This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. For an explanation of our Advertising Policy, visit this page.
US airlines are making money hand over fist, yet most of them are worsening the passenger experience, especially for economy travelers. American Airlines just reduced the legroom on its new 737 MAX 8s.
The big three legacy carriers have also introduced basic economy fares so passengers are charged for seat selection and carry-on bags. Fares have dropped over the years due to increased competition from low-cost carriers like Norwegian and Spirit, internationally and within the US — and airlines are actually making those profits on something other than the price of tickets.
As reported by the Wall Street Journal, airlines make their profit by all the ancillary fees they charge customers. So when you’re paying that $25 to check a bag or $8 to select a seat, that’s going straight to an airline’s bottom line. Airfare, or the cost of just the base ticket itself, is used to cover operating costs (i.e. salaries, jet fuel and aircraft maintenance).
US Department of Transportation data says that airlines will likely make $4 billion from baggage fees and $3 billion in reservation-change and cancellation fees in 2017 — that $7 billion is more than half of the net profits that US airlines reported last year.
The Wall Street Journal ran the numbers of average profit per passenger and relative to the average fare. Interestingly enough, the airlines that charge the fewest fees — Alaska, JetBlue and Southwest actually made the largest profit per passenger. Southwest, which allows every customer two free checked bags, a perk completely unmatched in the US market, still beat out larger airlines like Delta and United.
|Airline||Average Profit Per Passenger in 2017||Average Fare|
And, those larger airlines actually had higher average fares than Southwest! So Southwest is making a larger profit and charging considerably less in airfare and fees. Its profit margin was 16.5%, the highest in the industry, compared to American Airlines which placed last with a measly 4.5%.
It seems counter-intuitive that the airlines charging the lowest fees and with the lowest average fares are actually making the most profit. Some of it can be chalked up to their operations. JetBlue, Southwest and Alaska all operate a solely single-aisle fleet, and Southwest flies only one type of aircraft, the Boeing 737. These efficiencies and low operating costs can add up to some real savings for airlines.
Profits are also boosted by the airline’s deals with banks to purchase frequent flyer miles. Some reports even say a majority of their profits come from these deals — Delta said it expected to receive $4 billion in revenue per year through 2021 from American Express through its credit card co-brand partnership.
Still, higher fuel and labor costs have nipped at airline’s profits. Jet fuel prices rose 26% from 2016 levels and may increase another 10% in 2018. AA’s CEO Doug Parker said that ticket prices are too low in relation to fuel costs and that they’ll rise over time.
Featured photo by izusek/Getty Images
The American Express Platinum card has some of the best perks out there: cardholders enjoy the best domestic lounge access (Delta SkyClubs, Centurion Lounges, and Priority Pass), a $200 annual airline fee credit as well as up to $200 in Uber credits, and mid-tier elite status at SPG, Marriott, and Hilton. Combined with the 60,000 point welcome offer -- worth $1,140 based on TPG's valuations -- this card is a no-brainer for frequent travelers. Here are 5 reasons you should consider this card, as well as how you can figure out if the $550 annual fee makes sense for you.
- Earn 60,000 Membership Rewards® points after you use your new Card to make $5,000 in purchases in your first 3 months.
- Enjoy Uber VIP status and free rides in the U.S. up to $15 each month, plus a bonus $20 in December. That can be up to $200 in annual Uber savings.
- 5X Membership Rewards® points on flights booked directly with airlines or with American Express Travel.
- 5X Membership Rewards points on prepaid hotels booked on amextravel.com.
- Enjoy access to the Global Lounge Collection, the only credit card airport lounge access program that includes proprietary lounge locations around the world.
- Receive complimentary benefits with an average total value of $550 with Fine Hotels & Resorts. Learn More.
- $200 Airline Fee Credit, up to $200 per calendar year in baggage fees and more at one qualifying airline.
- Get up to $100 in statement credits annually for purchases at Saks Fifth Avenue on your Platinum Card®. Enrollment required.
- $550 annual fee.
- Terms Apply.
- See Rates & Fees