The economics of budget airlines don't make sense

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The airline industry runs at a 2% to 3% profit margin, quite a contrast to freight rail. On Bloomberg radio guest analyst Richard Aboulafia kept citing that figure when describing the airliner manufacturing industry (available without a subscription as a podcast episode, sorry readers). He says what the airlines want now is "200 to 230 seats, about 5,000 nautical miles."
Okay, everyone, in case the subtext of why I am posting about this isn't clear:
Fossil fuel dependency is a big problem in the United States economy, with geopolitical, economic and environmental consequences that will continue to increase.
Even people who are environmentally conscious seem to take flying for granted. My theory is that people who have flown on a low-cost, convenient flight between destination airports believe that this service model is sustainable and will eventually spread, even when experience and math show that this isn't the case. But because flight is engrained in middle-class culture, the expectation will continue that flight is the most "reasonable" method of travel.
Coincidentally also on Bloomberg is more of a straight news piece on greener flying. The article seems to be free: No-Frills Flying Emerges as Travel’s Painful, Greener Future, with interesting charts courtesy of Envest Global and the IATA. It could be right.

Maybe entrepreneurs get into the airline business for the same reason teenagers work at the mall, they're familiar with it. Or, it has some creative appeal:

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Braniff

Everything flying now must be greener than that (ha!), but the amount of air travel is so much higher. Aeroflot was still flying high trust planes in the early 2000s. A friend described to me being a passenger on a delayed Aeroflot flight at Heathrow, and when it finally was cleared the pilot took off like a rocket.
 
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I have spent my entire working life in the airline industry with a regional airline in the accounting and finance departments. I'd just like to make a couple of points. 1) When a legacy carrier pays a regional airline to operate under the legacies name, it does guarantee a percentage of profit for the regional airline. The regional carrier gets paid the same amount whether there is one passenger or 50. 2) On any given flight by the legacy carrier, discount seats are extremely limited. Example, a flight with 100 seats in Coach may only have ten seats available at the cheapest rate, and to get that rate you may have to buy the ticket 30 days in advance. There may only be 5 seats available for frequent flyers. There may be 7 or 8 different fares in coach and the number of seats per fare is very limited. Even first and business classes will have different fares within the booking class. Another thought, the pilots are usually limited to 60 hours of flight time per month. Your more senior pilots can make $250 or more per hour and they bid for the longest flights possible, they may only work 4 or 5 days per month.
 
The airline industry runs at a 2% to 3% profit margin, quite a contrast to freight rail. On Bloomberg radio guest analyst Richard Aboulafia kept citing that figure when describing the airliner manufacturing industry (available without a subscription as a podcast episode, sorry readers). He says what the airlines want now is "200 to 230 seats, about 5,000 nautical miles."

Coincidentally also on Bloomberg is more of a straight news piece on greener flying. The article seems to be free: No-Frills Flying Emerges as Travel’s Painful, Greener Future, with interesting charts courtesy of Envest Global and the IATA. It could be right.

Maybe entrepreneurs get into the airline business for the same reason teenagers work at the mall, they're familiar with it. Or, it has some creative appeal:

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Braniff

Everything flying now must be greener than that (ha!), but the amount of air travel is so much higher. Aeroflot was still flying high trust planes in the early 2000s. A friend described to me being a passenger on a delayed Aeroflot flight at Heathrow, and when it finally was cleared the pilot took off like a rocket.
"Greener" flying covers a number of different issues:
Reducing GHG emissions from fossil fuels
Reducing other pollutants (NOx, Hydrocarbons, particulates) from the engines
Climate effects of contrails on cloud cover
Noise

All of these are probably best dealt with by reducing the number of airplanes flying around. So one strategy would be to only have very large airplanes with high passenger capacities flying between a limited number of regional airports, with bus and rail connections to fill in the gaps. Another strategy might be to re-regulate the airline industry and put it roughly in the state it was back in the 1960s and early 1970s. This would mean that fares would increase to the point that many people who are now used to being able to fly won't be able to afford to fly any more. This would also decrease the number of flights. Some traffic might be diverted to buses and trains, which are more fuel efficient, but many people just don't have the time to take a cross country trip that involves 8 days on the road, so there will just be less long-distance traveling, which is pretty much what it was like 50 years ago.

Unfortunately, neither of these strategies are probably politically possible, but getting serious about dealing with climate change is probably going to require that we all lower our standard of living a bit. It would also help to decrease the population, but I can't imagine any of our leaders having the guts to tell us that at election time. In any event, if they did, they'd probably be our ex-leaders. 😚
 
The problem is, our whole transportation system is built around fly/drive. For shorter trips you just drive. For longer trips you drive to an airport which has plenty of secure parking either as part of the airport or offsite with free shuttles. You fly to your destination then rent a car from one of the many rentals conveniently located to the arrivals area or accessible by a free shuttle. You then drive to your destination.

Compare that to train (or bus) travel where the station is usually located in a sketchy neighborhood where you don't dare leave your car. When you get to your destination you can generally forget about car rentals on site, if you are lucky you might be able to get a taxi or Uber to a nearby car rental location, unless it's after hours or a Sunday then forget it. No wonder train travel outside the NEC is basically a rounding error compared to flying or driving.
 
The problem is, our whole transportation system is built around fly/drive. For shorter trips you just drive. For longer trips you drive to an airport which has plenty of secure parking either as part of the airport or offsite with free shuttles. You fly to your destination then rent a car from one of the many rentals conveniently located to the arrivals area or accessible by a free shuttle. You then drive to your destination.

Compare that to train (or bus) travel where the station is usually located in a sketchy neighborhood where you don't dare leave your car. When you get to your destination you can generally forget about car rentals on site, if you are lucky you might be able to get a taxi or Uber to a nearby car rental location, unless it's after hours or a Sunday then forget it. No wonder train travel outside the NEC is basically a rounding error compared to flying or driving.
Even on the NEC, only Philly and Washington have rental cars at the station. Enterprise in Boston will pick you up at South Station, or you could take the Silver Line to Logan Airport and then transfer to the internal airport shittle to take you to the rental car center. I once rented a car at Washington Union Station. Never again, as the traffic in downtown DC is horrible. If I ever needed to ride Amtrak to DC and rent a car, I think I'd take the Metro to Reagan National and rent my car there. Or maybe just get off at BWI and rent the car there (Though that requires taking a shuttle to the terminal, and another shuttle to the rental car center.) Of course, in the larger NEC cities, you usually don't need a car, and there are lots of cabs and Uber/Lyft services, as well as public transit (which can be a bit of a pain if you have a lot of luggage.) That's true of Chicago as well.
 
Larger aircraft are not an all way solution. Now that does reduce the number of pilots needed which are in short supply now. The true measure is the amount of fuel used per seat mile/ Turbo props usually beat pure jets but not so much now as in the past. Maybe the measure should be fuel used per passenger mile. Extreme example. You do not run a 747 from Albany to Springfield.

The problem of rental cars is that IMO about 90% of the time renting a car costs more at an airport than a downtown location same outfit. Denver & Atlanta are good examples.
 
Larger aircraft are not an all way solution. Now that does reduce the number of pilots needed which are in short supply now. The true measure is the amount of fuel used per seat mile/ Turbo props usually beat pure jets but not so much now as in the past. Maybe the measure should be fuel used per passenger mile. Extreme example. You do not run a 747 from Albany to Springfield.

The problem of rental cars is that IMO about 90% of the time renting a car costs more at an airport than a downtown location same outfit. Denver & Atlanta are good examples.
I have found the cost of car rentals downtown are usually more money. I don't travel to Denver and Atlanta but the major Northeast cities and Florida typically have cheaper prices at the airport. But the real problem with downtown located car rentals are the limited business hours. This is a real problem when dealing with Amtrak and their on-time performance.
 
I have spent my entire working life in the airline industry with a regional airline in the accounting and finance departments. I'd just like to make a couple of points. 1) When a legacy carrier pays a regional airline to operate under the legacies name, it does guarantee a percentage of profit for the regional airline. The regional carrier gets paid the same amount whether there is one passenger or 50. 2) On any given flight by the legacy carrier, discount seats are extremely limited. Example, a flight with 100 seats in Coach may only have ten seats available at the cheapest rate, and to get that rate you may have to buy the ticket 30 days in advance. There may only be 5 seats available for frequent flyers. There may be 7 or 8 different fares in coach and the number of seats per fare is very limited. Even first and business classes will have different fares within the booking class. Another thought, the pilots are usually limited to 60 hours of flight time per month. Your more senior pilots can make $250 or more per hour and they bid for the longest flights possible, they may only work 4 or 5 days per month.
According to the most recent U.S. Bureau of Labor Statistics reports, airline pilots average 75 flight hours per month. The CFRs limit Part 121 pilots to 100 flight hours per calendar month and 30 hours in any seven consecutive days. They work an additional 150 hours per month performing other duties, such as checking weather conditions and preparing flight plans.
 
(2) The big difference with Amtrak's LD model and the LCC model is that Amtrak has (1) better seat pitch and padding, (2) more room to stretch one's legs while en route, and (3) at least some F&B available for purchase throughout most of the trip.
Do most people need big seats, room to stretch, and food on a 1-4 hour flight? I think most people can do without for a relatively brief period. Amtrak behaves and prices their product like they’re the only game in town, but in reality they’re being crushed by cars and airlines.

The problem is, our whole transportation system is built around fly/drive.
It used to be built around taking the train but now we act like the US jumped from horses to jet planes. We chose this future but when my coworkers return from Europe or Asia they seem confused and dumbfounded as to how those systems ended up so much more coordinated than ours, as if by magic or something.
 
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Southwest may have started that way but has since evolved into a really unique business model that has been difficult to duplicate. The true LCCs offer far less service and route options. Canada's WestJet sought to copy WN in the beginning with everything from fleet to secondary airports (e.g. Hamilton, ON, instead of Toronto), but is now "just another airline" with noncompetitive pricing which has allowed a flood of new LCCs into the marketplace.
Southwest is really just another major airline and I believe carries the most number of passengers domestically.
 
Do most people need big seats, room to stretch, and food on a 1-4 hour flight?
There is a HUGE difference between a 1-hour and a 4-hour flight. If it's less than 1 hour to a little more than 2 hours I won't worry too much if it's a bit uncomfortable, but more than 2.5 hours I'm gonna start looking at 1st Class for sure.

The only airline I've ever flown that didn't offer complimentary snacks and drinks was Allegiant and they offered them for sale so I'm not sure if no food and drinks is actually an issue?
 
Do most people need big seats, room to stretch, and food on a 1-4 hour flight?
There is a HUGE difference between a 1-hour and a 4-hour flight. If it's less than 1 hour to a little more than 2 hours I won't worry too much if it's a bit uncomfortable, but more than 2.5 hours I'm gonna start looking at 1st Class for sure.
You may fly First Class on everything over 2.5 hours but most people fly coach in cramped seats with little elbow room and no meals. Not because it's pleasant but because it's good enough to get them where they're going quickly and efficiently. These days I almost never fly coach but that does not mean my experience is most people's experience. Back in the day my longest coach flight was a bit over 14 hours and I was just one of many thousands of passengers making a similar journey in coach that day. Even in First I'm rarely offered a meal and most of what is offered is not appetizing to me, but most airports have a selection of restaurants that will work for my needs.
 
Do most people need big seats, room to stretch, and food on a 1-4 hour flight? I think most people can do without for a relatively brief period. Amtrak behaves and prices their product like they’re the only game in town, but in reality they’re being crushed by cars and airlines.
I think a one-hour flight and a four-hour flight are materially different situations.
 
I think a one-hour flight and a four-hour flight are materially different situations.
After flying 14+ hours in coach I found 4-hour flights a minor nuisance. My longest series of connecting coach flights was 35 hours. I fly F/J/W now because I'm tall and decades of basic coach travel did a number on my knees. If not for that I'd still be in coach today.
 
After flying 14+ hours in coach I found 4-hour flights a minor nuisance. My longest series of connecting coach flights was 35 hours. I fly F/J/W now because I'm tall and decades of basic coach travel did a number on my knees. If not for that I'd still be in coach today.
F/J/W = First / Business / Premium Economy. I searched just the letters and got Scrabble words, but then remembered airfare codes from the days of the early web and late gopher when you could get a consumer account on the travel agent system. We had NeXT computers!
 
You may fly First Class on everything over 2.5 hours but most people fly coach in cramped seats with little elbow room and no meals. Not because it's pleasant but because it's good enough to get them where they're going quickly and efficiently. These days I almost never fly coach but that does not mean my experience is most people's experience. Back in the day my longest coach flight was a bit over 14 hours and I was just one of many thousands of passengers making a similar journey in coach that day. Even in First I'm rarely offered a meal and most of what is offered is not appetizing to me, but most airports have a selection of restaurants that will work for my needs.
First Cass may be overkill, but I personally would pay the extra for Premium Economy for any flight over 3 hours. That said, my home airport is BWI, which means most of domestic nonstop flights I can get are on Southwest, and I have been able to handle regular coach (which is all they have) OK, even on 6-hour Baltimore to California flights. Of course, I pay extra for "Early Bird Check-in" to give me a sporting chance at snagging an aisle seat on Row 12, which has a little more legroom than most. As I'm getting older, I find the cramped basic coach seats to be less viable for me on longer flights.
 
Another, minor point on LCCs is that in some cases, by the time you add on the extras to a bare-bones ticket, the cost might be roughly equivalent to a major. There can be a lot of variation depending on which carriers being compared and city pairs, but I recently saw Delta fares out of Detroit, not much more than Frontier after adding on Frontier fees for seat selection and carryon bag, unless perhaps booking last minute in which case DL is going to run much higher. Also getting the nonstop vs. an unpalatable layover factors into the equation.
 
Even with airports, their maintenance, and 72,000 FAA-related salaries taxpayer-funded, airlines simply can't make money on service to places other than big metropolitan areas, so there either are no flights or few and high-priced ones, which themselves often are locally subsidized. E.g. the U of IL pays half a million dollars a year to help fund service to Champaign/Urbana and that area's population is over 100,000. But flights go only to Chicago and one other city as I recall. Our taxes of course fund road travel & transport as well as locks, dams, ports, and dredging for the water transport industry. I'd be happy for my taxes to help get more double-track rail lines. Back in the day so many used to have two tracks (or more).
 
Even with airports, their maintenance, and 72,000 FAA-related salaries taxpayer-funded, airlines simply can't make money on service to places other than big metropolitan areas, so there either are no flights or few and high-priced ones, which themselves often are locally subsidized. E.g. the U of IL pays half a million dollars a year to help fund service to Champaign/Urbana and that area's population is over 100,000. But flights go only to Chicago and one other city as I recall. Our taxes of course fund road travel & transport as well as locks, dams, ports, and dredging for the water transport industry. I'd be happy for my taxes to help get more double-track rail lines. Back in the day so many used to have two tracks (or more).
Interesting, I didn't know there were airports with local subsidies. There is a program called Essential Air Service (EAS) which is federally funded to provide service to out of the way places that otherwise are not economical for the airlines. For example here in Maine Presque Isle (PQI) in very northern Maine has an EAS subsidized service consisting of a twice daily UA flight to Newark NJ (EWR). I flew to PQI some years ago when the flight was from BOS and run by US Air, I recall there were only about 10 passengers on the plane which was a small Embraer model.
 
F/J/W = First / Business / Premium Economy. I searched just the letters and got Scrabble words, but then remembered airfare codes from the days of the early web and late gopher when you could get a consumer account on the travel agent system. We had NeXT computers!
I mainly associate NeXT with the second act of Steve Jobs and id Software's coding of DOOM, but supposedly some part of NeXT lives on in macOS today.

First Cass may be overkill, but I personally would pay the extra for Premium Economy for any flight over 3 hours.
"Premium Economy" sounds like a joke the first time you hear it but it's a good middle ground option for flights up to around ten hours.

Another, minor point on LCCs is that in some cases, by the time you add on the extras to a bare-bones ticket, the cost might be roughly equivalent to a major.
Back when I used to fly Southwest it was usually at a premium over legacy coach, but it was worth it for nonstop travel, until they reduced pitch for more rows.
 
"Premium Economy" sounds like a joke the first time you hear it but it's a good middle ground option for flights up to around ten hours.
When I first heard it I wondered whether that was better or worse than economy.

Premium savings mean you save more than normal savings, right?
 
When I first heard it I wondered whether that was better or worse than economy.

Premium savings mean you save more than normal savings, right?
Somehow at least I never suffered from that particular confusion. That may be because I was flying a lot back then and actually knew what the product was before I knew its official name.
 
EVA Airways introduced what we now call Premium Economy as "Economy Deluxe" back in 1992. A year later in 1993 TWA introduced a less elaborate version called "Comfort Class," which was more akin to Comfort Plus (DL) or Main Cabin Extra (AA) today. EVA Air was my first Premium Economy experience and I thought it was pretty good all things considered. I never flew TWA but I'm still a fan of Y+ when domestic F/J is overpriced or otherwise unavailable.
 
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EVA Airways introduced what we now call Premium Economy as "Economy Deluxe" back in 1992. A year later in 1993 TWA introduced a less elaborate version called "Comfort Class," which was more akin to Comfort Plus (DL) or Main Cabin Extra (AA) today. EVA Air was my first Premium Economy experience and I thought it was pretty good all things considered. I never flew TWA but I'm still a fan of Y+ when domestic F/J is overpriced or otherwise unavailable.
I am with you on this. Even the few extra inches of pitch is desirable.

Incidentally, I did fly TWA but that was back in 1966 when I was a kid. It was the BOS - JFK leg of a BOS - JFK - LHR routing, one I pushed my Dad into booking the routing via JFK just to fly on a BOAC Super VC-10. The BOS - LHR direct flight by BOAC was a 707 at that time, but the JFK - LHR flights, several of them, were Super VC-10s.
 
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EVA Airways introduced what we now call Premium Economy as "Economy Deluxe" back in 1992. A year later in 1993 TWA introduced a less elaborate version called "Comfort Class," which was more akin to Comfort Plus (DL) or Main Cabin Extra (AA) today. EVA Air was my first Premium Economy experience and I thought it was pretty good all things considered. I never flew TWA but I'm still a fan of Y+ when domestic F/J is overpriced or otherwise unavailable.
EVA does have a really good premium economy product, I sell it a lot to clients traveling to Asia. They tend to still have a more affordable level of that class compared to other airlines traveling to similar locales. Premium economy to international locations got so expensive last year that it started to resemble business class prices. I just bought premium on EVA for my own summer travel and it was maybe 30% or 40% more than economy. I've seen it on other airlines where it is twice as much or more than economy.
 
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