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
Know before you go.
News and deals straight to your inbox every day.
Aside from the 75,000 points welcome bonus, Amex recently made huge improvements to the Business Platinum Card, including the fact that you will now earn 50% more points on purchases of $5,000 or more, earn 5x on flights and eligible hotels at Amextravel.com and cardholders will receive a $200 airline fee credit each year.
- Welcome Offer: Earn up to 75,000 Membership Rewards® points.
- Earn 50,000 Membership Rewards® points after you spend $10,000 and an extra 25,000 points after you spend an additional $10,000 all on qualifying purchases within your first 3 months of Card Membership.
- Get 5X Membership Rewards® points on flights and prepaid hotels on amextravel.com.
- Get 50% more Membership Rewards® points. That's 1.5 points per dollar, on each eligible purchase of $5,000 or more. You can get up to 1 million additional points per year.
- 35% Airline Bonus: Use Membership Rewards® Pay with Points for all or part of a flight with your selected qualifying airline, and you can get 35% of the points back, up to 500,000 bonus points per calendar year.
- Enroll to get up to $200 in statement credits annually by getting up to $100 semi-annually for U.S. purchases with Dell. Terms apply.
- Get one year of Platinum Global Access from WeWork. With this membership, you can access 300+ premium, inspiring workspaces in 75+ cities. To get this exclusive offer, enroll between 2/15/2019 and 12/31/2019.
- Terms Apply
- See Rates & Fees