# Airline economics



## Guest

I keep reading that airlines are heavily subsidized and on average an airlines loses $30 per passenger per flight? I always thought of airlines as for profit corporations like any other? Who exactly is paying for all this subsidy? Why does it continue given that airlines have been around for more than 100 years now?


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## jamesontheroad

I would be interested to be contradicted in this, but my understanding is that none of the American legacy airlines have ever made a profit.

Ryanair, meanwhile made €239,000,000 in 2003 (?). Something is seriously wrong with the entire American transportation industry ...


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## JxGx78

Most airlines subsides are indirect in the form of infrastructure investments where government money is used to pay for airports and airport improvements. Also, the federal government has traditionally payed for a large portion of aircraft R&D through the air force and NASA resulting in lower prices for civilian aircraft than otherwise would have been possible. The airlines also had a major direct bailout in 2002. The airlines have had years that were profitable and they have had years were they lost money, but overall airlines have been a money loser.


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## saxman

The government does not pay for airport. Airports are pretty much self-sufficient. Part of your ticket goes to AIP (Airport Improvement Programs) The highest you can pay is $4.50 depending on what airport you use. There's also a cap, so you don't pay twice on a round trip or something to that effect. They also make money from their tennants, parking fees, and other types of things. I know DFW has a dozen natural gas rigs up on property, so they make a good some from that.

Then there is the FAA, air traffic control, and navigational aides. Couldn't really tell you how that is paid for. A lot comes from the Aviation Trust fund, again funded by your ticket tax. Many say the industry is self-suffiecient, and the "users" pay for everything. Thats aside from the government bailout in 2002 and a few other airline bailouts in the 80's. Also aside from the EAS program. But thats the same argument the highway lobby says. All the highways are paid for by the "users" by the gas tax and other fees, which all go into the Highway Trust Fund.

However, here in the 2000's, Congress has been trying to reauthorize the FAA, and some really want to tax General Aviation for use of the ATC system. Right now it is free. Airlines argue they pay for it all, and all these GA planes are causing these delays. Hopefully that never happens. If I had to guess I see a private jet takeoff from JFK 5 or 10 times a day. Also we should note that the Highway Trust Fund is nearly bankrupt and most new highways being built are tollways.

Airlines aren't going to go away and they are still going to fly short hops, I believe. International service will grow, yet to be efficient, you still need feed to those international flights. You will see less 50 seat jets. They don't make money. It only takes 2 more revenue passengers on a 70 seat airplane to break even, than it does on a 50 seater. Turboprops will make a comeback. They are very efficient for short hops. I would not say that air travel in inefficient. It's just we've come to a tipping point in our nations infrastructure, and it needs to be fixed. Chicago O'hare is already making its runways parallel. You'll see less delays there. JFK needs a new runway out in the bay. La Garbage....I mean La Guardia, needs a facelift in general. (btw, LGA has a very efficient operation compared to JFK)

So trust me, airlines and Amtrak can both exist. Air France still flies A320's between Paris and Lyon many times a day, even though you can ride the TGV in two hours for a fraction of the price. But I bet most of those Air France passengers are connecting to other cities around the world. It's just pretty cool that I can go directly to Paris CDG Airport right on the TGV though.


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## AlanB

saxman66 said:


> The government does not pay for airport. Airports are pretty much self-sufficient. Part of your ticket goes to AIP (Airport Improvement Programs) The highest you can pay is $4.50 depending on what airport you use. There's also a cap, so you don't pay twice on a round trip or something to that effect. They also make money from their tennants, parking fees, and other types of things. I know DFW has a dozen natural gas rigs up on property, so they make a good some from that.


Yes, like the Airtrains at JFK and EWR, that were originally paid for by the AIP and are still being paid for with the AIP, but were originally promised to be free to all to use.



saxman66 said:


> Then there is the FAA, air traffic control, and navigational aides. Couldn't really tell you how that is paid for. A lot comes from the Aviation Trust fund, again funded by your ticket tax. Many say the industry is self-suffiecient, and the "users" pay for everything. Thats aside from the government bailout in 2002 and a few other airline bailouts in the 80's. Also aside from the EAS program.


IIRC, and I'm too tired to go looking now, about $4 Billion of the FAA's budget last year came from general funds. But the rest of its budget does indeed come from ticket taxes, overflight fees, and other aviation only sources.



saxman66 said:


> But thats the same argument the highway lobby says. All the highways are paid for by the "users" by the gas tax and other fees, which all go into the Highway Trust Fund.


And they would be wrong. Yes, more than 50% comes from gas taxes and other fees. But an average of about 40% comes from the general budget.


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## jackal

Thanks for posting some of the numbers. I posted on FT earlier about airline subsidies compared to Amtrak's subsidy, but I was going off of my loose memory and may have made some big errors.

Would be interesting to compare the per-passenger effective subsidy for an average flight (say, an 85%-occupied 737), an average single-occupancy midsize car, and an average passenger train (say, 60% occupancy Amtrak western U.S. Superliner consist) over a distance of 1,000 miles and factoring in all non-user-fee-paid government funds.

How much does it cost the average taxpayer to transport this person from SEA to LAX (or similar) via these three methods? Does it indeed cost you less if I take Amtrak instead of driving or flying?


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## PRR 60

AlanB said:


> saxman66 said:
> 
> 
> 
> The government does not pay for airport. Airports are pretty much self-sufficient. Part of your ticket goes to AIP (Airport Improvement Programs) The highest you can pay is $4.50 depending on what airport you use. There's also a cap, so you don't pay twice on a round trip or something to that effect. They also make money from their tennants, parking fees, and other types of things. I know DFW has a dozen natural gas rigs up on property, so they make a good some from that.
> 
> 
> 
> Yes, like the Airtrains at JFK and EWR, that were originally paid for by the AIP and are still being paid for with the AIP, but were originally promised to be free to all to use.
Click to expand...

The JFK and EWR AirTrains were funded partly from Passenger Facility Charges (PFC's) and partly by the PANYNJ airport revenue. The fares are "theoretically" to pay for operation and maintenance. It should be noted that the EWR station on the NEC was 100% funded from aviation sources.



AlanB said:


> saxman66 said:
> 
> 
> 
> Then there is the FAA, air traffic control, and navigational aides. Couldn't really tell you how that is paid for. A lot comes from the Aviation Trust fund, again funded by your ticket tax. Many say the industry is self-suffiecient, and the "users" pay for everything. Thats aside from the government bailout in 2002 and a few other airline bailouts in the 80's. Also aside from the EAS program.
> 
> 
> 
> IIRC, and I'm too tired to go looking now, about $4 Billion of the FAA's budget last year came from general funds. But the rest of its budget does indeed come from ticket taxes, overflight fees, and other aviation only sources.
Click to expand...

The FY2008 general fund contribution to the FAA budget was $2.3 billion.


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## Sealink

I think this is where the American concept of the free market is exposed. American airlines, while operating in an extremely competitive environment (although I would argue that the European industry is more competitive simply on account of Ryanair), are extremely well protected by the government.

So what we have is a situation with these massive organisations, such as American, Delta, NorthWest, United and Continental for example, who simply copy each other in almost every way. So one airline charges for a second bag, they all start doing it. One airline ditches agency commission, they all do it. And yet profitability eludes them.

It's an awful thing to say, but market forces should be allowed to operate. If the aviation industry cannot sustain airlines without them retreating to Chapter 11, then why are they still allowed to operate?

Incidentally, British Airways, of Terminal 5 shame, have just announced annual profits of $1.7bn. The only help they get, as far as I recall, is tax free fuel. And every British airline gets that.


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## PRR 60

Sealink said:


> ...So what we have is a situation with these massive organisations, such as American, Delta, NorthWest, United and Continental for example, who simply copy each other in almost every way. So one airline charges for a second bag, they all start doing it. One airline ditches agency commission, they all do it. And yet profitability eludes them.
> ...Incidentally, British Airways, of Terminal 5 shame, have just announced annual profits of $1.7bn.


The five US airlines you mentioned had a combined profit of $6.2 billion in 2007.


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## Sealink

PRR 60 said:


> Sealink said:
> 
> 
> 
> ...So what we have is a situation with these massive organisations, such as American, Delta, NorthWest, United and Continental for example, who simply copy each other in almost every way. So one airline charges for a second bag, they all start doing it. One airline ditches agency commission, they all do it. And yet profitability eludes them.
> ...Incidentally, British Airways, of Terminal 5 shame, have just announced annual profits of $1.7bn.
> 
> 
> 
> The five US airlines you mentioned had a combined profit of $6.2 billion in 2007.
Click to expand...

I'm delighted to be corrected on this, I had no idea. I was still thinking of the years of losses. Nice to see a turnaround then. But I'm still not convinced that Chapter 11 is a good idea in the case of the aviation industry.


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## printman2000

saxman66 said:


> The government does not pay for airport. Airports are pretty much self-sufficient.


Here in Amarillo, the city owns the airport.


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## Joel N. Weber II

saxman66 said:


> However, here in the 2000's, Congress has been trying to reauthorize the FAA, and some really want to tax General Aviation for use of the ATC system. Right now it is free. Airlines argue they pay for it all, and all these GA planes are causing these delays. Hopefully that never happens. If I had to guess I see a private jet takeoff from JFK 5 or 10 times a day. Also we should note that the Highway Trust Fund is nearly bankrupt and most new highways being built are tollways.


AOPA has been lobbying against new fees for general aviation use of the ATC system. Part of their argument is that if that really must be done, there's less overhead in simply raising the fuel taxes (the fuel taxes are already collected anyway, so the amount of labor spent in doing the accounting for them wouldn't change any).

AOPA has also expressed concerns about safety if there's a financial disincentive to use the ATC system.

And I'm pretty sure AOPA has argued that control towers need to be staffed for peak and not average demand, and that the airline hub system has a much greater effect on what the peak is than any GA traffic.

If GA planes cause congestion at a particular airport, it's possible to set fees high enough to discourage GA pilots from using that airport. If you look at the reviews of Boston Logan Airport on airnav.com, you get the impression that Massport and the FBO have figured out how to do this.



saxman66 said:


> Airlines aren't going to go away and they are still going to fly short hops, I believe. International service will grow, yet to be efficient, you still need feed to those international flights. You will see less 50 seat jets. They don't make money. It only takes 2 more revenue passengers on a 70 seat airplane to break even, than it does on a 50 seater. Turboprops will make a comeback. They are very efficient for short hops. I would not say that air travel in inefficient. It's just we've come to a tipping point in our nations infrastructure, and it needs to be fixed. Chicago O'hare is already making its runways parallel. You'll see less delays there. JFK needs a new runway out in the bay. La Garbage....I mean La Guardia, needs a facelift in general. (btw, LGA has a very efficient operation compared to JFK)


Are turboprops more efficient than trains for short hops?

The other thing to note is that trains seem to be able to serve smaller towns than airplanes. The Lafayette, IN area has daily Amtrak service. They also have an airport. The airport doesn't seem to be able to consistently keep any scheduled passenger service for any great number of consecutive years. You can say the exact same thing for the New London, CT area, except that the trains run through there more often.

The traditional highway and airplane model that was popular 10-20 years ago seems to have be that you'd go down the highway for an hour to get to the airport, probably fly to a hub and change planes, and the second plane would take you to a location an hour's drive from your final destination. I'm wondering if the long term future, if we choose to invest in quality passenger rail infrastructure, is that the typical traveler will have a shorter highway trip, a train ride to an airport that provides direct service to somewhere near the travler's final destination, and then another train ride followed by a short highway trip. That does have the downside of being one leg longer than the current system.

An interesting question is whether something like that would have the potential to make airports like Manchester, NH, T F Green in Rhode Island, and perhaps the Hartford, CT airport all obsolete as far as scheduled passenger service goes.


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## Green Maned Lion

The general concept of forced-air propulsion is inefficient. Air is too low in density for efficient use of forced propulsion. So any propeller, jet, or rocket is inherently inefficient. Forced propulsion is only efficient in higher-density environments, such as water. Even so, it is nowhere near as efficient as rolling-friction propulsion.


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## cnyrider

It's being reported that American Airlines is going to start charging $15 for checking ONE bag; this is to begin next month.

Another reason to take the train.

Here's a link to the CNN story.

http://money.cnn.com/2008/05/21/news/compa...sion=2008052110


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## saxman

Green Maned Lion said:


> The general concept of forced-air propulsion is inefficient. Air is too low in density for efficient use of forced propulsion. So any propeller, jet, or rocket is inherently inefficient. Forced propulsion is only efficient in higher-density environments, such as water. Even so, it is nowhere near as efficient as rolling-friction propulsion.


Except I don't know of many boats or land vehicles that can go 500 mph or for that matter 5 times the speed of sound, due to the water being too dense or ground to wheel friction.


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## Green Maned Lion

Going fast is inherently inefficient. Doesn't matter what type of vehicle you might be talking about. I contest the concept of needing to go fast. Life is too short for it.


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## Trogdor

Green Maned Lion said:


> Going fast is inherently inefficient. Doesn't matter what type of vehicle you might be talking about. I contest the concept of needing to go fast. Life is too short for it.


And what are you, the efficiency police? Some would argue that spending time on a computer visiting internet message boards is an inefficient use of electricity.


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## PRR 60

Green Maned Lion said:


> Going fast is inherently inefficient. Doesn't matter what type of vehicle you might be talking about. I contest the concept of needing to go fast. Life is too short for it.


You contest the concept of needing to go fast? I seem to recall you bragging about you driving your Mercedes at 105mph with no hands on the wheel.



> ...and I remember the time I was adjusting something with my left hand, my right hand where it always is (gear knob) and realized I was going 105 mph without a hand on the wheel, and didn't even think about it.


Do that too often and life really will be too short.


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## Green Maned Lion

I think I was 18 at the time, PRR. Whatever. Also, there is at least some fun in driving a car fast. There is no fun in sitting in a cramped airline seat.

I am not the efficiency police, I am stating a fact. You can figure in your perception of the value of your own time and figure out whether its worth it to you. I value quality over quantity.


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## jackal

Green Maned Lion said:


> The general concept of forced-air propulsion is inefficient. Air is too low in density for efficient use of forced propulsion. So any propeller, jet, or rocket is inherently inefficient. Forced propulsion is only efficient in higher-density environments, such as water. Even so, it is nowhere near as efficient as rolling-friction propulsion.


I thought I had seen figures that shipping by barge (forced propulsion in water) was the most fuel-efficient shipping mode per ton-mile by far--two or three times as efficient as rail (and maybe more).


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## Green Maned Lion

A ship is the most efficient way to transport something because of its relatively low weight and enormous size. Were we to build an aerodynamic rail train the size and weight of a shipping barge, it would likely be more efficient.


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## Neil_M

Green Maned Lion said:


> Going fast is inherently inefficient. Doesn't matter what type of vehicle you might be talking about. I contest the concept of needing to go fast. Life is too short for it.


There speaks a man with far too much time on his hands. Do you just sit around on your butt making this stuff up?

If life is too short for 'going fast' then surely 'going fast' allows you to do more things in your short life span?


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## Green Maned Lion

That presumes that the number of things accomplished is what leads to an enjoyable life. I find that presumption, well, presumptuous.

Stress is annoying. Travelling via fast methods is often stressful. Trying to accomplish much is likewise stressful, often. I prefer to enjoy my life than use it to accomplish anything. I fail to fall for the fallacy that I can make a difference. I simply can't. I gave up a long time ago.


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