On an airplane carrying 100 people, how many passengers does it take to cover the cost of the flight? Almost all of them.
This is the question the Wall Street Journal’s Scott McCartney asked US Airways and consulting firm Oliver Wyman in an attempt to figure out where exactly each person’s airfare goes. To answer the journalist’s query, the firm created a hypothetical flight of 100 passengers in which each person paid the average $146 fare for a domestic flight and $18 each in fees and add-ons.
After crunching the numbers, the group found that for this 100-person flight, it would take 99 passengers for the ride to break even.
The supposed ticket prices certainly skew on the cheaper side ($146 seems low, even for a one way fare), but the hypothetical situation clearly illustrates the airline industry’s razor thin profit margins. While fees tacked on for checked bags and extra legroom can be infuriating to customers, the revenue these things create help fund everything from drinks to defibrillators.
So how is the money from a passenger’s ticket divvied up? Using the research results, McCartney goes on to explain how revenue from tickets is used:
- The biggest expense for airlines is fuel and Oliver Wyman estimates that on the 100-passenger flight, the tickets of 29 people would foot the gas bill.
- Salaries for personnel are the second biggest expense. On the hypothetical flight, 20 passengers would cover the crew’s paychecks.
- Ownership costs—things like buying, leasing and insuring planes—also cost airlines a significant sum. 16 passengers on the flight would cover these costs.
- Fourteen passengers on the flight would cover the collective federal taxes and security fees paid by all on board.
- Another 11 passengers would help with total maintenance costs—repairs and maintenance checks—for the planes.
- Finally, 9 passengers would pay for miscellaneous costs, which include everything from food and drinks to legal fees to compensating a passenger for getting bumped to another flight.
While things like flight-change fees and revenue from cargo supplement the flight, it is the revenue from tickets that covers the bulk of an airline’s many operating costs.
“It's like a wristwatch. You only see the face and hands, but all the parts inside are really necessary," former Continental CEO Gordon Bethune told the WSJ of the endless costs of operating an airline. "Those bags don't get downstairs by themselves. All those things that move bags have to be purchased and then they break. It never stops."
How Airlines Spend Your Airfare [WSJ]
Image: Roger Schultz/Flickr
This post was originally published on Smartplanet.com