eli5: How are airline companies profit margins so thin?


Theres like 5 companies in the US that handle ALL the flights. How do they still have thin profit margins despite being the only options?

Edit: spelling

In: 72

Competition. Many highly demanded routes have at least two, and sometimes more, airlines serving them. This prevents a single airline from trying to charge excessive fares as their competition could be flexible enough to undercut them.

These airlines suffer from the “race to the bottom”. Competition is fierce so they have to keep their airfare cheap in order to attract customers. Losing profit margin is a lot better than losing revenue. This back and forth continues between airlines until everyone barely makes any money.

If there’s more than one company, and they’re not colluding, they will compete. The second any one of them tries to charge more to get more profit, the other one will steal all their business.

Airline seats are, almost universally, commodities…people will buy almost exclusively on price because the “product” is basically the same. Under those conditions, with competition, you expect profit margins to approach zero.

Their margins aren’t that thin. Until COVID airlines were spending up to 96% of their cash on billions of dollars worth of stock buybacks.

Watch “Ultimate Airport: Dubai” on Disney+. It’s partly about the airport itself, but it’s also about Emirates. Airlines have TONS of expenses.