Airline Unit Economics 101

Airlines make less on a per-passenger basis than the cost of a cup of coffee.
February 25, 2024
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Airplane flying above the clouds

A couple of weekends ago, I visited some friends in San Francisco. One thing that caught my attention was just how cheap airline tickets are these days.

A quick Google search will show you that you can get a roundtrip airline ticket from San Francisco to Los Angeles for $48. That’s less than a full tank of gas in California.

So, how do airlines make money?

Hint: It’s not from flying people from point A to point B.

Airlines make less profit on a per-passenger basis than the cost of a cup of coffee.

Graph from IATA showing Airlines net profit per passenger (USD)

In 2023, the IATA forecasted the airline industry would earn a mere $2.20 per passenger. 

The airline industry profits from ancillary services – priority seating, baggage fees, food and beverage, travel insurance, in-flight Wi-Fi, and more.

Revenue from ancillary services as a percentage of total revenue has increased year-over-year since 2013.

Graph showing ancillary share of global airline revenue increasing

The most significant driver of growth in revenue from ancillary services is loyalty programs

On average, many airlines make 10-20x more on a per-passenger basis from their loyalty programs than on airline tickets, per IdeaWorksCompany.

Frequent flyer revenue broken down by airline on a per-passenger basis

When passengers sign up for an airline’s loyalty program, they earn frequent flyer points for every mile they fly. Airlines then turn around and sell these frequent flyer points to banks, which then reward them to their credit card holders. Airlines earn 1-1.5 cents per mile from banks and additional bonuses when someone signs up for their cobranded airline credit card, per Axios.

Airlines have mastered the art of turning miles into millions.

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