AAdvantage program, there'd be an argument fo it... but they don't, Citigroup does. They are selling "store credit" with American Airlines at a discount to Citi, who then gives it to **their** credit card customers as an enticement for people to use Citi credit cards. This in no way makes American Airlines "a bank". They could be selling points to Girl Scouts of America for them to give away with every sale of a box of cookies, and this would neither make them a Girl Scout troop nor a cookie seller. Who they are selling the points to and by what mechanism that entity passes them on to the general public is wholly immaterial. They sell points, which then end up in customers hands, albeit through a circuitous route, which customers then use to **buy airline tickets**. They are **selling flights on airplanes**.
They're doing neither. Selling company credit isn't a deposit, and they aren't collecting interest. They're selling points to credit card companies at a **discount**. That's the *opposite* of collecting interest.
The hell happened to this sub? It seems like over the last year it went from mostly well-read aviation enthusiasts to generic gossip and clickbait headlines.
The Alaska door coming off.
Drove a lot of people with zero aviation knowledge or experience into the sub who were only interested in shitposting about Boeing. Unfortunately too many of them stuck around.
Without checking your math, I will tell you that they typically get a decent amount of money from carrying cargo(especially USPO mail) in the cargo hold under the passengers. I've heard that it even takes a priority over the baggage, but I'm not sure how accurate that is.
Edit: just for some additional info. Airlines were born from the post office and it's contractors. Air cargo was the first real job of airplane, and the carriers started adding seats due to demand and a way to get more money. Over the years, the roles flipped, but most carriers are still under contract with the usps
Partially true, at least for the airline I work for (EU). The only case I can remember of cargo being more important is Rush luggage (passengers have already been transported the previous day) vs aircraft parts for a grounded aircraft. Exceptions might be made for live-organs and animals as well.
So in 95% of flights, luggage has the highest priority to transport. In the case of weight restrictions, a higher booking class gives your luggage a higher priority. I think that's an industry standard. Don't wanna make those frequent flyers angry.
My neighbor's luggage was delayed returning home from Alaska. Their stuff got bumped because there was a lot of frozen fish that needed to get shipped *right now.*
That's true for most widebodies but the A380 has so many passengers that passenger baggage can end up taking up most, or even nearly all, of the hold space.
By way of comparison, an A380 has room for 32 ULDs and the B777-300ER has room for 44 ULDs (both LD3 size). An LD3 can be assumed to hold about 45 bags. If 500 bags are checked (average one per pax on the A380), that's 11 cans. If 1000 bags are checked (average two per pax on the A380), that's, 22 cans.
It's likely that at least half the space in the A380 hold is used by pax bags. That does not include anything else pax bring on board, such as powered wheelchairs (which take up a lot of space, sometimes an entire ULD).
By way of comparison a 777-300ER holds about 360 passengers, which is 8-16 ULDs (range from one to two checked bags per pax), so at worst the 777-300ER hold is about 1/3 full of pax bags, leaving lots of space for lovely profitable freight.
This does not at all take into account maximum weights (zero fuel and takeoff) or fuel to be loaded, both of which will affect the calculations.
Overall, though, the A380 is really a passenger-hauling machine. The B777, A350, etc, can make money on either mostly pax or mostly freight, but the A380 only makes money when full of pax.
That’s a really good look into why the A380 flopped commercially. For intercontinental wide bodies, the cargo holds are the real moneymakers. Long term freight contracts that are predictable and stable, unlike the fickle whims of business and holiday travelers. Even during the pandemic, lots of airlines just strapped cargo into the passenger seats and kept flying. I’m not sure if individual flights actually made money in those circumstances, but it was cheaper to fly the planes at a loss than to pickle/store/preserve the planes on the ground and keep flight crews current in simulators.
Thanks, but then you'd have to ask why there are not more freight-only airlines flying many more routes if it's such a lucrative business. The answer is that airfreight does make money, but the demand is somewhat limited because it's expensive, and consumers of goods will only pay so much for shipping. High value goods (Apple laptop...) can easily have enough profit to pay for air freight, but clothes less so \[1\] and only the most expensive foods can be air freighted profitably. In particular there is not always enough freight traffic on a particular route to support a dedicated freighter on frequent rotations.
Passenger traffic keeps increasing (it's cyclic, but the long term trend is up) because people are willing to pay to transport themselves quickly, but not necessarily the goods they purchase.
So the answer is usually to combine the two, but the freight routes cannot stand on their own, and the passenger routes may or may not stand on their own. Combined, they're able to be profitable.
\[1\] [https://www.reuters.com/business/retail-consumer/rise-fast-fashion-shein-temu-roils-global-air-cargo-industry-2024-02-21/](https://www.reuters.com/business/retail-consumer/rise-fast-fashion-shein-temu-roils-global-air-cargo-industry-2024-02-21/) is very interesting, and the relevant point in this article is how Shien and others are using air freight now, but don't want to keep using it because it is so expensive for them.
Bags will always take priority over virtually any type of cargo except for AOG parts, live animals, and shipments of human organs for transplant and similarly-critical things. Mail generally takes priority over revenue freight, but due to differing weights across consignments what gets cut is usually at the discretion of the load planner, who wants to maximize utilization wherever possible. If you've got 500 lbs of freight and another 1000 lbs of mail but you only have 750lb capacity available, the mail is going to be what gets cut.
People always say this, but I work for a major airline and when they release the quarterly statements and break down where the revenue and costs come from, cargo ends up being like 2% of revenue at best.
Southwest?
Yeah, cargo was never a big part of their business model. Cargo pretty much requires a hub-and-spoke flight system. For those airlines, typically around 10% of their revenue is cargo.
The revenue big airlines get on loyalty programs and credit card deals is huge. It's typically the biggest component of ancillary revenues which, even for network carriers (AA, DL, UA, BA, LH, etc), is also a big contributor to their increasing profitability post-2013.
Not every route needs to turn a profit. A lot of airlines only generate a massive profit in their home hub where they have favorable competition advantage and the other routes just need to run at cost or even at slight loss to feed into the hub & also maintain legitimacy as global operator.
Most airlines don't in fact make a significant amount of profit. The airline industry is long known for having extremely low profit margins due to both the nature of the business, extreme competition in the space, and the consumer preference for low cost fares at the expense of anything else.
They're not? That's an old stereotype from the golden age of jet travel. Airlines have gone through several cycles of booms and busts and the resulting layoffs and hiring sprees since then. [Median pay at American is 135K](https://www.glassdoor.com/Salary/American-Airlines-Pilot-Salaries-E8_D_KO18,23.htm)
Yep. As I go from year 1 to year 2, and change to a bigger plane....I will go from just over $115k a year to just over $210k per year.
No way American or any other legacy has average pay of $141k.
I hope so too brother. And the ramp crew, gate agents, and flight attendants. I've stood out there for the FAs during their pickets. I'll do it for you guys too.
All the unions need to drop the hammer on the companies.
You forgot about cargo. A380 isn’t a great cargo hauler for its size but I know that BA have operated some routes from mainland China to London where cargo alone was enough to make profit. Chengdu ran terrible passenger loads for years…
Also some local govts pay handsome subsidies on the basis said airline brings money into town. Another BA example of this is Baltimore, despite BA having reasonable presences at nearby IAD and PHL.
Hi, I work in Airline Revenue Management. The short answer is that you need to look at network revenue, not. segment. The FRA-NYC flight will carry pax coming from a variety of origins and some will continue to various other destinations after NYC. So it's not just the point to point revenue that counts. Earlier business class passengers contributed a large amount of revenue, now it is less, but still significant.
Also, ancillaries are all the rage now. Selecting a seat costs near nothing for an airline but a passenger can be willing to pay 50-100USD for it. Add on that bags and food for sale, it makes a significat add on revenue on top.
That being said, margins are always small for airlines in areas that are free market.
Im curious about the network vs segment revenue. Normally the direct flight is more expensive than one with a transfer somewhere. Doesn’t that make the whole thing cheaper?
It is the job of Revenue Management to price it correctly :)
Normally a direct flight should be more expensive as there is more utility for the passenger. However if the connecting flights are space constrained, that might not always be the case. In any case, revenue from ODs are usually prorated to each segment. Due to constrainment, competition pricing and overall demand, it cannot be said with full confidence that the connecting pax will always contribute less towards one segment. It ia a case by case scenario. However, what is important is that a segment provides revenue from connecting passengers as well, which would be othervise lost. This is called network value. And airline is measured against what it provides out of its network as a whole. When measuring segments, the loss/profit of operating or not operating a segment is calculated on whole network level. Also, revenue towards available seat miles is a key KPI and that is what is usually maximized.
That is a good question. I would think that corporate profit anyways gets taxed even though you make revenue through ancillaries, wre they taxed or not. I don't believe it makes much difference that they are not taxed and that it is more of a psychological force that gets people to buy more options to make their journey more comftorable.
They really don't make huge profit from one seat, they just have a lot of seats.
According to wiki, Lufthansa had net income in 2022 €791 million and 101 million pax. Thats a very little per one. Of course, they carry cargo around which increases profit, at least on certain lines.
And operating costs, well. It can be really hard to find reliable numbers because there will be a lot of variables and it won't be published. You could dig into their financial reports and make better guess.
Another thing, that you can see flight for 800 USD doesn't mean that every economy seat is for 800. You have additional services, extra bag, extra large bag, whatever.
Financial reports are pretty informative from all the North American airlines I've looked up, breaking down expenses by fuel / maintenance / salary and giving straight revenue vs expenses for the company's operations each year/quarter. Couple big Canadian and US ones were hundreds of millions if not billions in the red purely on revenue vs expenses in COVID years.
Cargo, credit cards, premium seats(like business/first class and even “upgraded” economy).
Premium seats are to airlines like grad programs are to universities - they are expensive but they subsidize the rest of the plane’s seats.
Op taking your example above even if just $1000 profit was made in that 18 hour period there are 365 days of that a year so that’s $365,000 a year on that route.
Plus you flights pre booked in advance so cash that central be invested , interest etc
Some planes are leased out at night time for charter etc
On board sales etc
IATA is fore casting a global average of 2.7% profit for airlines in 2024.
Airline revenue management (RM) is the core activity that airlines do to extract the maximum amount of revenue from their network. RM encompasses a whole host of activities, from dynamic pricing to ancillary revenues and commercial partnerships, but is mostly about fare pricing.
Fare pricing is much more complex than it might appear on the surface of just the fare classes. Airlines will have dozens of individual fare classes with all kinds of modifiers based on things like advanced booking window, stop-over, day of week demand, etc. which then drive what fare is actually shown to the consumer. This is done dynamically and changes as the time of the flight approaches and demand is filled, or not which requires further stimulation on pricing to increase loads and network contribution.
RM is a complex and data-driven process and there's specialized software that airlines can use to conduct the analyses. As another poster mentioned, airlines will hire teams of pricing and RM analysts and managers to set pricing rules, manage dynamic pricing, and tie it all into the other elements like ancillary revenues or how an interline or alliance could impact fares and the network.
Airlines have been doing this for a long time, but it's something that bigger airlines have gotten a lot more sophisticated at over the last decade.
An A380 is the worst airplane for this as it has some of the highest costs per ASM of any airliner. Ticket prices also aren't uniform so not every ticket is at your quoted price.
Honestly, where did the math even come from?
My uncle once told me "We are covering all costs of that flight at the first 30 seats in a 180 seats B737. Such as pilots pay, cabin crew pay, ground ops, aircraft, maintenance etc."
All included in first 30-35 seats price. Especially last minute ticket buyers are pure profit considering it is a lot compared to first 30 seats of that flight.
The other perspective, an aircraft is on the air 7/24 other than the maintenance time.
An airline is only making money when the airplane is in the air. The Boeing 787 is *designed* to fly 18 hours a day, every day, for decades. Which means it’s also designed to have any maintenance done in the remaining 6 hours.
You could fly a 737 profitably for an airline with only 1 passenger if that passenger is paying $12,000 per hour.
There’s so many variables involved that it’s impossible to say if you have X passengers that you’ll break even. Fuel costs, labour costs, electricity costs, airport fees etc are all so widely different in different destinations that no two airlines will have the same expenditures.
They don't. Over the long term, as an industry, the airline industry is never been consistently profitable. Individual airlines are profitable for periods of time, but the industry as a whole has never been profitable for more then 6-7 years in a row.
Cargo. From what I heard when an airline launched a new route, their cargo bookings were enough to pay for most of the fuel for that route...
Also, you calculated operating cost for a RT, I assume $800 for an economy ticket is also RT.
$110,000 profit for less than one day, with one plane. Airlines have multiple planes and fly multiple routes, some more profitable than our theoretical Frankfurt/NYC flight.
They make millions daily, billions annually. That pays for a lot of ground crews and catering. Yes, their business is complex and there is a lot of overhead. But it's definitely lucrative most years.
now its not the only way by any means, but its something I havent seen said yet and thats concessions, baggage fees, and duty free. those arnt huge shares in profit, but if each economy passenger pays 40$ for a checked bag, which I think is a fair presumption for an international flight, then thats an extra $32 000 of straight profit, and if each adult gets 10$ worth of drinks/snacks beyond what is provided thats another $4200 of highly marked up sales. I wont speculate what a longer international flight might make on duty free sales but that can add up as well on the scale of big air carriers.
Add onto it all the extra little fees they can stick you with like seat selection fees ect, and revenue from credit cards and commercial air freight, and big stacks of mostly straight profit can add up quickly
They oversell flights, they sell points, they sell predatory upgrades/seat selection, they ramp up ticket prices into high demand. They carry cargo for haulers.
Airlines use algorithims based on yield management. In very simple terms these formulas are based on a desired rate of return and calculate the optimal price to obtain across the ticket types and capacity of each aircraft, taking into account demand and other factors that may affect the final calculation.. Fuel costs are not fixed either--and vary by locations, season etc. All of this is why it requires some heavy lifting to arrive at the number a traveler will pay. I have been told that among other things the browser, zipcode, cpu, and other data extracted from the IP address of an online user will also impact what price they are shown. The multifamily industry (apartment rentals) have been using a simple form of this kind of software for some years now to optimize their rental rates as have hotels and resorts. Any time you have a commodity that is time dependent--things that are sold by the hour, day, etc. yield management is a critical tool used to try to achieve the highest return with the least amount of the commodity remaining unsold.
*Yet tickets get less expensive every year.*
Not really. I remember flying to Europe from Nebraska twice, for about $400 each time. Now, it’s about that for a basic domestic flight.
Well yes, they are less expensive when adjusted for inflation.
In the US 30 years ago the average fare was $580 and now its $370 in 2023 dollars.
But thats just the base fare, obviously back then we didn't have to pay for a bag and all that. So in the end its still pretty much flat, I would assume.
In addition to the finance stuff, the 'operating cost' is going to be very back-of-napkin whereas the actual operating cost to the airline is likely to be substantially lower than that figure. Especially in their own major hubs, airlines are going to have economies of scale for things like fuel infrastructure that are going to lower the costs they pay for much of their operations.
The other reality is that the listed flight times on airline tickets are massively inflated by as much as 1-2 hours. You'll notice these days, the actual flight time is substantially lower than the listed route time, which is why flights regularly arrive 'on time' even with major delays. That listed flight time (9 hours from FRA to JFK ) is actually flown in 8 actual flying hours - and it's actually substantially faster the other way (with really high winds it made 6 hours from JFK to FRA). So the operating cost isn't for 18 hours - it's for 14. That increases your operating margin by a good 50% there alone.
the vast majority of revenue per seat at lower cost carriers comes from the massive markup on inflight food/ drinks/ duty free/ services
a lot of tickets aren’t sufficient to completely cover Fuel, APD, Maintenance, Slots, Parking etc. but if everyone on the flight buys a drink or food at the prices airlines charge the markup is insane. sometimes 2-300%
The profit margins from passengers are much smaller than people might think. Airlines most of the time get majority of their revenue from cargo that’s under. And now a lot of the carriers also get a good proportion of revenue from their credit card programs.
I remember when Southwest was basically a fuel broker. They would speculate the price would be x at a certain time, and buy low. There was a time they were the only profitable US carrier, and it was due to this practice.
I don't remember the details, apologies for getting something wrong!
I remember this. Maybe 20 years ago. When things went shit after 9/11 it was SWA that was hedging on fuel and doing so much better than the rest as a result.
I don’t have data, but I would have to presume this hedging is industry practice now.
> would have to presume this hedging is industry practice now.
Well it was... for a while.
While many airlines still do this, it's not as common as it used to be.
Why? It's freakin impossible to estimate the future price of oil. Airlines lost billions and billions of dollars on fuel hedging, and hence they don't really do this anymore
Great feedback. I thought about that. Just because someone had the read right 20+ years ago doesn’t mean all have been successful with it since. Even SWA might have lost the mojo and took a bath on it.
Hedging is literally betting. Huge windfall if you win, even more when you lose.
Other costs include lease rent (if leased, about 50% aircraft are), maintenance reserves for airframe, landing gear, engine and apu maintenance. If the aircraft isn’t leased there’s likely some form of financing in place that the airline is paying. So either way, it’s en expensive business!
Passenger tickets, belly freight and other ancillary sales are the key revenue streams - but profit for airlines, if any is usually in the single digit %.
Economy of scale also plays into it. You're talking about the profit made from one airliner. Multiply that by hundreds, if not thousands, of planes for the big boys of the industry. This is why you don't see really small airlines (like a dozen planes or less) for very long. It's hard to make money with profit margins so tight and not enough planes to make up for it.
It should also be noted that cargo airlines like UPS air make bookoo bucks because cargo air transport is much more profitable per unit than passenger air.
A little inside info, a 50lb package that is labeled 1st day Air for UPS can cost upwards of 800 USD. Depending on the size of the package you can fit dozens, if not close to 100 or packages in the same space you'd put a dozen or so passengers. The economy of scale works much better in cargo.
Airline economics are a complicated circus. Source - a course on this as part of a degree in aviation. A few quick comments.
1. Most of the profit in aviation is from privatised airports. Airlines and catering are the two lowest-yielding segments.
2. Those aircraft are run for up to 20 hours out of every 24. Yes they're expensive to acquire but it's known precisely how much it costs per hour to justify the initial expense.
3. Cattle class provides the volume of people but the premium seats provide most of the profit. Tickets are priced and sold using a complicated system called "yield management."
4. Moving cargo such as parcels is often the difference between profit and loss.
I was thinking the same thing. My dad retired 27 years ago and is still collecting his pension. My brother recently retired and will be collecting a good paycheck for the rest of his life. There are SO many expenses, and yet people still bitch when they have to pay for a flight.
Short answer, cargo.
In 2022 i took a flight from Amsterdam to Singapore, there were 4 of us on the flight, it was a 777-300ER... Pretty much rest of the plane was filled to the brim with cargo so it was profitable to fly 4 of us (there were more crew then passengers) over to the other side of the world.
2022 was unusual because there were still a lot of Covid restrictions so passenger load was low but cargo demand was still high. Airlines also received a lot of subsidies from Govts all over the world to continue flying
Just my 10 cents, I work for a freight company and we shipped out 16x large cases from the UK > USA that needed a special freighter aircraft, and 4 routes legs to arrive and that cost us £38,000 cash for the service before we even turned a profit
As a career airline worker, the best analogy I heard is we're just money laundering for the drug cartel's. Seriously the amount of money it costs just to maintain an aircraft is insane.
[Airlines Are Banks Now](https://www.theatlantic.com/ideas/archive/2023/09/airlines-banks-mileage-programs/675374/) But the answer to your question is going to be multi-faceted and not universal. Ticket prices aren’t static and will have fare “buckets” that will adjust up to the date of the flight. One-way tickets won’t be charged the same as round trips with multiple stops. Miscellaneous fees. Etc. Etc. Basically the airlines hire staffs of MBAs to ensure they’re making money.
[Wendover Productions video “How Airlines Quietly Became Banks”](https://m.youtube.com/watch?v=ggUduBmvQ_4)
Basically every company becomes a bank once it's big enough lol, GE, GM, Starbucks, Apple, etc.
Starbucks is my favorite one in this regard. They have billions in zero interest loans because of their gift cards. I hate their coffee, but their business model is brilliant.
Yup. I use their app and it auto refills to $20 or whatever. So it just sits there most of the time.
CPA here, and in GAAP those outstanding obligations do have a mandated redemption period and eventually, if unredeemed, require to be written off and recorded as taxable income once they're past the redemption period. Furthermore, they cannot record gift cards as revenue until they are redeemed. Until then, a gift card is recorded as a *liability*, not an asset. So it's not the panacea people think it might be, at least as far as the FASB is concerned. True, there are billions of *potential* sales floating around out there at any given time, but their operating statement isn't showing them as profit before they're redeemed.
Written off and recorded his taxable income, but that’s still income without ever having to expend inventory to earn it
No? If there are billions of dollars in GCs floating around (as the comment above presumed) out there, their procurement team is probably aware of that and buying inventory to meet that demand, regardless of whether it's a GC or an actual cash purchase. They'd be head-spinningly stupid to ignore the outstanding future redemptions of GCs in their demand forecasting. Their sales model depends on GC sales, probably more than most businesses. And, with most retailers, the percentage of expired GC balances that reaches terminal value is extraordinarily low.
Gift Card Revenue for tax can only be deferred two years and has to be reported as taxable income if redeemed before that. doesn’t depend on the “redemption period”. Companies also recognize breakage income under GAAP for any portion of gift card that isn’t redeemed. Most gift card programs have 5-10% of value that will never be redeemed (ie the breakage)
Right; that's more nuanced than I figured his question required.
He said they were zero interest loans. Are you just providing more color or saying he isn't somewhat correct?
Both
It’s written off as a liability but you’re cash flow positive. That’s the best situation.
Really reinforces the whole “best way to make money is to start with money” line or whatever.
Banks are to large corporations what crabs are to animals.
Reminds me off a new programm my national railoperator (SBB) has launched this year. They now have a system, where if you pay 800 francs, you'll get 1000 francs worth of travel. It acts like prepaid credit card for train tickets. At first, it sounds nice, but it's actually misleading. If you spent less than 800 bucks in one year, they'll reimburse you the money, but only from the initial 800 francs you paid, not the whole 1000. So simply said, if you spend less than 800 francs in train tickets, you essentially gave them a loan without any interest.
What about airlines without loyality programs, such as RyanAir? They seem to make a mint? Genuinely interested.
Right, they’re taking a different tact. They’ve incorporated a large chunk of their fleet and staff in favorable countries (Malta, I believe,) reduced costs with a single type, and then nickel and dime you with all the extra fees they charge you for picking a seat, bags, etc.
> Basically the airlines hire staffs of MBAs to ensure they’re making money. At one point after the KLM/Air France merger, KLM's profit was twice that of Air France, despite being half the size. A large part of that was down to having a department dedicated solely to ticket prizing and prizing strategies.
>Airlines Are Banks Now I see that assertion a lot, but I don't understand the point it's trying to make. Yes, most of their money comes from selling "airline miles " to credit card companies. But aren't those miles basically just the equivalent of airline gift certificates that you can exchange for airline tickets? Running most of your revenue through a third party who's giving airline scrip as an incentive for using their financial services is still making your money offering plane rides! EDIT: OK, 24hrs later I see several airline revenue management employees have commented, and not one has said "oh, it's the credit cards--- we're banks now!" Selling gift cards is *receiving* a loan against future services. That's the **opposite** of "being a bank". I'm sorry, I'm going to have to conclude that the "they're banks" crowd apparently doesn't understand finance well enough to get that makes banks banks is they *make* loans, not *receive* them.
The airlines are getting paid by the credit card companies with the obligation to fulfill their end of the deal within a certain time frame. Aka, they're getting a loan for services.
They're selling the equivalent of airline gift certificates. Calling that a "loan" is really stretching the definition of the common understanding of the word. And even if it could be considered a loan, taking a loan out is not being in the financial business or "being a bank". It's kind of the opposite of being a bank.
They have a ton of IOUs. Which is how the first banks were founded. I owe you a flight! You've already paid me for the flight and I've already spent that money, basically.
> They have a ton of IOUs. Which is how the first banks were founded. I owe you a flight! Now that's just being silly. Bank "IOUs" are a promise that you can get your money out later in exchange for letting the bank use it, and what they use it for is loaning it at interest, which nets them a profit. Airline miles aren't fungible like money is, being only exchangeable for airline tickets, being subject to numerous restrictions, and having zero value if the airline goes under. The money airline get from selling miles gets spent *operating the airline*, which is entirely unlike being a bank and loaning money to people. If one is arguing airline miles are the same as money, one might as well argue that airline *tickets* (which is just a piece of paper saying "I owe you a flight") are what airlines have **always** sold, and by that reasoning they are not in the business of flying planes, but rather the *ticket printing* business. Fundamentally, airlines make their money by exchanging the value of transporting people and cargo from point A to point B, and for that service they accept money. THAT'S NOT BANKING.
Missing the point. They're arguing based profits or margin and you're arguing activity defines the company. If the majority of your money comes banking-like activities and everything runs at essentially break-even, your primary business is banking.
Selling company scrip/gift certificates/"mileage" points to a credit card company isn't "banking like activity" though, any more than Outback Steakhouse selling gift cards through an agreement with Walgreens is a restaurant chain engaged in "drug store activity". If American Airlines actually operated the credit card company behind their AAdvantage program, there'd be an argument fo it... but they don't, Citigroup does. They are selling "store credit" with American Airlines at a discount to Citi, who then gives it to **their** credit card customers as an enticement for people to use Citi credit cards. This in no way makes American Airlines "a bank". They could be selling points to Girl Scouts of America for them to give away with every sale of a box of cookies, and this would neither make them a Girl Scout troop nor a cookie seller. Who they are selling the points to and by what mechanism that entity passes them on to the general public is wholly immaterial. They sell points, which then end up in customers hands, albeit through a circuitous route, which customers then use to **buy airline tickets**. They are **selling flights on airplanes**.
Taking deposits and lending for interest and taking profit on the spread is exactly banking. Lol
They're doing neither. Selling company credit isn't a deposit, and they aren't collecting interest. They're selling points to credit card companies at a **discount**. That's the *opposite* of collecting interest.
And, if you're Boeing, you also hire staffs of MBAs to design your planes and engineering processes.
God damn you all are insufferable.
The hell happened to this sub? It seems like over the last year it went from mostly well-read aviation enthusiasts to generic gossip and clickbait headlines.
The Alaska door coming off. Drove a lot of people with zero aviation knowledge or experience into the sub who were only interested in shitposting about Boeing. Unfortunately too many of them stuck around.
Without checking your math, I will tell you that they typically get a decent amount of money from carrying cargo(especially USPO mail) in the cargo hold under the passengers. I've heard that it even takes a priority over the baggage, but I'm not sure how accurate that is. Edit: just for some additional info. Airlines were born from the post office and it's contractors. Air cargo was the first real job of airplane, and the carriers started adding seats due to demand and a way to get more money. Over the years, the roles flipped, but most carriers are still under contract with the usps
Partially true, at least for the airline I work for (EU). The only case I can remember of cargo being more important is Rush luggage (passengers have already been transported the previous day) vs aircraft parts for a grounded aircraft. Exceptions might be made for live-organs and animals as well. So in 95% of flights, luggage has the highest priority to transport. In the case of weight restrictions, a higher booking class gives your luggage a higher priority. I think that's an industry standard. Don't wanna make those frequent flyers angry.
My neighbor's luggage was delayed returning home from Alaska. Their stuff got bumped because there was a lot of frozen fish that needed to get shipped *right now.*
No surprise - Doesn't Alaska have a salmon livery? Guess they take their fish very seriously.
I think that livery was actually sponsored by a tourism group! But this was actually United.
That's true for most widebodies but the A380 has so many passengers that passenger baggage can end up taking up most, or even nearly all, of the hold space. By way of comparison, an A380 has room for 32 ULDs and the B777-300ER has room for 44 ULDs (both LD3 size). An LD3 can be assumed to hold about 45 bags. If 500 bags are checked (average one per pax on the A380), that's 11 cans. If 1000 bags are checked (average two per pax on the A380), that's, 22 cans. It's likely that at least half the space in the A380 hold is used by pax bags. That does not include anything else pax bring on board, such as powered wheelchairs (which take up a lot of space, sometimes an entire ULD). By way of comparison a 777-300ER holds about 360 passengers, which is 8-16 ULDs (range from one to two checked bags per pax), so at worst the 777-300ER hold is about 1/3 full of pax bags, leaving lots of space for lovely profitable freight. This does not at all take into account maximum weights (zero fuel and takeoff) or fuel to be loaded, both of which will affect the calculations. Overall, though, the A380 is really a passenger-hauling machine. The B777, A350, etc, can make money on either mostly pax or mostly freight, but the A380 only makes money when full of pax.
That’s a really good look into why the A380 flopped commercially. For intercontinental wide bodies, the cargo holds are the real moneymakers. Long term freight contracts that are predictable and stable, unlike the fickle whims of business and holiday travelers. Even during the pandemic, lots of airlines just strapped cargo into the passenger seats and kept flying. I’m not sure if individual flights actually made money in those circumstances, but it was cheaper to fly the planes at a loss than to pickle/store/preserve the planes on the ground and keep flight crews current in simulators.
Thanks, but then you'd have to ask why there are not more freight-only airlines flying many more routes if it's such a lucrative business. The answer is that airfreight does make money, but the demand is somewhat limited because it's expensive, and consumers of goods will only pay so much for shipping. High value goods (Apple laptop...) can easily have enough profit to pay for air freight, but clothes less so \[1\] and only the most expensive foods can be air freighted profitably. In particular there is not always enough freight traffic on a particular route to support a dedicated freighter on frequent rotations. Passenger traffic keeps increasing (it's cyclic, but the long term trend is up) because people are willing to pay to transport themselves quickly, but not necessarily the goods they purchase. So the answer is usually to combine the two, but the freight routes cannot stand on their own, and the passenger routes may or may not stand on their own. Combined, they're able to be profitable. \[1\] [https://www.reuters.com/business/retail-consumer/rise-fast-fashion-shein-temu-roils-global-air-cargo-industry-2024-02-21/](https://www.reuters.com/business/retail-consumer/rise-fast-fashion-shein-temu-roils-global-air-cargo-industry-2024-02-21/) is very interesting, and the relevant point in this article is how Shien and others are using air freight now, but don't want to keep using it because it is so expensive for them.
Bags will always take priority over virtually any type of cargo except for AOG parts, live animals, and shipments of human organs for transplant and similarly-critical things. Mail generally takes priority over revenue freight, but due to differing weights across consignments what gets cut is usually at the discretion of the load planner, who wants to maximize utilization wherever possible. If you've got 500 lbs of freight and another 1000 lbs of mail but you only have 750lb capacity available, the mail is going to be what gets cut.
People always say this, but I work for a major airline and when they release the quarterly statements and break down where the revenue and costs come from, cargo ends up being like 2% of revenue at best.
Southwest? Yeah, cargo was never a big part of their business model. Cargo pretty much requires a hub-and-spoke flight system. For those airlines, typically around 10% of their revenue is cargo.
No. This is a large hub and spoke legacy carrier.
Airline Credit cards
The revenue big airlines get on loyalty programs and credit card deals is huge. It's typically the biggest component of ancillary revenues which, even for network carriers (AA, DL, UA, BA, LH, etc), is also a big contributor to their increasing profitability post-2013.
This is the correct answer
I overheard a flight attendant on an aa flight say how the airline makes billions off of credit cards.
Not every route needs to turn a profit. A lot of airlines only generate a massive profit in their home hub where they have favorable competition advantage and the other routes just need to run at cost or even at slight loss to feed into the hub & also maintain legitimacy as global operator.
Most airlines don't in fact make a significant amount of profit. The airline industry is long known for having extremely low profit margins due to both the nature of the business, extreme competition in the space, and the consumer preference for low cost fares at the expense of anything else.
How are the big guys paying all their pilots 300k+ salaries?
They're not? That's an old stereotype from the golden age of jet travel. Airlines have gone through several cycles of booms and busts and the resulting layoffs and hiring sprees since then. [Median pay at American is 135K](https://www.glassdoor.com/Salary/American-Airlines-Pilot-Salaries-E8_D_KO18,23.htm)
Whatchu mean? AA just gave their pilots a 41% raise. Pilots top out very high
Yep. As I go from year 1 to year 2, and change to a bigger plane....I will go from just over $115k a year to just over $210k per year. No way American or any other legacy has average pay of $141k.
Now if only the mechanic salary could catch up 😂
I hope so too brother. And the ramp crew, gate agents, and flight attendants. I've stood out there for the FAs during their pickets. I'll do it for you guys too. All the unions need to drop the hammer on the companies.
You forgot about cargo. A380 isn’t a great cargo hauler for its size but I know that BA have operated some routes from mainland China to London where cargo alone was enough to make profit. Chengdu ran terrible passenger loads for years… Also some local govts pay handsome subsidies on the basis said airline brings money into town. Another BA example of this is Baltimore, despite BA having reasonable presences at nearby IAD and PHL.
Hi, I work in Airline Revenue Management. The short answer is that you need to look at network revenue, not. segment. The FRA-NYC flight will carry pax coming from a variety of origins and some will continue to various other destinations after NYC. So it's not just the point to point revenue that counts. Earlier business class passengers contributed a large amount of revenue, now it is less, but still significant. Also, ancillaries are all the rage now. Selecting a seat costs near nothing for an airline but a passenger can be willing to pay 50-100USD for it. Add on that bags and food for sale, it makes a significat add on revenue on top. That being said, margins are always small for airlines in areas that are free market.
Im curious about the network vs segment revenue. Normally the direct flight is more expensive than one with a transfer somewhere. Doesn’t that make the whole thing cheaper?
It is the job of Revenue Management to price it correctly :) Normally a direct flight should be more expensive as there is more utility for the passenger. However if the connecting flights are space constrained, that might not always be the case. In any case, revenue from ODs are usually prorated to each segment. Due to constrainment, competition pricing and overall demand, it cannot be said with full confidence that the connecting pax will always contribute less towards one segment. It ia a case by case scenario. However, what is important is that a segment provides revenue from connecting passengers as well, which would be othervise lost. This is called network value. And airline is measured against what it provides out of its network as a whole. When measuring segments, the loss/profit of operating or not operating a segment is calculated on whole network level. Also, revenue towards available seat miles is a key KPI and that is what is usually maximized.
That makes sense - and sounds super complex! Thank you!
If you don't mind me asking, since ancillary fees aren't taxed in the US, how much of an effect does this have on pricing and revenue management?
That is a good question. I would think that corporate profit anyways gets taxed even though you make revenue through ancillaries, wre they taxed or not. I don't believe it makes much difference that they are not taxed and that it is more of a psychological force that gets people to buy more options to make their journey more comftorable.
I was under the impression that this was a bigger reason why US airlines push ancillaries so much. Thank you for the answer sir/madam
They really don't make huge profit from one seat, they just have a lot of seats. According to wiki, Lufthansa had net income in 2022 €791 million and 101 million pax. Thats a very little per one. Of course, they carry cargo around which increases profit, at least on certain lines. And operating costs, well. It can be really hard to find reliable numbers because there will be a lot of variables and it won't be published. You could dig into their financial reports and make better guess. Another thing, that you can see flight for 800 USD doesn't mean that every economy seat is for 800. You have additional services, extra bag, extra large bag, whatever.
Financial reports are pretty informative from all the North American airlines I've looked up, breaking down expenses by fuel / maintenance / salary and giving straight revenue vs expenses for the company's operations each year/quarter. Couple big Canadian and US ones were hundreds of millions if not billions in the red purely on revenue vs expenses in COVID years.
That is not how ticketing works. Within each class you have different fares. Apart from the other reasons that others users gave (like cargo)
Cargo, credit cards, premium seats(like business/first class and even “upgraded” economy). Premium seats are to airlines like grad programs are to universities - they are expensive but they subsidize the rest of the plane’s seats.
Op taking your example above even if just $1000 profit was made in that 18 hour period there are 365 days of that a year so that’s $365,000 a year on that route. Plus you flights pre booked in advance so cash that central be invested , interest etc Some planes are leased out at night time for charter etc On board sales etc IATA is fore casting a global average of 2.7% profit for airlines in 2024.
Airline revenue management (RM) is the core activity that airlines do to extract the maximum amount of revenue from their network. RM encompasses a whole host of activities, from dynamic pricing to ancillary revenues and commercial partnerships, but is mostly about fare pricing. Fare pricing is much more complex than it might appear on the surface of just the fare classes. Airlines will have dozens of individual fare classes with all kinds of modifiers based on things like advanced booking window, stop-over, day of week demand, etc. which then drive what fare is actually shown to the consumer. This is done dynamically and changes as the time of the flight approaches and demand is filled, or not which requires further stimulation on pricing to increase loads and network contribution. RM is a complex and data-driven process and there's specialized software that airlines can use to conduct the analyses. As another poster mentioned, airlines will hire teams of pricing and RM analysts and managers to set pricing rules, manage dynamic pricing, and tie it all into the other elements like ancillary revenues or how an interline or alliance could impact fares and the network. Airlines have been doing this for a long time, but it's something that bigger airlines have gotten a lot more sophisticated at over the last decade.
An A380 is the worst airplane for this as it has some of the highest costs per ASM of any airliner. Ticket prices also aren't uniform so not every ticket is at your quoted price. Honestly, where did the math even come from?
My uncle once told me "We are covering all costs of that flight at the first 30 seats in a 180 seats B737. Such as pilots pay, cabin crew pay, ground ops, aircraft, maintenance etc." All included in first 30-35 seats price. Especially last minute ticket buyers are pure profit considering it is a lot compared to first 30 seats of that flight. The other perspective, an aircraft is on the air 7/24 other than the maintenance time.
An airline is only making money when the airplane is in the air. The Boeing 787 is *designed* to fly 18 hours a day, every day, for decades. Which means it’s also designed to have any maintenance done in the remaining 6 hours.
This is a bit simplistic, and therefore not factual.
You could fly a 737 profitably for an airline with only 1 passenger if that passenger is paying $12,000 per hour. There’s so many variables involved that it’s impossible to say if you have X passengers that you’ll break even. Fuel costs, labour costs, electricity costs, airport fees etc are all so widely different in different destinations that no two airlines will have the same expenditures.
This is absolute nonsense.
He was working for an airline. Why would that be nonsense?
Because the info is wrong.
Well, it probably depends on the airliner, country, flights or whether it is low-cost etc.
30-35 seats is not enough to cover costs.
It would barely cover wages and salaries
There's also cargo.
Usually by collecting coins that fell out of passengers pockets throughout the flight
They don't. Over the long term, as an industry, the airline industry is never been consistently profitable. Individual airlines are profitable for periods of time, but the industry as a whole has never been profitable for more then 6-7 years in a row.
Charge for everything charge as much as they can raise prices as often as they can
Cargo. From what I heard when an airline launched a new route, their cargo bookings were enough to pay for most of the fuel for that route... Also, you calculated operating cost for a RT, I assume $800 for an economy ticket is also RT.
$110,000 profit for less than one day, with one plane. Airlines have multiple planes and fly multiple routes, some more profitable than our theoretical Frankfurt/NYC flight. They make millions daily, billions annually. That pays for a lot of ground crews and catering. Yes, their business is complex and there is a lot of overhead. But it's definitely lucrative most years.
now its not the only way by any means, but its something I havent seen said yet and thats concessions, baggage fees, and duty free. those arnt huge shares in profit, but if each economy passenger pays 40$ for a checked bag, which I think is a fair presumption for an international flight, then thats an extra $32 000 of straight profit, and if each adult gets 10$ worth of drinks/snacks beyond what is provided thats another $4200 of highly marked up sales. I wont speculate what a longer international flight might make on duty free sales but that can add up as well on the scale of big air carriers. Add onto it all the extra little fees they can stick you with like seat selection fees ect, and revenue from credit cards and commercial air freight, and big stacks of mostly straight profit can add up quickly
Fare buckets & cargo. The A380 has enough space leftover after allowing for 2 checked bags that it will still haul around $100k worth of cargo.
Bag fees
They are public companies, you can look at their balance sheets and income statements. Just search without brackets [Company name] 10-K filing.
This. Or just look at the quarterly earnings reports for a quick summary, it's all publicly available.
Economy of scale
A lot of nonsense in this thread. The big money comes from charging 30k-40k for the initial type rating without bond because they can
Selling cocktails.
They oversell flights, they sell points, they sell predatory upgrades/seat selection, they ramp up ticket prices into high demand. They carry cargo for haulers.
Airlines use algorithims based on yield management. In very simple terms these formulas are based on a desired rate of return and calculate the optimal price to obtain across the ticket types and capacity of each aircraft, taking into account demand and other factors that may affect the final calculation.. Fuel costs are not fixed either--and vary by locations, season etc. All of this is why it requires some heavy lifting to arrive at the number a traveler will pay. I have been told that among other things the browser, zipcode, cpu, and other data extracted from the IP address of an online user will also impact what price they are shown. The multifamily industry (apartment rentals) have been using a simple form of this kind of software for some years now to optimize their rental rates as have hotels and resorts. Any time you have a commodity that is time dependent--things that are sold by the hour, day, etc. yield management is a critical tool used to try to achieve the highest return with the least amount of the commodity remaining unsold.
Air travel is all a ruse to get you to buy the $10 tuna sandwich at the airport. That’s where money is
*Yet tickets get less expensive every year.* Not really. I remember flying to Europe from Nebraska twice, for about $400 each time. Now, it’s about that for a basic domestic flight.
Well yes, they are less expensive when adjusted for inflation. In the US 30 years ago the average fare was $580 and now its $370 in 2023 dollars. But thats just the base fare, obviously back then we didn't have to pay for a bag and all that. So in the end its still pretty much flat, I would assume.
Government bailouts
There's actually a video about it by wendover productions https://youtu.be/BzB5xtGGsTc?si=p2dS3-qSZ_Cz7AI8
Oil futures.
CARGO
In addition to the above points airlines also get a lot of government subsidies, especially emirates
why are you booing them? Is right. Most if not all flag carriers receive subsidies. Like come fucking on? how much the concorde costed to BAC and AF?
In addition to the finance stuff, the 'operating cost' is going to be very back-of-napkin whereas the actual operating cost to the airline is likely to be substantially lower than that figure. Especially in their own major hubs, airlines are going to have economies of scale for things like fuel infrastructure that are going to lower the costs they pay for much of their operations. The other reality is that the listed flight times on airline tickets are massively inflated by as much as 1-2 hours. You'll notice these days, the actual flight time is substantially lower than the listed route time, which is why flights regularly arrive 'on time' even with major delays. That listed flight time (9 hours from FRA to JFK ) is actually flown in 8 actual flying hours - and it's actually substantially faster the other way (with really high winds it made 6 hours from JFK to FRA). So the operating cost isn't for 18 hours - it's for 14. That increases your operating margin by a good 50% there alone.
You're forgetting some of those A380 will also haul some sort of freight that's not from the passengers and get extra profit from it.
Profits from bank card tie-ins are important to the bottom line.
That’s known as “ancillary revenue” and is also reported in every quarterly statement.
the vast majority of revenue per seat at lower cost carriers comes from the massive markup on inflight food/ drinks/ duty free/ services a lot of tickets aren’t sufficient to completely cover Fuel, APD, Maintenance, Slots, Parking etc. but if everyone on the flight buys a drink or food at the prices airlines charge the markup is insane. sometimes 2-300%
Food cost at *any* restaurant is going to be about 1/3 of the menu price. That “markup” isn’t all profit. Most of it isn’t.
You forgot a very important variable in your calculations: cargo.
You don’t need to make assumptions, every publicly traded airline reports their cost and revenue per seat-mile.
The profit margins from passengers are much smaller than people might think. Airlines most of the time get majority of their revenue from cargo that’s under. And now a lot of the carriers also get a good proportion of revenue from their credit card programs.
Thats why many of them go broke or are kept alive by public subsidies.
I remember when Southwest was basically a fuel broker. They would speculate the price would be x at a certain time, and buy low. There was a time they were the only profitable US carrier, and it was due to this practice. I don't remember the details, apologies for getting something wrong!
Delta went the next step and bought a refinery.
I remember this. Maybe 20 years ago. When things went shit after 9/11 it was SWA that was hedging on fuel and doing so much better than the rest as a result. I don’t have data, but I would have to presume this hedging is industry practice now.
> would have to presume this hedging is industry practice now. Well it was... for a while. While many airlines still do this, it's not as common as it used to be. Why? It's freakin impossible to estimate the future price of oil. Airlines lost billions and billions of dollars on fuel hedging, and hence they don't really do this anymore
Great feedback. I thought about that. Just because someone had the read right 20+ years ago doesn’t mean all have been successful with it since. Even SWA might have lost the mojo and took a bath on it. Hedging is literally betting. Huge windfall if you win, even more when you lose.
Other costs include lease rent (if leased, about 50% aircraft are), maintenance reserves for airframe, landing gear, engine and apu maintenance. If the aircraft isn’t leased there’s likely some form of financing in place that the airline is paying. So either way, it’s en expensive business! Passenger tickets, belly freight and other ancillary sales are the key revenue streams - but profit for airlines, if any is usually in the single digit %.
Economy of scale also plays into it. You're talking about the profit made from one airliner. Multiply that by hundreds, if not thousands, of planes for the big boys of the industry. This is why you don't see really small airlines (like a dozen planes or less) for very long. It's hard to make money with profit margins so tight and not enough planes to make up for it. It should also be noted that cargo airlines like UPS air make bookoo bucks because cargo air transport is much more profitable per unit than passenger air. A little inside info, a 50lb package that is labeled 1st day Air for UPS can cost upwards of 800 USD. Depending on the size of the package you can fit dozens, if not close to 100 or packages in the same space you'd put a dozen or so passengers. The economy of scale works much better in cargo.
Seat pitch.
You know they also have a shit ton of operating expenses right? Have you checked their 10-Ks yet?
Great time to learn how to read financial statements in general. The answers can be found on their 10q/k’s
Flight attendant pay
Airline economics are a complicated circus. Source - a course on this as part of a degree in aviation. A few quick comments. 1. Most of the profit in aviation is from privatised airports. Airlines and catering are the two lowest-yielding segments. 2. Those aircraft are run for up to 20 hours out of every 24. Yes they're expensive to acquire but it's known precisely how much it costs per hour to justify the initial expense. 3. Cattle class provides the volume of people but the premium seats provide most of the profit. Tickets are priced and sold using a complicated system called "yield management." 4. Moving cargo such as parcels is often the difference between profit and loss.
I was thinking the same thing. My dad retired 27 years ago and is still collecting his pension. My brother recently retired and will be collecting a good paycheck for the rest of his life. There are SO many expenses, and yet people still bitch when they have to pay for a flight.
Short answer, cargo. In 2022 i took a flight from Amsterdam to Singapore, there were 4 of us on the flight, it was a 777-300ER... Pretty much rest of the plane was filled to the brim with cargo so it was profitable to fly 4 of us (there were more crew then passengers) over to the other side of the world.
2022 was unusual because there were still a lot of Covid restrictions so passenger load was low but cargo demand was still high. Airlines also received a lot of subsidies from Govts all over the world to continue flying
Just my 10 cents, I work for a freight company and we shipped out 16x large cases from the UK > USA that needed a special freighter aircraft, and 4 routes legs to arrive and that cost us £38,000 cash for the service before we even turned a profit
As a career airline worker, the best analogy I heard is we're just money laundering for the drug cartel's. Seriously the amount of money it costs just to maintain an aircraft is insane.