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.
Regulations… Flying is worse today than it was in the 70s, there’s a clear market need for better travel, but that’s not in the states best interest… So it must remain, slow, expensive and feel like cattle being forced into a pen
They make most of their money from their CC company partnerships, and those miles are technically separate corporations.
Strangely enough one reason is the airlines aren’t in the travel business.
They are now perks attached to credit card companies. The airlines job is to not lose money. The profits are through the credit cards that offer airlines miles, hotels, travel experiences etc etc.
Something like 2/3 of the value of the airlines isn’t on the planes and flights but in the finance services.
So this let’s them race to the bottom in price due to competition and still survive, even thrive.
Edit: Some sources! [https://www.youtube.com/watch?v=ggUduBmvQ_4](https://www.youtube.com/watch?v=ggUduBmvQ_4)
[https://www.marketplace.org/2019/04/03/are-airlines-making-more-money-credit-cards-flying/](https://www.marketplace.org/2019/04/03/are-airlines-making-more-money-credit-cards-flying/)
[https://www.bloomberg.com/news/articles/2017-03-31/airlines-make-more-money-selling-miles-than-seats](https://www.bloomberg.com/news/articles/2017-03-31/airlines-make-more-money-selling-miles-than-seats)
To add to others comments, the FAA causes parts to be extremely expensive for aircraft. The main reason is safety but it does increase the cost of new aircraft and cost per hour dramatically. In a perfect world where planes would never have issues or crash air travel could be drastically cheaper.
They need to be cheap to take business away from the competition, but many costs are fixed: crew wages, plane leases, landing fees at airports. The largest variable is the cost of jet fuel. All you need is a rumor of a war in the middle east or the unexpected shutdown of a refinery and gas prices spike. Airlines try to predict fuel prices and make future contracts to lock in prices.
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