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In this installment we review how profitable the airline business is and how an airline makes money with each flight of one of its aircraft..
Some days ago, a reader tagged me in LinkedIn in a publication by the Aviation Network group, in which the author of a very interesting graph, Emre Karasu, shared estimates of how much money an airline would earn with a flight, is it a lot or a little? We review the information in this post.
The idea is that everyone can know the economics of an airline, since many times we think that they become millionaires because of a flight and that a plane is a money-making machine, but as we will see today, It is not quite like that and it depends on so many variables that a Full flight does not mean it is profitable.
This is how airlines make money
What we will see below are estimated and optimistic values, since for many reasons such as the structure of the company these could vary substantially. They will also vary depending on the airline model, whether traditional or low cost., but the idea is to have an idea of how this complex business works.
Income
When you think about airline revenue, the first thing that comes to mind are the passages. And if, It is an important part, but not the only one.
- Economy Class:
Economy class is the workhorse of any airline. With an average of 150 seats per flight and an average fare of $144 per seat, These passages can generate around $21,600. This category usually represents between the 65% and the 70% of passenger revenue, which demonstrates its importance for overall profitability. - Executive class:
Although there are much fewer seats in business class (nails 16 places to $562.50 each), these $9,000 additional are crucial. They represent between the 25% and the 30% of passenger revenue, highlighting how premium passengers, despite being few, contribute significantly to profits. - Load:
Did you know that passenger planes also transport goods?? The cargo capacity of a passenger plane can generate around $2,400 per flight, calculating an average of 2,000 kg a $1.20 per kg. This, known as "belly cargo", represents approximately between 7% and the 8% of total flight revenue, an often overlooked flow of money. - Auxiliary Income:
This is where airlines really get creative. Ancillary income includes everything, from baggage fees and seat selection to inflight food and beverage and in-flight entertainment. With an average of $27 Per passenger, These extras can add up to $4,500 per flight. These rates, although individually small, They add up quickly and are vital to profitability.
Operating Expenses: The High Cost of Flying
Flying an aircraft safely and efficiently involves a number of considerable operating costs that airlines must cover..
- Combustible:
The fuel is, with difference, the most volatile and significant expense, representing between the 25% and the 40% of total operating costs. a flight of 3 hours can consume around 2,500 gallons of fuel depending on the type of airplane, which translates to approximately $9,800 only in this area. Fluctuations in oil prices directly impact profitability. - Crew Costs:
Operating a flight requires a highly trained team. Crew costs amount to about $5,200, broken down into $2,200 for pilots and $3,000 for flight attendants. This expense covers salaries, benefits and continuous training. - Airport and Navigation Taxes:
Airlines must pay for each landing, for the use of airport facilities, runway lights and air traffic control services. These fees and charges can add up to around $4,100 per flight, being an important fixed cost for each operation and that changes a lot from one airport to another. - Aircraft Ownership:
Either through lease payments or depreciation and financing costs if they own, maintaining an aircraft generates significant costs. Aircraft ownership can cost $6,300 per flight, representing between the 15% and the 18% of total costs. - Administration and Others:
There are a number of overhead expenses that include marketing, insurance, reservation systems and IT infrastructure. These administrative and other costs add up to more than $3,200 per flight and are essential to the daily operation of the airline. This depends a lot on the size of the airline and its payroll., But there are cases where this value becomes one of the highest for an airline when they have excess staff or salaries above the sector average.. - Maintenance:
Safety is paramount in aviation, and regular, heavy maintenance is essential. Parts and labor costs to ensure each aircraft is in perfect condition add up to approximately $3,700 per flight. - Ground Services:
Finally, from baggage handling to catering services and ground handling, Ground services are crucial for smooth operation. These costs can amount to about $2,500 per flight.
Calculating the Profit
We think it is a million-dollar business per flight, but it is not and everything goes hand in hand with the scale, the more flights that leave profit, best, but it is not always like that and that is why we see airlines close and go bankrupt every year.
To visualize it better, let's see the formula:
Operating Profit =(Economy Class Income+Business Class Income+Cargo Income+Auxiliary Income)−(Fuel Expenses+Crew Expenses+Airport and Navigation Expenses+Aircraft Ownership Expenses+Maintenance Expenses+Ground Services Expenses+Administrative and Other Expenses)
Substituting the values from our example:
Operating Profit =($21,600+$9,000+$2,400+$4,500)−($9,800+$5,200+$4,100+$6,300+$3,700+$2,500+$3,200)
Adding up the income:
Total Income=$21,600+$9,000+$2,400+$4,500=$37,500
Adding up the expenses:
Total Expenses=$9,800+$5,200+$4,100+$6,300+$3,700+$2,500+$3,200=$34,800
Finally, the operating profit:
Operating Profit=$37,500 − expenses $34,800 = $2,700
After adding all income sources and subtracting all operating expenses, the final result is the operating profit. In a favorable scenario, with good seat occupancy (more than 90%), a profitable route and stable conditions, An airline can see an operating profit of approximately $2,700 per flight, which translates into a profit margin close to 7.2%.
As you can see, The airline business is a constant balancing act between maximizing revenue and controlling costs to fly high in the competitive aviation sky.. It is important to remember that these figures are referential and represent an ideal situation. An airline's profitability can vary drastically depending on the route, the intensity of the competition, fluctuations in fuel prices, seasonality and many other factors.
Is it a lot or a little? If you have one flight a day and you earn only that, It is little since we are not counting debts, loans or payments to investors, everything is in the scalability of the business and how many profitable flights you can have per day, balancing the costs that this operation will also have on your finances..
What do you think?
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