
Can Airlines Make Money? - pavornyoh
http://priceonomics.com/can-airlines-make-money/
======
philfrasty
European low-cost carrier Ryanair had a net profit of 523 Mio. €. Seems there
are ways to make money. [http://investor.ryanair.com/wp-
content/uploads/2015/04/Q4FY-...](http://investor.ryanair.com/wp-
content/uploads/2015/04/Q4FY-2014-AnnualInterm_Results-Results.pdf)

~~~
pavornyoh
Oh, good. They must have dropped the $15 fare to Europe then.
[http://money.cnn.com/2015/03/17/news/companies/ryanair-
trans...](http://money.cnn.com/2015/03/17/news/companies/ryanair-
transatlantic-flights/)

~~~
Symbiote
Ryanair has a very effective marketing department, which seems to work on the
basis that any exposure is good.

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).

~~~
CyberDildonics
No food from NY to Oslo? It's not exactly like there are grocery stores in
terminals.

~~~
tedunangst
I've never seen a terminal that didn't have some market selling sandwiches and
wraps to go.

~~~
CyberDildonics
Would the flight be something like 14 hours though? You would have to pack 3
full meals. It looks like people don't think that's a problem.

~~~
tedunangst
NY to Oslo is like 7 hours. At night.

~~~
CyberDildonics
They always fly at night, or it takes 7 hours but only at night?

------
cbr
Has anything changed with pilots unions?

"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://philip.greenspun.com/flying/unions-and-
airlines](http://philip.greenspun.com/flying/unions-and-airlines)

~~~
6stringmerc
Yes, George Bush (i.e. his administration) forbade the Delta pilots from going
on strike, sent the pilots and airline to binding arbitration, and as a
result, the pilot's pensions were dumped on the US taxpayers:

[http://money.cnn.com/2006/06/16/news/companies/delta_pension...](http://money.cnn.com/2006/06/16/news/companies/delta_pensions/)

Later, when Delta started doing well again, they didn't bother taking back
that obligation.

------
trhway
make money or show profit? If one to look at the salaries of the army of
airlines' executives and mid-managers one would definitely see the money (and
would understand why no profits are shown).

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?

------
samfisher83
Pretty much every major airline has gone Bankrupt at some point. I think there
are short periods when they can make money, but based on history it is
unlikely they can make profits long term.

------
chrismealy
Businesses with high fixed costs (like airlines) generally need to be some
kind of monopoly to survive. Some monopolies are based on difficult to
duplicate quality (Apple) or network effects (Windows). Sometimes it's
regulatory. But without some protection from price wars, high-fixed costs
business usually end up in a death spiral.

------
pavornyoh
A naive question... Based on the comparison Peter Thiel made here between the
airline industry and Google.
[https://www.youtube.com/watch?v=DLWyP83iU5M&list=PLG0NEzaDle...](https://www.youtube.com/watch?v=DLWyP83iU5M&list=PLG0NEzaDlePoz-
Pls2f0kG3skZpVJY2E1&index=5)

How come no one has disrupted it? Surely there has to be way to make it work?

~~~
codazoda
I recently read an article about the government wasting money on billion
dollar jets that didn't work for front-line fighting. The author suggested the
slower, cheaper, and more capable WWII airplanes instead. Got me wondering,
could someone maintain and fly dual prop or larger airplanes on the cheap and
disrupt the airline industry with it's jets that cost hundreds of millions?

I have no idea if props or jets are more fuel efficient but I assume the
former.

~~~
CamatHN
You would first have to build a suitable dual prop for long flights which
costs hundreds of billions of dollars (boeing doesnt sell dual props I dont
think for big commercial flights). Thats assuming you can get it working and
fits with all the safety requirements and what not.

As such perhaps only for short distance flights? i.e. 3 hours.

Dual props are also a lot slower.

------
transfire
The business model of airlines is to shove as many people as possible into a
giant tin can and deliver them from one hub to another. Despite the number of
people and high cost of tickets, this alone is not enough to turn a profit, so
the hubs are turned into high-priced shopping traps. When fuel prices are low
enough, it is enough to keep the airships afloat. But it is a completely
backward system of travel, where the actual travel becomes almost a secondary
matter. It's all the fanfare and bazaar around it that drives the wasteful
economics, and likewise the hate of it.

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.

~~~
jessaustin
I'm sympathetic to this sort of critique, but my impression after years of
observing this industry is that anything that makes air travel less insane
also makes it less affordable, so there is strong pressure toward insanity. It
doesn't seem odd that a market for expensive short-term services would be like
that, or at least would have a segment like that. After all the utopia you
envision exists for those who are willing to spend more, e.g. on fractional
ownership.

~~~
mikeash
It's absolutely this.

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.

~~~
davnicwil
> 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.

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.

~~~
jessaustin
This comment starts with the proposition that there is no choice available
between price and quality. Then there are numerous anecdotes that reveal a
preference for price over quality. b^)

In other words, you appear to be in violent agreement.

~~~
untog
Well, the solution would be to provide the source of that information that
lets you make an informed choice. I, for one, don't really know whether it's
worth an extra $5 to fly, say, Delta instead of United from New York to Los
Angeles. I don't know where I'd find that information, either.

------
jonnathanson
Excellent encapsulation.

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.

~~~
PinguTS
> 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.

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.

