How Airlines Spend Your Airfare?

[Svnla]

Interesting article = http://online.wsj.com/news/articles/SB10001424052702303296604577450581396602106

With 99 passengers accounted for, what does that leave the airline in terms of profit? One passenger.

"It's not exactly one, but we rounded up," said Robert Isom, chief operating officer at US Airways Group Inc

 

[Dman8777]

An industry where competition is alive and working. Of course, they did let the airline do the telling. I would take their numbers with a grain of salt.

 

[rudder]

An industry where competition is alive and working. Of course, they did let the airline do the telling. I would take their numbers with a grain of salt.

Airlines base costs and profits on how much it cost to move one seat one mile. Southwest Airlines has always had one of the lowest seat mile costs. They do this by not having planes sitting at the gate (origin-destination vs. hub and spoke), maximizing fuel efficiency, same equipment across the fleet, etc. So yeh take the article with a grain of salt. Some airlines piss money away and some airlines like Southwest make money.

 

[twinrider1]

As Executive Vice President and Chief Operating Officer at US AIRWAYS GROUP INC, Robert D. Isom Jr. made $3,384,280 in total compensation. Of this total $472,592 was received as a salary, $1,790,269 was received as a bonus, $535,919 was received in stock options, $535,998 was awarded as stock and $49,502 came from other types of compensation. This information is according to proxy statements filed for the 2012 fiscal year.​

http://www1.salary.com/Robert-D-Isom-Jr-Salary-Bonus-Stock-Options-for-US-AIRWAYS-GROUP-INC.html

 

[JoLLyRoGer]

As Executive Vice President and Chief Operating Officer at US AIRWAYS GROUP INC, Robert D. Isom Jr. made $3,384,280 in total compensation. Of this total $472,592 was received as a salary, $1,790,269 was received as a bonus, $535,919 was received in stock options, $535,998 was awarded as stock and $49,502 came from other types of compensation. This information is according to proxy statements filed for the 2012 fiscal year.​

http://www1.salary.com/Robert-D-Isom-Jr-Salary-Bonus-Stock-Options-for-US-AIRWAYS-GROUP-INC.html

that's a lot of plane tickets.

 

[skimple]

As Executive Vice President and Chief Operating Officer at US AIRWAYS GROUP INC, Robert D. Isom Jr. made $3,384,280 in total compensation. Of this total $472,592 was received as a salary, $1,790,269 was received as a bonus, $535,919 was received in stock options, $535,998 was awarded as stock and $49,502 came from other types of compensation. This information is according to proxy statements filed for the 2012 fiscal year.​

http://www1.salary.com/Robert-D-Isom-Jr-Salary-Bonus-Stock-Options-for-US-AIRWAYS-GROUP-INC.html

I presume from your quote that you are implying that the reason they don't make money is the high cost paid to the CEO? Then how about Southwest?

As Chairman of the Board, President, & Chief Executive Officer at SOUTHWEST AIRLINES, Gary C. Kelly made $4,015,810 in total compensation. Of this total $675,000 was received as a salary, $961,000 was received as a bonus, $0 was received in stock options, $2,250,008 was awarded as stock and $129,802 came from other types of compensation. This information is according to proxy statements filed for the 2012 fiscal year.​

 

[GagHalfrunt]

So? The number 100 was specially chosen to be as close as possible to the break-even point to make the story seem more compelling. That doesn't mean that's the average math on an average flight. If the plane has 120 people on it the costs rise marginally, only tiny increases in fuel and man-hours on the ground, a couple of extra soft drinks in the air. On a 737 that can carry 150 people and is full the same hundred or so, maybe 105 passengers still cover the costs and the others are profit. 45 of 150 people making money for the airline sounds a lot different than 1 out 100, doesn't it? Economy of scale.

 

[jagec]

I presume from your quote that you are implying that the reason they don't make money is the high cost paid to the CEO? Then how about Southwest?

As Chairman of the Board, President, & Chief Executive Officer at SOUTHWEST AIRLINES, Gary C. Kelly made $4,015,810 in total compensation. Of this total $675,000 was received as a salary, $961,000 was received as a bonus, $0 was received in stock options, $2,250,008 was awarded as stock and $129,802 came from other types of compensation. This information is according to proxy statements filed for the 2012 fiscal year.​

Southwest didn't write a whiny article about how little profit they make. It's a lot easier to justify high CEO pay if the company is profitable, and the workers are decently paid and happy.

 

[smackababy]

An industry where competition is alive and working. Of course, they did let the airline do the telling. I would take their numbers with a grain of salt.

Their numbers are probably similar to the "movie studio math" which claims nearly every movie loses money...

Of course an Airline isn't going to come out and say "the cost of your ticket is roughly 3x what it costs us to actually get you there! And those bag fees are 100% profit!! Also, we are always late as a deal with airports to get you to buy from their incredibly high priced food courts!"

 

[Gunbuster]

Their numbers are probably similar to the "movie studio math" which claims nearly every movie loses money...

It might also be what I call standard large corporation math where they "project" to make a certain amount say 5 million and then when they only make 3 million it's a 2 million dollar loss.

 

[twinrider1]

Originally Posted by skimple
I presume from your quote that you are implying that the reason they don't make money is the high cost paid to the CEO? Then how about Southwest?

No, just that that article gives the impression that they're scraping by. The company may not be stockpiling cash on it's books, but the company (and it's execs) are doing just fine.

 

[skimple]

Southwest didn't write a whiny article about how little profit they make. It's a lot easier to justify high CEO pay if the company is profitable, and the workers are decently paid and happy.

I agree completely. I think the guy's a jerk. But the same is true for a lot of CEOs. Just pointing out that his pay stub has relatively little impact on the company's bottom line.

His incompetence does, but not his paystub.

 

[Genx87]

How do they account for the 110 passengers they sell on a 100 seat plane? 😀

 

[torpid]

Some head scratchers in that article. A huge chunk is salaries, but how does that fan out exactly? How much is executives and the like vs just the personnel required to run the plane? I can't believe it is that much just for the operations people. Could be wrong.

Also, I find it a little dubious to mark the cost of bumping people. That happens because they intentionally over-book usually I assume? In which case they wouldn't be doing it if it didn't actually net an increase in profit.

Lastly... it's kind of funny that they include lost luggage in their regular cost breakdown.

 

[nageov3t]

those poor airlines.

guess it's time for yet another round of making seats smaller and shortening leg room so they can cram on 2 more passengers while making the other 100 even more uncomfortable.

 

[jagec]

Lastly... it's kind of funny that they include lost luggage in their regular cost breakdown.

I've flown US Airways and I can vouch for the necessity of this line item. They lost one bag and broke the other, after charging us $25 each for the privilege. We finally got our bag back, but it was an amazingly mismanaged operation from start to finish.

 

[mmntech]

Flying out of Toronto Pearson is ridiculously expensive, mostly due to all the taxes and landing fees the airport charges. That's why a lot of Torontonians fly out of Buffalo.

It is true that there are low margins in that industry. Rental car is pretty much the same. You lose money if the vehicle is sitting on the lot. Money is made on volume, which is why they squeeze as many passengers as possible into a plane, and have a short turnaround. It's also why they over book. The assumption is they'll get a cancellation, so they'll have someone else there to fill their seat. The consumer has set a price expectation and they have to live up to it. You could always just pay more for first or business class, but few do.

There are plenty of alternatives to flying that are far more comfortable. It costs about the same to take the QM2 from New York to London as it does to fly. It just takes a week to get there. Or you could take the train and spend more on Amtrak tickets for a ride that takes twice as long. Flying puts speed over comfort. Been like that for a long time. Planes are very expensive to operate.

 

[Cogman]

So? The number 100 was specially chosen to be as close as possible to the break-even point to make the story seem more compelling. That doesn't mean that's the average math on an average flight. If the plane has 120 people on it the costs rise marginally, only tiny increases in fuel and man-hours on the ground, a couple of extra soft drinks in the air. On a 737 that can carry 150 people and is full the same hundred or so, maybe 105 passengers still cover the costs and the others are profit. 45 of 150 people making money for the airline sounds a lot different than 1 out 100, doesn't it? Economy of scale.

My thoughts exactly. Take the 757 and 767 as an example of the typical plane. They seat around 200 people a pop.

My guess is that they are probably making 30->40% profit on a full flight. This 100 number was a pie in the sky thing to make us all feel bad for the airline industry.

 

[M0oG0oGaiPan]

southwest made it big from fuel hedging.

 

[GagHalfrunt]

My thoughts exactly. Take the 757 and 767 as an example of the typical plane. They seat around 200 people a pop.

My guess is that they are probably making 30->40% profit on a full flight. This 100 number was a pie in the sky thing to make us all feel bad for the airline industry.

WAY more than that. Depending on how much of the cabin is given over to first class seating, the 757 is 250+ and the 767 can hold 350+. Okay, larger plane, more fuel, but the man hours on the ground don't change all that much. So say it amps up to 175 people to cover costs on the 757 and 225 on the 767. Now you're taking pure profit out of 75 passengers and 125 people respectively. On the 767 that's almost $20,000 profit per flight. American Airlines made almost $500 million profit in 2013, Southwest $750 million, United $571 million in profits.

That article is a complete fabrication to try to tell a different story than what's really happening. The airlines are making a mint, crying poverty so they can up fees to gouge customers more and unethical "journalists" like that are helping them.

 

[Naeeldar]

So far this thread is hilarious. You guys do realize that generally speaking airlines have been going bankrupt every 7-8 years right? It's industry that is notoriously hard to even break even let alone turn a profit.

Yes southwest turns a profit and the other airlines could learn some from them. That being said Southwest turns a profit partly due to the oil futures they bought at one point and also because they fly to limited cities.

Airlines haven't really turned real profits, at a regular cadence, in years. Which is why the govt usually helps with bankruptcy etc..

WAY more than that. Depending on how much of the cabin is given over to first class seating, the 757 is 250+ and the 767 can hold 350+. Okay, larger plane, more fuel, but the man hours on the ground don't change all that much. So say it amps up to 175 people to cover costs on the 757 and 225 on the 767. Now you're taking pure profit out of 75 passengers and 125 people respectively. On the 767 that's almost $20,000 profit per flight. American Airlines made almost $500 million profit in 2013, Southwest $750 million, United $571 million in profits.

That article is a complete fabrication to try to tell a different story than what's really happening. The airlines are making a mint, crying poverty so they can up fees to gouge customers more and unethical "journalists" like that are helping them.

FYI when you spend billions - millions is nothing in profit and all it takes is one little bad year to be a financial catastrophe for an airline. You have to look how much money is being invested in order to make those millions in profits.

 

[smackababy]

So far this thread is hilarious. You guys do realize that generally speaking airlines have been going bankrupt every 7-8 years right? It's industry that is notoriously hard to even break even let alone turn a profit.

Yes southwest turns a profit and the other airlines could learn some from them. That being said Southwest turns a profit partly due to the oil futures they bought at one point and also because they fly to limited cities.

Airlines haven't really turned real profits, at a regular cadence, in years. Which is why the govt usually helps with bankruptcy etc..



FYI when you spend billions - millions is nothing in profit and all it takes is one little bad year to be a financial catastrophe for an airline. You have to look how much money is being invested in order to make those millions in profits.

If this is true, which I need to see some data to believe, then airlines are an incredibly stupid business venture. "Hey! Here's an unsustainable business model, let's continue to do it and have the government continue to bail us out!"

Also, airlines aren't exactly doing the R&D on new jets, Boeing and such are. A 747-400 cost s about $250 million a pop, and Boeing (not the airliners) are doing the research to replace it (using engines designed and built by other companies). Airlines should have a fairly fixed cost (the exception being fuel). It isn't hard to look at the sheets and say "it costs $23,000 to fly a plane from X to Y after all things are paid." They can then say "if we sell 125% of the available seats for Z price, we make XYZ profit per flight."

 

[Midwayman]

How do they account for the 110 passengers they sell on a 100 seat plane? 😀

Really? Its pretty clear they are talking percentages and turning it into a theoretical 100 passenger plane in order to make the story easier to understand.

 

[torpid]

Really? Its pretty clear they are talking percentages and turning it into a theoretical 100 passenger plane in order to make the story easier to understand.

Wasn't his joke/point that the plane is only meant to hold 100 passengers but they instead squeeze in 110?

 

[Naeeldar]

If this is true, which I need to see some data to believe, then airlines are an incredibly stupid business venture. "Hey! Here's an unsustainable business model, let's continue to do it and have the government continue to bail us out!"

Also, airlines aren't exactly doing the R&D on new jets, Boeing and such are. A 747-400 cost s about $250 million a pop, and Boeing (not the airliners) are doing the research to replace it (using engines designed and built by other companies). Airlines should have a fairly fixed cost (the exception being fuel). It isn't hard to look at the sheets and say "it costs $23,000 to fly a plane from X to Y after all things are paid." They can then say "if we sell 125% of the available seats for Z price, we make XYZ profit per flight."

It is a stupid business venture at this point or will be soon anyway given the trajectory of oil costs. The new designs coming out now help but they require a good deal of capital to replace an aging fleet. Problem is the new designs came out kind of late.

Realistically understand airline travel isn't really about business and is a lot more about a nation maintaining critical infrastructure.