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
Debt. US airlines raked obscene amounts of debt to finance buying up competition (if I remember correctly, AA was in Chapter 11 when they bough US airways ), and for stock buybacks to enrich their shareholders, and then Covid didn’t help. So while the operations are reasonably profitable (AA operating margin was 9.29% last quarter) the net margin is a disaster because of interest payments.
Their costs are super high and they rarely have monopolies. Customers typically compete on price so they have to lower prices to rock bottom to compete.
The routes that they do make profit from are international routes where there’s typically less competition and more business travelers who are less price-sensitive. Or in some cases flights from their hub where they’re the only airline offering the flight due to the hub’s ability to concentrate demand onto a single route.
For example, United Airlines is the only airline that flies from Denver to Fargo ND. This is because they can connect you to the rest of their network from Denver, getting you from Fargo to anywhere in the country with just 1 stop, so the number of people flying that route includes all the people from Fargo that want to go anywhere in the country. Since Delta and American do not have a hub in Denver, they don’t have this advantage so it wouldn’t make sense for them to offer a nonstop on that route.
The problem is that if you just wanted to get from Fargo to Denver, your only nonstop option will be United, so they upcharge due to their monopoly.
The answer is gas and demand are really hard to guess. Your expenses to buy, staff and maintain an airplane are relatively fixed. The tough part is how to guess what to sell a ticket for 6 months to a year from now when fuel prices can double in that amount of time. Demand is another tricky one to forecast, you want a gate in New York LaGuardia, you need to send 10 flights a day out to keep it all year. Flights on Tuesday might not be full and lose money but Friday should be full and hopefully makes up for it, either way you pay the same amount for the landing slot and gate. Easy math: plane has 100 seats, your best guess expenses need it to be 75% full to break even selling one or two extra seats above that is all the profit you get, that has to happen 4000 times a day 365 with no hiccups for you to make a profit. Cancellation for weather or maintenance, you lose that flight and all extra revenue for the rebooking. Airlines are a tough business
-20 year airline pilot
“We made 1b in profits!”
“Our managers got 2b in bonuses.”
“We’re actually losing money here!”
they dont. they just each spend billions buying back their own stock every year to manipulate its price and then they come to us taxpayers with their pockets turned out when the industry hits a slump. its just another scam.
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