Can Airlines Make Money?
priceonomics.com
priceonomics.com
Hence there are press releases and news articles about plans for standing tickets, or charging to use the toilets.
I guess the theory is, if you tell people how cheap Ryanair is often enough, they won't check other airlines.
Norwegian is the budget airline that's flying US-Europe, for example NY to Oslo in January for $300 return (hand luggage, no food, no seat reservation).
Like Amazon!
I mean, nearly all Ryanair flights are to Europe.
"The interaction between labor laws and FAA regulations results in pilot unions having a strong claim on 100 percent of an airline's profits. An investor in a unionized U.S. airline should not expect to see a return on that investment and, indeed, should expect an eventual Chapter 11 bankruptcy filing to wipe out his or her investment altogether."
http://money.cnn.com/2006/06/16/news/companies/delta_pension...
Later, when Delta started doing well again, they didn't bother taking back that obligation.
Oil is cheap. Planes are reliable and fuel-efficient. The flights are completely booked and the passengers are stuffed tightly in. Tickets are pricey. Where are the money going once it ingested by an airline?
How come no one has disrupted it? Surely there has to be way to make it work?
I have no idea if props or jets are more fuel efficient but I assume the former.
As such perhaps only for short distance flights? i.e. 3 hours.
Dual props are also a lot slower.
An efficient and beloved system would turn to smaller planes and point-to-point trips. Smaller planes would allow automobile-like scaling of plane manufacture and point-to-point trips would provide a reduction in fuel costs. But we will never see it, b/c as it turns out, Capitalism is not about efficiency or catering to the common customer. Rather it is about moving around as many bits of currency as fast as possible. The airline industry is one the great examples of this.
Maybe someday small point to point aircraft will be economical, but we aren't there yet. Southwest has done pretty well operating outside of hubs mainly due to smart management that knows when to hedge fuel costs and a fleet composed of a single type of aircraft (737).
Very small airplanes have the problem that many costs don't scale linearly like the wage for 2 pilots, structural weight, efficiency of combustion engines.
I found this Wikipedia article interesting... https://en.wikipedia.org/wiki/Fuel_economy_in_aircraft#Examp...
Similarly a Cessna 150 could get you a better seat/mile cost than a CRJ if you're going 30 miles.
A 747-400 going 6000 miles nonstop will have tremendous first hour fuel burns because it's carrying... tons of fuel. Each extra pound of fuel you carry requires that you take on.... yup more fuel. It compounds.
Airline customers care about price above all else. A price differential as low as $5 is enough to get people to switch flights, even if the pricier flight is better. It's utterly cut-throat.
Why do airlines cram people in so tightly you can barely breathe? Because that lets them shave dollars off the ticket price, which attracts customers from anyone who doesn't do this. Given the choice between a cheaper flight that's less comfortable, or one that's $5 more and has more room, people will choose the former.
Why do airlines not serve meals anymore unless they absolutely have to? Well, those meals aren't free. People will choose the meal-less flight for $5 less over the flight with a meal that costs slightly more.
Why does everybody charge for checked luggage now? Because it lets them shave the price of a ticket.
If people wanted comfort, good food, free luggage, and all that, we would have it. But what people want above all else is to pay less.
And actually, airlines have gotten pretty good at segmenting the market, which for their customers (us) means we can pretty much choose our own tradeoff there. You'd rather pay more money for a larger seat? Almost all of them let you do this now. You want a meal during your flight? Just about any suitably-long flight will have meals available for purchase. You want to check bags? Go for it, just pay for it.
I hate getting crammed into tiny airline seats (I'm 6'3" and barely fit) and all the rest... but every time I get on an airplane and pass those better seats, I remember that I'm just voting with my wallet here, and clearly I value the $100 or whatever it is more than the space.
This is interesting, I travel on a lot of different airlines, and I always go with the lowest-priced feasible option. However, I don't really see it as much of a choice between quality and price.
Why? Because I don't feel like I have any information about the quality of the service or level of comfort before the flight. A lot of the cheaper and mid-range budget airlines are pretty much like-for-like in terms of experience, reviews are always skewed towards the negative and therefore don't contain too much useful information (people very rarely go online to write a good review after a comfortable flight with a cheap airline, but they absolutely do go online to complain and vent when it's uncomfortable) and anyway I don't feel like it's worth the time and effort to dig through reviews and try to find out what exactly my experience will be like on one 3 hour budget flight vs another, considering the amounts involved are not massive. Obviously I do go off my own experience, but even this varies from flight to flight with the same airline.
There's a lot of noise, therefore usually the easiest way to feel like you're getting the best value is simply to spend the lowest amount possible, assuming the experience will not be different enough to make you wish you'd spent more. To be honest, I think this is a decent strategy. It's very rare I've taken a flight and wished I'd spent $20 more on another airline to get a better cheese and crackers and coffee or a slightly more comfortable seat. These aren't differences which really matter in the budget short flights market.
In other words, you appear to be in violent agreement.
To be fair though, I'm really saying that there isn't a source of such information, but even if there were, it might not much matter for most, myself included. If I don't regret not 'upgrading' after the fact, when I do have slightly better information, I probably wouldn't think it was worth it in advance either, even with perfect information.
I suppose it's true but it just seems so, so surreal.
I'm not sure how true this is; airline customers have convenient automated tools for optimizing price that don't provide facilities that easily let them specify and optimize for a balance of price with other factors.
There certainly is a significant preference for minimizing price, but I think that the apparent preference that manifests in the market is a result of the fact that (base ticket) price is unambiguously measurable, clearly and consistently available, and available to optimized by convenient, ubiquitous comparison tools.
Sorry to say I have to disagree. Not only is the appeal to chasing dollars in the last part of your argument contradictory with the loss statement of your first point, the behaviors of customers and the role of competition under Capitalism is completely ignored or misunderstood.
Under Capitalism, trades are voluntary. If the common customer were not receiving sufficient value for their travel dollar, they wouldn't be spending it on air travel. It's true, I would love to have one of those Emirates private rooms on every airline trip I take, but even a cramped little chair across country is often sufficient... when it's not I upgrade. Sometimes that trade isn't worth it: if I'm travelling between the Bay Area and Los Angeles, I'll usually drive because of the security hassle, though the cramped seats don't help the airlines either. Mind you, efficiency likely does require that I settle for the sufficient rather than the desirable... at least to keep things at a price I am willing to pay.
If the current system is not sufficient, under Capitalism a few things can happen. Airlines can go bankrupt if they don't attract customers or fail to keep costs reasonably below revenue. If you see an industry where the entrenched players are old, inefficient, and failing to genuinely meet customer needs, hell that sounds like a golden opportunity! Why not create an airline that is efficient and caters to the common customer and take advantage of the vacuum? If a record label executive can do it why not some of the YC crowd? I thought this group was about entrepreneurial disruption! That is the Capitalist solution to marketplace inefficiency and it happens all the time. So I have to reject your premise about what Capitalism is or is not about: your statement just doesn't make sense nor does it bear up under study of the facts.
I suspect that the reason the airline industry is so apparently FUBAR is because it's not so easy to achieve that ideal you envision for it, at least not without stealing money from some people to subsidize the travel of others.
They don't participate directly, but they're still economically coupled the concessions (and various other surcharges like for taxis): to the extent that airports can charge extra for frills, they don't have to charge for the landing spots. The ability to do so may be what makes them viable (that landing charges + surcharges can cover operating costs).
I'm far from an expert, and this is pure, naive speculation, but on a philosophical level, I wonder if the issue is that we've not yet really mastered the technology of air travel. By that I mean we seem incapable of building and managing aircraft at a sustainable, "MVP" level, operating on a fuel consumption minimal enough to withstand the vagaries of commodity prices.
Perhaps Boeing and Airbus are overengineering their aircraft and baking in economic rent to a degree that makes the airlines fundamentally incapable of sustaining a profitable business model. Perhaps this industry can't actually survive with current technology and design methods absent some sort of government backstop or subsidy. Not sure. But the supply-side theory of this business seems like the most compelling (if not wholly complete) theory I've heard.
Maybe we need a firm to come along and build the AK-47 or Toyota Prius of commercial aircraft, so to speak: cheap, reliable, efficient, elegantly engineered, and innovative in its use of parts and fuel.
I also wonder if there is a correlation between airline profitability and the airlines using the oldest aircraft. Seems to me (again, naively) that aircraft from back in the day were more purpose-built and simpler, with less complex global supply chains. Sort of a similar situation to the military's concerns about phasing out the old, reliable A-10s and F-16s in favor of the massive, modern boondoggle that is the F-35.
It would be interesting to see if development costs plummet if we were all willing to accept auto traffic rates of accidents and deaths in air travel.
The real issue is flight capacity utilization. Airline cost structures follow what accountants would call a step-fixed cost. In other words, the marginal cost per person is negligible until you fill the aircraft and then the marginal cost per person is the cost of a whole new flight. This also means that once you fill a plane past its break-even load factor, every additional seat sold is pure profit.
The airline industry as a whole is operating on load factors between 82% and 84%, and it is net neutral in terms of profitability. That would lead me to believe that at current fuel prices (really the only source of variability in operational cost), that 83% load factors represent the zero-profit scenario. Now if Airline A can achieve 85% load factors, they will have a positive EBIT. If Airline B can acheive 87% load factors, they will roughly double the EBIT of Airline A.
Some airlines make money. They do it using the same exact planes and technology as other airlines that do not make money. The difference is that they have higher load factors. They are better at selling seats.
1: http://www.statista.com/statistics/269285/most-profitable-ai...
As for "if we mastered air travel, we could remove fuel from the equation"- I don't think that's true. Jets are already 20-40% efficient[1], so even with a perfect plane we could only quarter to halve fuel requirements.
[1]: http://www.ipcc.ch/ipccreports/sres/aviation/index.php?idp=9...
It sounds like you were never in enigneering. You never had to deal with building reliable system in regards of safety and high availability. And you even don't know what is really happening in that industry.
Just a small example Rollce Royce revolutionized that business years before IT invented the Cloud and XaaS (X as a service). RR is proving flying as a service since years. As an airline, you don't buy an airplane with engines. You as an airline decide and tell either Airbus or Boing what engines you like. Then RR (and others these days) don't sell you the engine. They sell you flight time. So RR is reponsible that the engines runs without downtimes. RR provide service staff at all major and many minor airports to be able to provide service. RR inventend the Internet of Things way before IT came even close to those ideas. Because to be able to sell airtime, RR needs to know about the status and diagnostics of those engines. Competitors to RR are doing the same since years.
Then, a modern aircraft is stuffed with electronics to replace mechanics, like your car. Because mechanics are wheigt. With electronics this weight can be reduced. It also allowed "services" like autonomous flying. Different to the car industry, almost any modern airplane from Airbus and Boing is able to completely fly on its own inclusive take-off and landing. Only taxiing is not possible.
But electronics have to problem of requiring redundancy to build highly available systems and all that with limited ressources. All way before IT has their 99.999 SAL and with much higher rates. We talk in these industries with undetected errors with a probability of 10^-15 and less.