dynamiteReady

In doing some basic research for a side project of mine (https://quixical.com - Please do tell me what you think of it ), I started digging for information on the cost of a typical flight.
There are a load of different answers out there, but my favourite has been the following:

(Source - https://t.co/nc28GqZ7f0?amp=1)

Which got me thinking... If the average airfare is priced at around $392 (source - https://t.co/J7INAdQEll?amp=1), and the average number of passengers per flight is around 39 flyers (source - https://t.co/VinVtyup3q?amp=1), then the airlines, based on a simple calculation, appear to make roughly $15,288 for each flight... After subtracting the cost of the flight itself ($2770 - $3958). Which looks like an 82 - 74% markup!

I'm not sure if that's entirely right. For a start, some articles suggest airlines make closer to $20 on the average ticket price, but I can't quite find a good source for that.
And now with Covid-19, where air traffic here in Europe is down by half, the airlines will surely be making less...

But I did wonder if the above reasoning makes sense, or if anyone has a better idea of how much airlines makes from customer fares...

CPRich

Define "profit". If an airline made $12,000 per flight in bottom line financial statement profit, American would make somewhere around $30 Billion in profit per year. They don't.

The "cost" you provide above says it includes "flight crew wages, airport fees, maintenance and fuel". It costs a lot more to run an airline than these three items. Like airplanes at up to $300 Million each, 100,000 non-flight crew employees, etc., etc.

paperwastage

that's the downside of just looking at a single flight instead of across the network.

if you want average, look at an airline's annual/quarterly filings.
https://ir.united.com/node/21871/htm...5EB7F689909477

Total revenue per available seat mile ("TRASM") (cents)
MINUS
Cost per available seat mile ("CASM") (cents)

you have to read the definitions/fine-print if the cost includes all-in cost: fuel, landing fees etc



then you run into the the bad decision that United made by leaving JFK
United Airlines President: Leaving New York’s JFK ‘Was the Wrong Decision’ {2017}
jfk flights by itself were not profitable. but it had an overall positive effect on the network
so leaving reduces the loss of JFK flights, but also reduces profit of the overall network.


or vice versa:
August 10, SFO-LAX at 9am on Monday may be profitable
August 10, SFO-LAX at 1pm may not be profitable.
but as a whole, you need that 2nd flight to offer customers more choice. If you remove the 1pm flight, the high-yield customer may find another airline and make 9am flight not profitable

or you need to fly SFO-FRA year-round so that you get the corporate contract. the winter flights are low-demand and you lose money on those flights, but the overall yearround flight makes money, and induces the corporate clients to fly domestically too

unless you work for an airline, you will never get insight to these specific datapoints. airlines now have a lot of analytics to figure this out, figure which are highyield customers and target/entice them away from other airlines

LarryJ

At the moment, they aren't making any profit.

Velocipediste

Some years back there was a news segment that examined the profit for a NYC-LAX flight. I think it was a 767 flown by AA. From what I remember, despite a high load factor, the flight only cleared a profit of around $300. All the advance purchase inexpensive fares and frequent flyer upgrades canceled out the expensive last minute fares. I suspect the video is up on YouTube.

dynamiteReady

That's a great answer, thank you. I'd always heard that the margins in the airline industry were tight, so the info on the Quora page, while interesting, felt like it was missing a great deal.

paperwastage

well, the FF upgrade doesn't cancel out expensive last minute fare, unless the FF upgrade took up all the space (bad revenue management)
that's one of the original ideals of domestic upgrades - inventory going to spoil once the aircraft takes off, make frequent flyer happy and upgrade them to an empty seat regardless

CPRich

There are so many ways to define "cost", "revenue", and "profit", that it's pretty pointless to try to identify this magic number.

s0ssos

Funny you mention that cause EK is now kicking people off economy on their flights to Australia (to make room for first and business passengers), cause they are limited to 50 passengers per flight.
The calculation of profit is ever-changing.

dsftm

The real takeaway is, there's no magic number.

dynamiteReady

That said, across certain product / service lines, the experience, in the main, is close to homogeneous. Especially amongst carriers of a certain class (the budget airlines often carry the same equipment, numbers of staff on routes, and levels of customer service).
It's probably easier to derive generic figures across different companies for similar products in the airline industry, than it would be for say, the pleasure cruise market, or even regional bus services.

But obviously, that's just a hunch.

s0ssos

Your first post stated there was a operating cost per hour. Can you actually show that is true? That means the operating cost is a linear curve, with the x-axis time and y-axis money.
I'll bet the curve is anything but linear. Most things in real life aren't linear.
If you cannot even show that basic point then I don't know if your premise has any legs to stand on.

CPRich

Generic figures for what? Short term fixed cost, short term marginal cost, long term fixed cost, long term marginal cost, direct cost, allocated cost - that's just a start at the profit

Yes, fuel consumption by airline type per mile would be similar across airlines. Cost per airplane by model would be somewhat similar. The fully allocated costing model that assigns IT expense per flight-mile would not be.

dynamiteReady

No I can't!
That's in the original post.

"I'm not sure if that's entirely right."

But I also don't think it's possible for the airlines to ignore their competitors operating costs. Would be difficult to make any business decision without a baseline, no?

lhrsfo

Yes the calculation is difficult, but I'm not sure that it's very different to that of any other capital intensive industry. The major difference between airlines and other capital intensive industries (eg motor manufacturers, power producers etc.) is that airlines sell a very wide number of products to a huge number of consumers at fairly low dollar amounts. A power producer sells to, at most, a handful of customers (the power suppliers in a competitive market), a car manufacturer sells far fewer units at much higher prices. But the understanding of the different fixed costs, the different variable costs and the different marginal costs should be similar.