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How Airlines Make Less Than $6 Per Passenger

How Airlines Make Less Than $6 Per Passenger

Old Jun 3, 14, 12:05 pm
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How Airlines Make Less Than $6 Per Passenger

http://edition.cnn.com/2014/06/03/tr...usiness&page=0
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Old Jun 3, 14, 2:51 pm
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Interesting perspective. Especially since these are better times for the industry.
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Old Jun 3, 14, 3:21 pm
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This is slightly misleading. Its really a volume issue. Low percentage margins work if you have high volume. Just ask all those companies pumping out cheap plastic knick nacks from China.

And is $6 per person really that bad? Put it in perspective, a family doctor seeing a normal volume of patients makes about $12 dollars a patient.
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Old Jun 3, 14, 3:27 pm
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Something is a bit fishy with those numbers. If the average profit per passenger is $5.42, and the profit margin is 2.4%, that would mean the average revenue per passenger is around $220. Even if that is before taxes, that seems like accounting voodoo. I can't imagine ANY route where the fare plus fees is as low as $220 these days, much less having all the routes average that.
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Old Jun 3, 14, 3:53 pm
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Originally Posted by cubfan99 View Post
Something is a bit fishy with those numbers. If the average profit per passenger is $5.42, and the profit margin is 2.4%, that would mean the average revenue per passenger is around $220. Even if that is before taxes, that seems like accounting voodoo. I can't imagine ANY route where the fare plus fees is as low as $220 these days, much less having all the routes average that.
If that figure takes into account multiple segments in one trip, it could be possible. Not sure how accurate the average fare prices are on Flight Aware, but $220 doesnt seem improbable.
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Old Jun 3, 14, 3:57 pm
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Originally Posted by cubfan99 View Post
Something is a bit fishy with those numbers. If the average profit per passenger is $5.42, and the profit margin is 2.4%, that would mean the average revenue per passenger is around $220. Even if that is before taxes, that seems like accounting voodoo. I can't imagine ANY route where the fare plus fees is as low as $220 these days, much less having all the routes average that.
If you look at it as a passenger on a one way trip for $220 that makes sense - $440 for a roundtrip ticket seems like an avereage fare. Especially if you add in all the reward tickets that = $0 of flight revenue
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Old Jun 3, 14, 4:04 pm
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I couldn't help but notice that there was no actual example given with real numbers to break it down. I guess we just have to trust the spin machine?

In the time of large corporations with billions of dollars of income paying zero taxes; CEO salaries reaching the sky; untold (and unknown) subsidies of corporations and Multi-billion dollar professional sports teams being non-profit organizations, call me skeptical.
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Old Jun 3, 14, 4:33 pm
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Originally Posted by cubfan99 View Post
Something is a bit fishy with those numbers. If the average profit per passenger is $5.42, and the profit margin is 2.4%, that would mean the average revenue per passenger is around $220. Even if that is before taxes, that seems like accounting voodoo. I can't imagine ANY route where the fare plus fees is as low as $220 these days, much less having all the routes average that.
Cargo, my friend. Cargo.
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Old Jun 3, 14, 6:13 pm
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Cargo, my friend. Cargo.
Bingo! Including mail. I suspect some flights would go without passengers if the cargo load was enough. A little OT: Recently saw a entire pallet load of U.S. money being loaded on an international flight (to the U.S.). It had to be millions, if not billions. The bills were shrink-wrapped and not hidden by any opaque covering, so I assume they were old bills on their way back for destruction. Still, interesting sight.
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Old Jun 3, 14, 7:17 pm
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And Grocery Stores Claim 1.3% Margin

Originally Posted by cubfan99 View Post
Something is a bit fishy with those numbers. If the average profit per passenger is $5.42, and the profit margin is 2.4%, that would mean the average revenue per passenger is around $220. Even if that is before taxes, that seems like accounting voodoo. I can't imagine ANY route where the fare plus fees is as low as $220 these days, much less having all the routes average that.
For years grocery stores have cited profit margins hovering around 1%, in this case 1.3%. http://www.marketplace.org/topics/bu...ghly-desirable Yet grocery stores seem somehow to stay in business.

Clearly figures lie and liars figure.

One possible interpretation of the weasel-words, it could be $5.42 average per passenger segment. So a non-stop round trip would be $10.84 and a round trip with a change of planes would be $21.68.

And as another writer already wrote, if they are loading all their cost onto the ticket sales, the freight is then 100% profit.
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Old Jun 3, 14, 8:06 pm
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Originally Posted by pdsales View Post
Clearly figures lie and liars figure.
Why? Having spent time in the industry, I can assure you those numbers are directionally correct.

A low margin on very high volume will yield sufficient profit to stay in business. Investors get paid in cash, not in percentages.
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Old Jun 3, 14, 9:19 pm
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If you tell me there's a business out there where I can average $5.42 profit per customer and I will have 100 million customer a year. I think that business is a slam dunk.
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Old Jun 3, 14, 9:29 pm
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Originally Posted by caimaster View Post
If you tell me there's a business out there where I can average $5.42 profit per customer and I will have 100 million customer a year. I think that business is a slam dunk.
First I would ask what level of investment it took.
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Old Jun 3, 14, 11:07 pm
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Originally Posted by WineCountryUA View Post
First I would ask what level of investment it took.
And how much economic value that business has destroyed over the past three decades.
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Old Jun 4, 14, 3:42 am
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Originally Posted by cubfan99 View Post
Something is a bit fishy with those numbers. If the average profit per passenger is $5.42, and the profit margin is 2.4%, that would mean the average revenue per passenger is around $220. Even if that is before taxes, that seems like accounting voodoo. I can't imagine ANY route where the fare plus fees is as low as $220 these days, much less having all the routes average that.
I also suspect that these numbers are for each way (if not each segment), for the sake of normalization. But even if not, remember that they are talking across the worldwide industry as a whole. Here in Europe, leisure flights are rarely more than $250 (my leisure flights average less than half that), including a very high proportion of taxes and fees. I'm sure other regions such as intra-China help to deflate the numbers as well.
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