How do Airlines make money on airfares less than $100?

sonicruiser · Tue Mar 26, 2019 7:33 am

I was surprised during several recent bookings at just how cheap airfares have gotten over the years. I am not talking about ULCC's like Spirit or Frontier which have always been cheap. I am specifically talking about United as it stands out as the only legacy I have seen that has consistently shown prices less than $100. How are they making any money on these flights? $100 almost seems too cheap to make a profit on a route, could it just be to guard against ULCC's luring pax away?

ncflyer · Tue Mar 26, 2019 7:55 am

Can you be more specific? How about some routes. The other US3 will charge under $100 in the right competitive conditions I can assure you, it’s sure hard to generalize. I’m paying about $70 CLE to bos on Delta one way. Better to fill a seat at $70 than have it empty at $150, and Spirit and B6 flies the route.

Shrewfly · Tue Mar 26, 2019 8:55 am

Often cheap fares are there to fill seats that otherwise would be empty. A commuter flight between two cities at a premium time might be full, but the aircraft needs to make a return trip, so sell seats off cheap on the return leg means you at least get some return. A cheap seat on a flight at an unpopular time, might persuade some passengers with flexible schedules to book those, freeing up the more expensive seats on earlier flights.

Also not everyone on the aircraft is paying that. I have flown MAN-DUB on a flight and paid very little because I booked it in advance. My colleague ended up having to come with me at short notice, and our employers had to pay 5 times for him, as he could only book it the night before.

OB1504 · Tue Mar 26, 2019 11:52 am

ncflyer wrote:
Can you be more specific? How about some routes. The other US3 will charge under $100 in the right competitive conditions I can assure you, it’s sure hard to generalize. I’m paying about $70 CLE to bos on Delta one way. Better to fill a seat at $70 than have it empty at $150, and Spirit and B6 flies the route.

This year alone, I’ve paid $49 for a one-way PHL-FLL and $55 for a one-way MLB-CLT-PHL on AA, and $69 for a one-way FLL-CLT-AVL on Delta.

They’re all basic economy fares so I assume that the airline wants to get you on board so they can make extra money in the form of seat assignments and baggage fees. No different than how Spirit can offer $33 fares.

(though I once booked a $25 regular economy fare for MIA-PHL on AA... my upgrade cleared and I sat in first class for less than what parking at the airport cost!)

Weatherwatcher1 · Tue Mar 26, 2019 12:28 pm

Nothing unique to United. On busy routes like ORD-LGA fares start at $54 each way. United, Delta and American all have flights most days with advance purchase at $67 for unpopular departure times. For peak times like Friday afternoons the fare jumps to over $200.

tphuang · Tue Mar 26, 2019 12:32 pm

They can't make money on that fare, especially if it's a regional operated one. But thankfully for them, not every seat is filled at that price.

jfklganyc · Tue Mar 26, 2019 12:34 pm

They dont.

those fares are subsidized by full Y, domestic F and J.

The airline that is successful balances the battle for marketshare with profitability.

UA seems to be doing a good job at the moment

pbody · Tue Mar 26, 2019 12:50 pm

OB1504 wrote:
This year alone, I’ve paid $49 for a one-way PHL-FLL and $55 for a one-way MLB-CLT-PHL on AA, and $69 for a one-way FLL-CLT-AVL on Delta.

There are 3 things in life that are certain. Taxes, Death, and that you didn't fly FLL-CLT-AVL on Delta. That was either AA or you flew via ATL?

OB1504 · Tue Mar 26, 2019 1:04 pm

pbody wrote:
OB1504 wrote:
This year alone, I’ve paid $49 for a one-way PHL-FLL and $55 for a one-way MLB-CLT-PHL on AA, and $69 for a one-way FLL-CLT-AVL on Delta.

There are 3 things in life that are certain. Taxes, Death, and that you didn't fly FLL-CLT-AVL on Delta. That was either AA or you flew via ATL?

Typo, I meant ATL but now I can’t go back and edit the post.

blockski · Tue Mar 26, 2019 1:22 pm

Are these basic economy fares? Remember that part of the strategy with basic economy (just like the ULCCs) is to make money on fees and not just fares. Fees for assigned seats, for checked bags, for larger carry-on bags, etc.

ojjunior · Tue Mar 26, 2019 2:07 pm

Can I internationalize your topic?

A little over USD 100 limit bur recently I booked GRU-LIS-GRU for a Dec date flight with TP for mere USD 325 R/T. Direct flight (with the A339 :bouncy:

) northbound and 1 stop southbound.
Can't even imagine how many seats do they need to fill with more expensive rates to subsidize it...

N766UA · Tue Mar 26, 2019 2:25 pm

Airlines don’t just make money on routes, they make money on entire networks. If UA loses money but keeps marketshare here, and then over there makes a pile of cash, the net result is positive. Not every route an airline flies needs to make money all the time.

george77300 · Tue Mar 26, 2019 2:27 pm

And likewise you lot need to come to Europe for some cheap fares. Flown London to CPH/PRG/OSL/ARN/CIA/MAD/BFS/DUB/ALC to name a few for less than $10 each way. Ryanair really do have cheap fares in Europe. Some of those are 3 hour flights too.

They of course are selling some fares higher than that but much lower cost base in Europe on the ULCC. They also hope you pay extra for bags/seats etc...

airzim · Tue Mar 26, 2019 2:56 pm

they also can increase their incremental margins since at those low fares, they charge for bags, seat assignments, EconPlus, food etc. Those ancillary items are not currently taxed as tickets by the government so go right to the bottom line. You can easily add $100-$200 additional dollars in revenue, and possible way more if you have a family traveling together.

klakzky123 · Tue Mar 26, 2019 2:58 pm

Sometimes, its also just matching competitor fares (even at a major loss). AA was/is aggressively matching Spirit out of its hubs so fares less than $100 weren't all that uncommon on certain routes. Sometimes, its just a matter of protecting market share even if the flights become money losers at that price point.

PSAatSAN4Ever · Tue Mar 26, 2019 2:59 pm

Shrewfly wrote:
Often cheap fares are there to fill seats that otherwise would be empty. A commuter flight between two cities at a premium time might be full, but the aircraft needs to make a return trip, so sell seats off cheap on the return leg means you at least get some return. A cheap seat on a flight at an unpopular time, might persuade some passengers with flexible schedules to book those, freeing up the more expensive seats on earlier flights.

To follow up with that, in my own case of wanting to be on a VERY specific flight on a VERY specific day (the closing of the Commuter Terminal at SAN), and with only a few days notice, I went at looked at one-way fares on AA and UA for SAN-LAX.

United, the last scheduled flight out, was $280, one way.

American's last flight out was $69.

I think we know which one won. But lucky for me, the incoming flight was delayed, making the Eagle flight the last flight ever by default.

But here's the rub: the United flight was completely full, while mine might have had 25 of the 50 seats occupied. Maybe.

I would venture to say that it isn't necessarily that EVERY flight has to be profitable every single time - it's that the network's ebb and flow of seasonality and connectivity affects certain hub routes. The bean counters have said, "in order to make route X work, we have to fly route Y the night before, so make it happen", and it happens.

casinterest · Tue Mar 26, 2019 3:12 pm

What kind of plane was it.

if it was a 737 or A320 we can just for round numbers assume 750 gallons an hour of burn at a pricey 2.00 a gallon for jet fuel for 1500 dollars in fuel for the flight. ( Let's make it 2000 for idle/taxi time).

2000 dollars in fuel.
900 dollars Salaries for those on board 2 pilots 3 Flight attendents
800 dollars in maintenance
700 dollars in Plane ammortization
50 dollar in Plane insurance.
600 in supplies/other

So maybe 5000-6000 dollars an hour to operate a plane that can carry 100 to 150 people an hour .

This means at average the airline must make 60 dollars an hour each way on a round trip ticket for that hour flight.

If you get a ticket less than 100, you are probably in the minority, but helping to push prices up for later passengers that must take the flight for 400-500 round trip.

AAIL86 · Tue Mar 26, 2019 3:16 pm

sonicruiser wrote:
I was surprised during several recent bookings at just how cheap airfares have gotten over the years. I am not talking about ULCC's like Spirit or Frontier which have always been cheap. I am specifically talking about United as it stands out as the only legacy I have seen that has consistently shown prices less than $100. How are they making any money on these flights? $100 almost seems too cheap to make a profit on a route, could it just be to guard against ULCC's luring pax away?

They don't. Simple as that, lol!

compensateme · Tue Mar 26, 2019 3:34 pm

jfklganyc wrote:
They dont.

those fares are subsidized by full Y, domestic F and J.

Not exactly. When airlines are on top of their game, these fares are limited to seats that would go otherwise unsold; thus, their contribution is positive and they are money-making fares.

fjhc · Tue Mar 26, 2019 4:00 pm

I've got return flights LHR-ORD (outbound via BRU, return direct) with United and Brussels Airlines (for the LHR-BRU segment) for £259. The 'fare' was apparently $13, with the rest being taxes and fees. This is basic economy, no bag, but still. Crazy cheap. I'm fully expecting a terrible seat (although, having a UA frequent flyer account I'm hoping they'll take my preferences into account), but for that sort of money, trans-Atlantic with a real airline where I'll get IFE, food, etc I'm very happy. I do not expect them to make a profit at all. Especially when £78 worth of those taxes and fees are just the UK's Air Passenger Duty!

TheOldDude · Tue Mar 26, 2019 4:11 pm

On a flight basis they make money on the few cheap fares based on the sale to someone who otherwise would not have purchased a fare, no one else taking the seat, and the fare paid being greater than the variable cost.

UpNAWAy · Tue Mar 26, 2019 4:14 pm

Despite record breaking profits I bet airlines do not make money on about half of all flights or more outside of peak travel seasons. Margins are razor thin and that profit comes in very small windows of opportunity.

ssteve · Tue Mar 26, 2019 4:25 pm

United is prohibiting basic economy customers from having carryons that don't fit under the seat, and charging to check carryon sized bags.

What was strange to me when I flew this fare class recently, is that I was totally blocked from any sort of upgrade. Couldn't pay extra to change the seat assignment.

AA basic economy was offering a range of seat choices with a range of prices for the choice.

Weird that United had no upsell.

WN732 · Tue Mar 26, 2019 4:41 pm

Last year I paid $55 to fly from SMF-EWR with a connection in LAX. Basic Economy was only $45.

PatrickZ80 · Tue Mar 26, 2019 4:51 pm

AAIL86 wrote:
sonicruiser wrote:
I was surprised during several recent bookings at just how cheap airfares have gotten over the years. I am not talking about ULCC's like Spirit or Frontier which have always been cheap. I am specifically talking about United as it stands out as the only legacy I have seen that has consistently shown prices less than $100. How are they making any money on these flights? $100 almost seems too cheap to make a profit on a route, could it just be to guard against ULCC's luring pax away?

They don't. Simple as that, lol!

Indeed they don't make profit, but it reduces the losses. After all, it's the difference between selling that seat for a loss-making fare or not selling it at all. When the seat remains unsold the airline has 100% loss. When they manage to sell it they can reduce that loss to maybe 40%.

Besides, as others have mentioned, not every seat is that cheap. Somebody once said that there are as many different fares as there are seats on the aircraft. There are always people who pay more and the airline does make a profit on those seats. Those profits cover the losses made on other seats. All together the entire flight might be profitable even if some seats are not.

PatrickZ80 · Tue Mar 26, 2019 4:57 pm

ssteve wrote:
United is prohibiting basic economy customers from having carryons that don't fit under the seat, and charging to check carryon sized bags.

What was strange to me when I flew this fare class recently, is that I was totally blocked from any sort of upgrade. Couldn't pay extra to change the seat assignment.

AA basic economy was offering a range of seat choices with a range of prices for the choice.

Weird that United had no upsell.

Weird indeed.

Many ULCCs don't make a profit on the fares itself, but they gain their profit out of ancillary revenue. That it's not included doesn't mean it's not available. Everything is possible, but nothing is free. Seems like United didn't quite understand that.

jetmatt777 · Tue Mar 26, 2019 5:09 pm

They are essentially selling the “unsold at departure” seats first. They account for a small percentage of the total available fares on a flight.

fjhc · Tue Mar 26, 2019 5:09 pm

ssteve wrote:
United is prohibiting basic economy customers from having carryons that don't fit under the seat, and charging to check carryon sized bags.

What was strange to me when I flew this fare class recently, is that I was totally blocked from any sort of upgrade. Couldn't pay extra to change the seat assignment.

AA basic economy was offering a range of seat choices with a range of prices for the choice.

Weird that United had no upsell.

For my upcoming flights they're offering to reserve seats on the sectors operated by UA. I'm tempted, it's $7 on the BRU-ORD segment, although it's then $25 for the ORD-LHR flight. Thankfully for trans-Atlantic flights, you can bring both bags.

AAIL86 · Tue Mar 26, 2019 5:45 pm

PatrickZ80 wrote:
AAIL86 wrote:
sonicruiser wrote:
I was surprised during several recent bookings at just how cheap airfares have gotten over the years. I am not talking about ULCC's like Spirit or Frontier which have always been cheap. I am specifically talking about United as it stands out as the only legacy I have seen that has consistently shown prices less than $100. How are they making any money on these flights? $100 almost seems too cheap to make a profit on a route, could it just be to guard against ULCC's luring pax away?

They don't. Simple as that, lol!

Indeed they don't make profit, but it reduces the losses. After all, it's the difference between selling that seat for a loss-making fare or not selling it at all. When the seat remains unsold the airline has 100% loss. When they manage to sell it they can reduce that loss to maybe 40%.

Besides, as others have mentioned, not every seat is that cheap. Somebody once said that there are as many different fares as there are seats on the aircraft. There are always people who pay more and the airline does make a profit on those seats. Those profits cover the losses made on other seats. All together the entire flight might be profitable even if some seats are not.

Yep, that very small amount of revenue does help cover costs somewhat. But the profits come from the F/C/D/Z/Y/B/M/E/U side of the inventory. Not $60 fares.

Obzerva · Tue Mar 26, 2019 5:49 pm

Another point that is sometimes forgotten, airlines don’t make money just on the initial fare price and ancillary fees, there’s also revenue from ticket changes.

Whilst a passenger may book in advance to get a cheap fare, they may not actually travel on that date, so the airline can add revenue from ticket changes or the no show on the advance purchase fare, hence the flight being oversold

EstherLouise · Tue Mar 26, 2019 5:57 pm

For the four tickets they sold at $100 each, they sold six more in first for $2400 each.

flyingclrs727 · Tue Mar 26, 2019 6:07 pm

PatrickZ80 wrote:
ssteve wrote:
United is prohibiting basic economy customers from having carryons that don't fit under the seat, and charging to check carryon sized bags.

What was strange to me when I flew this fare class recently, is that I was totally blocked from any sort of upgrade. Couldn't pay extra to change the seat assignment.

AA basic economy was offering a range of seat choices with a range of prices for the choice.

Weird that United had no upsell.

Weird indeed.

Many ULCCs don't make a profit on the fares itself, but they gain their profit out of ancillary revenue. That it's not included doesn't mean it's not available. Everything is possible, but nothing is free. Seems like United didn't quite understand that.

They're trying to get people to buy the regular economy seats. The limitations on carryons decreases the number of bags that need to be gate checked. Gate checking is now reserved for regular economy and above. The unassigned seating is deliberate so United can assign basic economy passengers to middle seats that otherwise would go empty, because most passengers prefer either window or aisle seats. If you don't want to live with those restrictions, get the regular economy tickets.

I've been checking out UA transcon fares, so the next time my wife's parents visit the US, we could meet them in New York and spend time with them and their friends there, then fly to the west coast to see some of my wife's friends there. The flights seem to be pretty inexpensive. Regular Economy appears to be about $30 more than Basic Economy. The advance purchase Basic Economy seats appear to be priced at or below WN's "Wanna Get Away" fares, but they don't include luggage. Do keep in mind that the UA advanced purchase economy transcon tickets are cheaper for nonstop flights. WN has very few nonstop transcon flights. While you might be able to beat UA's basic transcon fares on WN, you could spend 10 or more hours from first departure to last arrival compared to 6 and a half hours nonstop on UA. The idea of spending a whole day of vacation time doing a one-stop transcon doesn't appeal to me. If I had a bunch of stuff I needed to haul, and wasn't concerned about the travel time, I'd fly on WN. Considering there are lots of cities not covered by WN, UA's Basic Economy fares are rather reasonable. Also, The UA basic economy fares seem to be available closer to the date of departure. The WN Wanna Get Away fares often get bid up or even disappear in the last week or two on some routes.

toobz · Tue Mar 26, 2019 6:18 pm

Nothing new here folks. Just got an email from Alaska offering $34 one way fares. Airlines do this to fill up inventory. Do not for a second think that there are many of these cheap seats available on each flight.

September11 · Tue Mar 26, 2019 7:36 pm

Always check all four corners for cheap fares...

xjetflyer2001 · Tue Mar 26, 2019 8:10 pm

ssteve wrote:
United is prohibiting basic economy customers from having carryons that don't fit under the seat, and charging to check carryon sized bags.

What was strange to me when I flew this fare class recently, is that I was totally blocked from any sort of upgrade. Couldn't pay extra to change the seat assignment.

AA basic economy was offering a range of seat choices with a range of prices for the choice.

Weird that United had no upsell.

You can actually buy out of the basic economy fare, I don't think its advertised and you have to ask, but it's something like $100 for a one way ticket and $200 if your on a round trip ticket, then you get the standard bag limits and you can buy into economy plus seating and change your seat among the standard economy section

royalswazi · Wed Mar 27, 2019 3:10 am

They get a subsidy from Delta to avoid Detroit.

Jshank83 · Wed Mar 27, 2019 3:16 am

I was able to pay for seat selection on a basic Econ fare. You just have to do it before the 24 hour til departure time when they auto assign you a seat.

I flew AUS-IAH-STL for $67. I think my fare for the AUS-IAH leg was put in as $6 PQD which was kind of funny.

strfyr51 · Wed Mar 27, 2019 3:24 am

Many times? These cheap fares are "Loss Leaders" Designed to get the load factor higher than 95%. If you really look? Those fares are as restrictive as a "Tight Hatband"!!
Not only Hard to find. But Harder to Book!

flyingclrs727 · Wed Mar 27, 2019 4:28 am

September11 wrote:
Always check all four corners for cheap fares...

But filling that seat doesn't cost Alaska that much either. Encouraging people to make low cost trips often results in repeat customers.

Max Q · Wed Mar 27, 2019 5:12 am

You can’t evaluate profitability from just a few flights that probably don’t make money

With a massive and complex route system like United’s it’s all about synergy to create a system that is profitable on an overall basis

Quite a few flights will be accepted as money losers at certain times if they feed into profitable ones

IAHWorldflyer · Wed Mar 27, 2019 4:04 pm

I fly IAH-MEX frequently. There's a fair amount of competition on the route, so it's possible several times a year to pick up a $200-$225r/t ticket. But the taxes and fees charged, especially by the Mexican government, mean that the actual fare is something like $80r/t! I get a great deal, but earn almost no PQD's for elite status.

kiowa · Fri Jul 05, 2019 1:58 am

fjhc wrote:
I've got return flights LHR-ORD (outbound via BRU, return direct) with United and Brussels Airlines (for the LHR-BRU segment) for £259. The 'fare' was apparently $13, with the rest being taxes and fees. This is basic economy, no bag, but still. Crazy cheap. I'm fully expecting a terrible seat (although, having a UA frequent flyer account I'm hoping they'll take my preferences into account), but for that sort of money, trans-Atlantic with a real airline where I'll get IFE, food, etc I'm very happy. I do not expect them to make a profit at all. Especially when £78 worth of those taxes and fees are just the UK's Air Passenger Duty!

It is sad when the governments extort more in taxes than the airline collects for doing the work.

SocalApproach · Fri Jul 05, 2019 2:25 am

UA actually came in the clutch for me a few weeks ago. I was trying to fly SEA-ORD and was able to nab a ticket for 110.00 via SFO. Immediately after booking I searched for earlier flights into SFO just in case I wanted to pay for a same day change to not miss my connection and I was shocked to see the same flight I was on to SFO among others that day were going for 400 dollars one way. yikes

gatibosgru · Fri Jul 05, 2019 2:32 am

PatrickZ80 wrote:
AAIL86 wrote:
sonicruiser wrote:
I was surprised during several recent bookings at just how cheap airfares have gotten over the years. I am not talking about ULCC's like Spirit or Frontier which have always been cheap. I am specifically talking about United as it stands out as the only legacy I have seen that has consistently shown prices less than $100. How are they making any money on these flights? $100 almost seems too cheap to make a profit on a route, could it just be to guard against ULCC's luring pax away?

They don't. Simple as that, lol!

Indeed they don't make profit, but it reduces the losses. After all, it's the difference between selling that seat for a loss-making fare or not selling it at all. When the seat remains unsold the airline has 100% loss. When they manage to sell it they can reduce that loss to maybe 40%.

Besides, as others have mentioned, not every seat is that cheap. Somebody once said that there are as many different fares as there are seats on the aircraft. There are always people who pay more and the airline does make a profit on those seats. Those profits cover the losses made on other seats. All together the entire flight might be profitable even if some seats are not.

Flew BOS-MAD-BOS on IB for U$251, and when the guy sitting behind found out what my friend and I paid he was livid!

BDKLEZ · Fri Jul 05, 2019 3:15 am

It's not rocket science, but you can rest assured that the airline will have an entire department devoted to the religion of Revenue Management, Yield Control etc. (...or to the uninitiated, how many seats to sell at what fare on what route on what date and at what time)

strfyr51 · Fri Jul 05, 2019 3:30 am

sonicruiser wrote:
I was surprised during several recent bookings at just how cheap airfares have gotten over the years. I am not talking about ULCC's like Spirit or Frontier which have always been cheap. I am specifically talking about United as it stands out as the only legacy I have seen that has consistently shown prices less than $100. How are they making any money on these flights? $100 almost seems too cheap to make a profit on a route, could it just be to guard against ULCC's luring pax away?

They're DAMN Sure not being altruistic! If they OFFER that fare? It's for seats that might not even sell for more. It's a LOW Ball to get you in the door,

DocLightning · Fri Jul 05, 2019 3:42 am

Suppose it costs an airline 13¢ per mile to fly a passenger. It might cost them 11.5¢ per mile to fly that same seat empty. So given that they have to fly the seat somewhere, if they can sell that seat for a minimum of 1.5¢/mile, then at least they have cut their losses, even if they don't make money on it. But there will be many other seats on that airplane that they will be charging 26¢ or even 54¢ per mile.

Dieuwer · Fri Jul 05, 2019 3:59 am

Shrewfly wrote:
Often cheap fares are there to fill seats that otherwise would be empty. A commuter flight between two cities at a premium time might be full, but the aircraft needs to make a return trip, so sell seats off cheap on the return leg means you at least get some return. A cheap seat on a flight at an unpopular time, might persuade some passengers with flexible schedules to book those, freeing up the more expensive seats on earlier flights.

Also not everyone on the aircraft is paying that. I have flown MAN-DUB on a flight and paid very little because I booked it in advance. My colleague ended up having to come with me at short notice, and our employers had to pay 5 times for him, as he could only book it the night before.

If seats go otherwise empty, then maybe there is too much capacity. :idea:

TWA772LR · Fri Jul 05, 2019 4:03 am

Its better to seel seats at a partial loss than a full loss. For example, if it costs $300 for a seat to break even, selling it at $100 for a $200 loss is better than having it be empty and having a $300 loss, or worse, give it to a nonrev.

hOMSaR · Fri Jul 05, 2019 6:26 am

kiowa wrote:
fjhc wrote:
I've got return flights LHR-ORD (outbound via BRU, return direct) with United and Brussels Airlines (for the LHR-BRU segment) for £259. The 'fare' was apparently $13, with the rest being taxes and fees. This is basic economy, no bag, but still. Crazy cheap. I'm fully expecting a terrible seat (although, having a UA frequent flyer account I'm hoping they'll take my preferences into account), but for that sort of money, trans-Atlantic with a real airline where I'll get IFE, food, etc I'm very happy. I do not expect them to make a profit at all. Especially when £78 worth of those taxes and fees are just the UK's Air Passenger Duty!

It is sad when the governments extort more in taxes than the airline collects for doing the work.

“Taxes and fees.” A lot of fees (especially transatlantic) are actually fees the carrier itself imposes (like the “resort fee” at certain hotels).

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