I know about high fixed & variable costs, but leasing and buying an airplane isn’t cheap either, and entrepreneurs with that much capital and surely great IQ couldn’t turn an airline profitable. How is this possible? there has to be something “internal” or something I’m missing?
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Airplanes can move around the world fairly quickly and the crews don’t necessarily have to live in the country where the plane is operating for international flights.
So imagine that you’re a European airline. Your maintenance facilities are in Europe, your employees are European and you’re buying aviation fuel at the market rate. Competing with you for international routes are airlines from the Middle East.
Their maintenance facilities are in Saudi Arabia, using labor from Pakistan and Indonesia. Other than the pilots, their crew is also Pakistani or Indonesian. Because the standard of living in those countries is substantially lower than it is in Europe, salaries for labor from those countries is also substantially lower.
They’re also not paying the market rate for fuel – they fill their plane up to capacity with subsidized fuel in Saudi Arabia, then just top up with what they need in Europe.
International routes are the most profitable because they’re the most fuel efficient. But its hard for first world airlines to compete against third world ones on international routes. That means that large, first world airlines have to make their money on lower profit domestic routes. But they’re also competing on those domestic routes with low cost budget carriers that don’t bother to compete on the international routes.
So if you’re a large first world airline, you’re competing against low cost foreign airlines on your international routes and low cost domestic airlines on your domestic routes. Its hard to do both of those things at the same time while remaining profitable.
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