How do airlines make money?

[CSCOT]

Hi,

I booked 5 return tickets to Tenerife from Glasgow at a cost of £645.00 (£129 each). This includes 5kg pp hand baggage.

If the aircraft can take, say, 300 pax and just supposing I booked all the tickets @ £129 then that makes a total revenue of £38,700 total.

Factor in fuel, aircrew, landing / handling fees, tax and about a gazillion other overheads and business costs (staff, safety, maintenance, marketing the list goes on) not to mention actually buying or leasing the aircraft - how does any airline actually make any money?

£38,700 is RETURN, so that's £19,350 each way.

Clearly they do so I'm missing something...but what?

Thanks

[S.o.S.]

Welcome to the Forum CSCOT.


Other will be along with the various answer to your question but the main ones being: They do not sell all the seats at that price and the profitability has to be made across the season.

[mixture]

so I'm missing something...but what?

Two words....

Yield Management (a.k.a Revenue Management)

Its such a vast and complex topic that it's probably best if I leave it at that since its near on impossible to summarise how modern yield management works.

Suffice to say, you could happily spend months and years researching the topic with Mr Google (or your local library if you are that way inclined).

If you needed a demonstration of complexity and the pace of development of modern yield management, there's even a journal published on the topic ... International Journal of Revenue and Pricing Management.

Once you're done reading up on Revenue Management, you can read up on Pricing and Revenue Integrity which are the other two parts of the picture.

Also, you should be aware that the locos derive a substantial proportion of their revenue from ancillaries.

[mixture]

not to mention actually buying or leasing the aircraft

By the way, they don't buy them, they lease them.... pretty much guaranteed to be the case 100%... irrespective of the size of the airline. There are various tax and accounting benefits of doing that. Specialist finance companies manage operating lease portfolios of aviation fleets.

[Hotel Tango]

How do airlines make money?

Many of them don't!

[ExXB]

On average $6 per passenger journey, that would be $12 on a round trip.

[Basil]

they don't buy them, they lease them....

I flew for an ad hoc charter outfit which had two limited companies.
One was the airline and the other owned the aircraft, i.e. one had all the risk and the other had most of the assets so, when the airline went bust, the assets were safe.
Stunning in its business simplicity.

For the OP: There are several versions, of which this is one:
If airlines sold paint.

[PAXboy]

Rather than start a new thread, here's the next step. Obviously, we've heard such things before but each time you hear about it - makes it more likely to happen.
Short-haul squeeze: Airbus proposes moped-style seats to boost 'no frills' capacity - News & Advice - Travel - The Independent

In a patent application lodged by Airbus, the inventor Bernard Guering proposes “A seating device with reduced bulk, for example for an aircraft”. The accompanying diagrams suggest that “seats” resembling moped saddles are fixed to spindles. Each passenger has a small back-rest – described as “a simple lumbar support held at the end of an arm”. Retractable armrests are also provided.

This would likely be priced slightly lower, and I have no doubt the 18 year old student will be only too pleased to save more money.

[nickmo]

Air freight makes up an important part of revenue.


Underneath the passengers is about 15% of the airlines income by means of cargo / freight which could be fresh fruits, mail, industrial components - almost anything that has to be somewhere, inc not a few coffins......


And MAS 370 is speculated to have been damaged by the type of batteries in the hold carried as cargo on that flight that caused a possible fire (and as has been documented in other incidents) so you never know what is in the hold along with the baggage.

[ExXB]

Pax boy, not that canard! Again!

Why would Airbus, or anyone else for that matter, suggest that seats like that be used? It wouldn't be to have more seats on board, because the LCCs, and some network airlines, are already at the maximum number of seats allowed.

[PAXboy]

All I can say ExXB, is that the article states this as being an Airbus patent. Also, the rules today may not be the rules in 10 years time.

[Innominate]

A company takes out a patent to protect its idea. It doesn't imply that (in this case) Airbus intends to offer such seating to its customers, but if at some stage an airline proposes something similar Airbus can charge royalties for the use of their patented invention.

Patents can be a means of preventing someone using an invention - conspiracy theorists will tell you that the oil companies have bought patents for all sorts of fuel-saving inventions, so that sales of petrol etc. don't slump...

[PAXboy]

I hold no brief - i was just reporting!

Article includes:

Ryanair, which some say is renowned for exploring passenger tolerance, is reported to be planning to add 10 more seats to its one-size Boeing 737 jets.

The plane’s manufacturer is developing a “737 MAX” variant that is the same length as the existing model flown by the Irish airline. Yet it is planned to be certified to carry 200 passengers, rather than the current limit of 189, with adjustments to the rear galley, washrooms and emergency-exit configuration.

Ryanair is thought likely to favour a 199-seat jet; under safety rules, a 200-seat version would require an additional member of cabin crew. The airline’s executives have previously talked of a 199-capacity plane being a “sweet spot”.

[ExXB]

Boeing has been discussing other (or different) exits, which likely would raise the maximum capacity. The longer 737-900 currently has the same maximum number of seats as the -800. Another door, apparently could add another 11 seats, or so.