Are airplanes in it for the profit?
Discussion
Airline margins are tiny. The main cost is fuel so good hedging of fuel is absolutely critical. Everything an airline does is about saving fuel.
Older airlines make money through premium seats (if applicable) and all the newer more efficient low cost airlines with their much cheaper wage bills and cost bases make money through extra charges like credit card bookings, check in bags, seat selection, speedy boarding, car hire, buying scratch cards etc.
Making large aircraft orders at the right time can make or break an airline.
Older airlines make money through premium seats (if applicable) and all the newer more efficient low cost airlines with their much cheaper wage bills and cost bases make money through extra charges like credit card bookings, check in bags, seat selection, speedy boarding, car hire, buying scratch cards etc.
Making large aircraft orders at the right time can make or break an airline.
jamie128 said:
stuttgartmetal said:
No.
They do it for the s
ts and giggles.
Dont be so sarcastic, i dont think buses/trains make much money its just a serviceThey do it for the s
ts and giggles.While it might be panned as a silly question, airlines are actually one of the very least profitable industries in the history of well, anything.
The problem is that somewhat surprisingly the barriers to entry are incredibly small, mostly because banks are very willing to lend people money to acquire aircraft as the loan is secured against the value of the aircraft which despite the extreme cyclical nature of the industry is fairly stable.
So you have substantial swings from boom to bust as when the going is good everyone and their dog forms an airline, flooding the market with capacity.
Usually at that point a nice economic downturn will appear (or 9/11 or SARS) and destroy demand leading to a double whammy of oversupply AND declining demand, hence extremely empty aircraft.
As Richard Branson once said, "The quickest way to become a millionaire is to be billionaire and then buy an airline."
Finally, the question is again not that dumb because unless you fly business class you are probably WAY off in your estimation of the average ticket price.
The rule of thumb is that you don't make any money on the flight until it is 2/3 full, IIRC.
Those last minute flights and business travellers pay an absolutely HUGE premium to travel over cattle class booked well in advance.
The problem is that somewhat surprisingly the barriers to entry are incredibly small, mostly because banks are very willing to lend people money to acquire aircraft as the loan is secured against the value of the aircraft which despite the extreme cyclical nature of the industry is fairly stable.
So you have substantial swings from boom to bust as when the going is good everyone and their dog forms an airline, flooding the market with capacity.
Usually at that point a nice economic downturn will appear (or 9/11 or SARS) and destroy demand leading to a double whammy of oversupply AND declining demand, hence extremely empty aircraft.
As Richard Branson once said, "The quickest way to become a millionaire is to be billionaire and then buy an airline."
Finally, the question is again not that dumb because unless you fly business class you are probably WAY off in your estimation of the average ticket price.
The rule of thumb is that you don't make any money on the flight until it is 2/3 full, IIRC.
Those last minute flights and business travellers pay an absolutely HUGE premium to travel over cattle class booked well in advance.
Warren Buffett on airlines (paraphrased) "Every time I think about investing in an airline stock, I go and sit in a darkened room until the feeling goes away".
I've seen a couple of plausible claims that the airline industry as a whole has never made money; that is, if you add up the the total returns since 1903 of every airline ever, everywhere in the world, it's a negative number.
I've seen a couple of plausible claims that the airline industry as a whole has never made money; that is, if you add up the the total returns since 1903 of every airline ever, everywhere in the world, it's a negative number.
tim2100 said:
onesickpuppy said:
jamie128 said:
Dont be so sarcastic, i dont think buses/trains make much money its just a service
First Group made an operating profit of £310m last year. Not bad for 'just a service'.tim2100 said:
How much does 1 plane cost?
How is that relevant?http://www.boeing.com/commercial/prices/
(Treat with care as no one pays list price, just ask MO'L.)
Satellites cost $150m to put up there but it doesn't stop Inmarsat making plenty of money.
ambuletz said:
I suppose he means where does the profit come from considering all the expenses (not to mention renting out the plane).
Especiallly on low-cost flights that are about £30.
http://www.youtube.com/watch?v=ZAg0lUYHHFcEspeciallly on low-cost flights that are about £30.
sebhaque said:
Would have thought some of the larger airlines (or the ones that go transcontinental/oceanic) would make a lot of money from corporate tickets. My return ticket to the States and back last month cost about £3200, which seems to be the going rate these days!
Some airlines charge an absolute fortune for business/first class. Was almost £6k return for me to go business class to Singapore the other year, fortunately not paid for by me. I believe that Singapore Airlines offer business class only flights from Singapore to New York too, and is always sold out.
tim2100 said:
onesickpuppy said:
jamie128 said:
Dont be so sarcastic, i dont think buses/trains make much money its just a service
First Group made an operating profit of £310m last year. Not bad for 'just a service'.It's not a silly question at all.
I flew to the south of France recently with BA for about £80 return, just £40 each way!!
I must admit, I found myself wondering how they can buy an aircraft (or lease it, in which case someone else has paid for it and wants to make a profit on the lease), staff it, fuel it, maintain it, pay airport fees, pay IT, pay backroom staff, pay insurances, taxes, and all the other things an airline must do, and flog tickets for £40 each way.
Just like the OP, I do wonder how they do it for the money.
I flew to the south of France recently with BA for about £80 return, just £40 each way!!
I must admit, I found myself wondering how they can buy an aircraft (or lease it, in which case someone else has paid for it and wants to make a profit on the lease), staff it, fuel it, maintain it, pay airport fees, pay IT, pay backroom staff, pay insurances, taxes, and all the other things an airline must do, and flog tickets for £40 each way.
Just like the OP, I do wonder how they do it for the money.
bigbubba said:
Seeing as most aeroplanes are leased it is irrelevant.
Not really, leasing or buying is just a question of how you arrange your balance sheet (like with a car purchase).Either you depreciate it (if you own it) or you pay leasing costs (if you rent it).
The right question is what is the RETURN ON CAPITAL for airlines.
And as has been said, it might well be negative, which would imply that airlines aren't actually in if for the profit!
(Obviously they WANT to make a profit, they just aren't very good at it...)
GTIR said:
Hello. My name is Richard Branson.
I can honestly say that Virgin Atlantic makes lots of profit. Thank you.
We also make lots of profit with our other fantastic companies.
Maybe a whoosh for me but:I can honestly say that Virgin Atlantic makes lots of profit. Thank you.
We also make lots of profit with our other fantastic companies.
"In the year to February 2010, the airline made an annual operating loss of £132 million on turnover of £2,357 million"
OK admittedly for YE Feb-11 they made £18.5m profit but that is a wafer thin margin of 0.7%.
http://en.wikipedia.org/wiki/Virgin_Atlantic_Airwa...
(Virgin Media on the other hand DOES make plenty! Shame the bearded one had to sell down his stake to buy Northern Rock.)
Gassing Station | Boats, Planes & Trains | Top of Page | What's New | My Stuff