11 ms·

Fundamental problem: Flights don't make money. Airlines actually make all of their money through loyalty programs and credit card payments. They basically shoul

Fundamental problem: Flights don't make money. Airlines actually make all of their money through loyalty programs and credit card payments. They basically should have turned into regulated utilities long ago, but loyalty program revenue saved them. Unless this initiative will turn into a credit card company (which nobody likes or wants to do) it won't go anywhere Private equity will likely sell the company for parts. There is no operational improvements for cash flow that they can do. Useful watch (skip to 2:20): https://youtu.be/ggUduBmvQ_4?si=cyysP7aH_CIEDZRq https://youtu.be/ggUduBmvQ_4?si=cyysP7aH_CIEDZRq

gtowey 5mo ago
Or they could actually charge ticket prices that cover the cost of doing business and stop treating their passengers like a it's a time-share sales pitch the whole way.
- lotsofpulp 5mo ago
  They do, it’s just barely enough to cover the cost of doing business and volatility.
- acheron 5mo ago
  Sounds like a good way to lose all your customers to the other airlines that charge less.
  - AlexandrB 5mo ago
    Yup, and this is exacerbated by how services like Google Flights work. There's little visibility into any kind of "quality" metric, but prices are always front and center. So why would you optimize based on anything else?
    - asvitkine 5mo ago
      If the lowest prices cause insolvency for the company, then let your competitors go bankrupt to win in the long run?
      - iSnow 5mo ago
        I guess some of the legacy carriers are now drinking champagne since they got rid of one of the more aggressive ULCC competitors. However, if you wait till your competition goes broke, you need to ensure you survive long enough and stay big enough so you don't get bought. That's not exactly easy.
- stackskipton 5mo ago
  Consumers only look at bottom line. There is basically two markets with airlines, higher end market with credit cards and premium seating; lower end where consumer solely looks at ticket price.
  - kulahan 5mo ago
    A huge number of businesses survive on whales, it's becoming really apparent. I'm kinda surprised how common it is. I wonder if this will be the next "market" to exploit if ad revenue ever dies down too much, or if it's one that's always been there, and I've simply never been a part of.
    - cybercatgurrl 5mo ago
      this is a direct result of the shrinking middle class and the greater concentration of wealth. this is the canary in the coal mine
- tomhow 5mo ago
  They can't do this most of the time because for most of the year on most routes, supply outstrips demand (i.e., many/most flights on most airlines fly at least a little bit empty, often significantly empty – overall load factors are about 80-85%). They have to charge fares that customers will be willing to pay, even if that means losing money on a given flight. They can only charge profitable fares on the routes and times of year when demand surges (peak routes, holiday periods, major events). They have to keep their network capacity high enough to satisfy the peak demand, but for most of the year and most of the network, demand is lower, so they have to settle for break-even or loss-minimization. (For the record, I co-founded a flight search startup that became a fare optimization platform.)
  - dannyw 5mo ago
    Was that Flightfox? If so, I loved using it, helped me save so much money but also time :) It sounds like there’s a problem with having too many flights that are barely full and hence unprofitable. AFAIK the federal gov spends significant money subsidising many “small airport” routes even if they’re barely used.
    - Karrot_Kream 5mo ago
      The EAS Program (Essential Air Services) is the US Government program which subsidizes routes to small communities of you're curious.
    - bobthepanda 5mo ago
      That’s just the nature of the beast. Airlines have to align large capital intensive assets with fluctuating passenger demand and fuel prices. And at congested airports the slots are also expensive assets that get auctioned off, and operate on a use it or lose it basis. Spirit and the other LCC’s problem is that the legacy airlines are now offering a similar product in their basic economy that has less hassle, higher frequency, is sometimes eligible for earnings on their massive loyalty programs, etc.
  - chadgpt1 5mo ago
    [dead]
- hedora 5mo ago
  Southwest used to do this, but then somehow got a CEO that burnt it all down instead of raising ticket prices by $20-30. Before them Alaska Air was similar, and is now similarly bad. Having the customers actually own the airline seems like a reasonable approach. The trick is kicking all the assholes off the board, so they can’t fire leadership for treating customers decently while turning a sustainable profit.
  - wolvoleo 5mo ago
    True, Alaska skimped on maintenance so much they killed a plane full of passengers that should never have died. https://en.wikipedia.org/wiki/Alaska_Airlines_Flight_261 https://en.wikipedia.org/wiki/Alaska_Airlines_Flight_261 I can't fathom how this airline was allowed to keep existing.
wat10000 5mo ago
Sounds like the industry is extremely efficient. Why would we want to turn this into regulated utilities?
- ajkjk 5mo ago
  sounds like it's not efficient at all? it's barely functional as a business and is only surviving on grifty addons?
  - avarun 5mo ago
    This is a textbook case of competition pushing profits down to 0. That's an ideal case scenario. Why would you want to change this?
    - chadgpt1 5mo ago
      [dead]
    - thesuitonym 5mo ago
      Maybe they would have been more profitable if they weren't funneling $1 million every year into their CEO's pocket?
      - wat10000 5mo ago
        They were losing hundreds of millions of dollars a year.
    - hakfoo 5mo ago
      Because at the end of the day, "profits down to 0" also means things like "reserve capacity down to 0", "safety margins down to 0", and "any aspect of the experience that makes it less miserable than being crammed into the cargo pen down to 0". A modest regulated profit could result in a healthier industry-- one where the least economic hiccup doesn't cause carriers to shut down with limited notice, where they can afford to not play chicken with hours-of-service laws and maintenance standards, and where people don't get promotions for trying to sell the idea of standing-room tickets.
cuuupid 5mo ago
The company is not forced to sell immediately to whoever offers it money, they can sell themselves off for parts. I heavily doubt PE firms are interested here as there is no potential for growth or a multiple. Spirit's assets are mainly their fleet, there are like 4 maybe 5 people who could buy, of these 2-3 are facing similar financial crises. In the US I think nobody except United can afford to make a move, more likely some Asian airlines will move; many have grown and have route demand they can't service due to lack of aircraft. If you fly to Asia often you'll note that much of the time Asian airlines have to operate an aircraft from a US airline.
- selectodude 5mo ago
  Spirit's assets are almost entirely their slots at ORD, EWR, LAX and LGA. They don't many of their planes.
  - cuuupid 5mo ago
    I hear this a lot but their fleet is valued upwards of a billion, they own most of their fleet it was just financed with debt (it's not like a house where the bank has equity in the asset, the lender has debt with spirit and levers on that debt that control what it converts to on default but Spirit legally owns the planes). The slots are <100M total
- victorbjorklund 5mo ago
  Huh? What do you mean? They and Wizz air are public companies. Nothing would stop them from selling their planes etc.
gordon_freeman 5mo ago
> "Flights don't make money. Airlines actually make all of their money through loyalty programs and credit card payments." If that's the case then how RyanAir survived and is thriving?
- addandsubtract 5mo ago
  Not to mention that loyalty programs and credit card bonuses don't exist in Europe.
  - Petersipoi 5mo ago
    This isn't true. European airlines do have loyalty programs with "miles". Air France, British Airways, Finnair, Turkish Airlines, just to name a few, all have miles programs. They just aren't tied to credit cards because the EU caps interchange fees to 0.3%, so there simply isn't enough money to have a meaningful credit card point system.
- ggm 5mo ago
  It isn't the case. It's a simplistic gloss on a complex finance outcome. Some flights make money. Some flights lose money. Some finance structures make money while looking like losses to acrue tax benefits for other activities. Sometimes the money is being made by holding companies not operating companies. Sometimes the assets are worth more as spares than operating. All companies are complex. I do not think "flights don't make money" is true for all airlines, all flights.
- bombcar 5mo ago
  Because people take "airline X makes $50k profit, and makes $55k off of the credit card, so therefore it makes all money from credit cards" which is true from a certain accounting point of view, and also entirely false, in that it's all accounting tricks and the credit card would be worthless without an airline.
  - wolvoleo 5mo ago
    Credit cards aren't really a thing in Europe and even where people might have them they don't make money. There's no kickback schemes, cashback etc.
rtpg 5mo ago
If airlines stopped offering flights then their loyalty programs would not be useful. Even in this "airlines as point program companies" view of the world, flights don't make money in the same way that electricity going into data centers don't make money. It's a place where you have major costs and you want to try and gamify it, but at the end of the day it's pretty necessary for successful operations! Consider why airline points even work as a model in the first place! Airlines have blackout dates and don't offer every seat in a plane for points because _they can make money selling a seat for more than what the points are worth to them_.
4k0hz 5mo ago
Airlines were heavily regulated in the US and essentially operated as government contractors until 1978 [1] [1] https://en.wikipedia.org/wiki/Civil_Aeronautics_Board https://en.wikipedia.org/wiki/Civil_Aeronautics_Board
- hedora 5mo ago
  As I understand it, everything about the industry was better back then too. Case in point: Old Perry Mason shows where characters regularly drive to the airport, pay for a ticket and get on a plane. Flying was actually faster than driving back then, even when measured by time between deciding to leave and arriving at destination! (Yes, tickets used to cost a bit more. Whatever. Figure in the price for camping in the airport for 4-5 hours, and then tell me the current system is cheaper!)
  - missedthecue 5mo ago
    "Yes, tickets used to cost a bit more" Tickets used to cost 4-8x what they cost now, depending on route. It wasn't a couple percent extra. A lot of what made flying seem like such a glamorous activity was that everyone but the upper classes was excluded. An economy class round trip from the US to Japan in the 1970s with Pan-Am was $8,900 in 2026 dollars. About $15,000 if you flew first class.
    - Conan_Kudo 5mo ago
      And for comparison, today you can do an economy round-trip flight with Delta Air Lines for roughly $1.6k (SEA-HND). A Delta One flight is roughly $8.5k. That's the apples-to-apples comparison. Deregulation also allowed international carriers to sell to us too. An ANA round-trip on economy class is a couple hundred dollars cheaper. Their business class is similarly cheaper than Delta One. Air travel is so much cheaper than it was back then that it is affordable for most people to take one international trip a year if they really want to. Even to exotic places in Asia or Southern Europe.
  - tt24 5mo ago
    It would be prohibitively expensive for poor people to fly. I understand why you wouldn’t care about that, but some people are poor and still need to fly if you can believe it.
gizmo686 5mo ago
Why does any of this imply they should become a regulated utility? This seems like a textbook case of the free market pushing prices down to cost. Having alternative revenue streams pushed that minimal price down; but even without that, there is no reason to think the market would have done anything other than push prices to the lowest level possible in that environment as well.
- gruez 5mo ago
  Company makes too much money: "they're extracting monopolist rents! They need to be a regulated utility!" Company makes too little money: "there's no money in this industry! They need to be a regulated utility!"
  - hilariously 5mo ago
    Company is valuable to us as a society in a fundamental way but is fucking us up in all sorts of unique ways: They might need to be a regulated utility.
    - parineum 5mo ago
      Hopefully we can regulate them like California electricity and let one airline be active per airport and let them charge more than triple national rates.
      - hilariously 5mo ago
        I am not trying to be flip - I am just saying the two sides are not bad regulation ripping us off and bad private companies ripping us off, we can instead do good things and attempt to do them well, we can hold people accountable and have integrity; these are choices we make every day.
  - lostlogin 5mo ago
    Company, always: "We need government subsidy". Then hell yes to regulating what they do.
aninteger 5mo ago
Famous Richard Branson quote: "If you want to be a millionaire, start with a billion dollars and launch a new airline."
- deleted 5mo ago
  [deleted]
whazor 5mo ago
Both Southwest, but also Ryanair are profitable. Totally possible to make money off flights. But you have to follow the same model: use cheaper airports, a single modern aircraft type to simplify operations, high turnaround speed, charge a lot for extras.
- oceanplexian 5mo ago
  It’s not enough to “make a profit”. Southwest has 30B in assets and makes $441M in profit. Like most airlines it’s a miracle of modern economics and should practically be considered a charity or a nonprofit. You would make more in treasuries or corporate bonds.
  - Finnucane 5mo ago
    Corporate bonds won't take you to Disneyland.
  - rhplus 5mo ago
    Wow… at 1.5% annual return wouldn’t they be better off just renting those assets (aircraft) to other airlines?!
    - sithadmin 5mo ago
      The majority of airliners are on 'dry lease' to their respective airlines to begin with.
  - HWR_14 5mo ago
    Their last earnings report says about 17B in non-cash assets with about 848M in profit based on those assets (assuming that the quarterly profit x 4 is a reasonable assumption). So where are your numbers from?
exabrial 5mo ago
Sadly only expensive because the unions bleed the companies dry.
- victorbjorklund 5mo ago
  Not really true. If over night all salaries in all airlines would drop by say 20% overnight. Then yes, they would make a lot of money very shorterm. But then same thing would happen. Competition where they all would lower prices towards where they again have the same margins.
  - exabrial 5mo ago
    Lol. Be sure to actually go read the read the contracts and what they contain.
- jodrellblank 5mo ago
  When CEOs and shareholders take all the money out of a company while doing none of the work, you think it's fine. When workers do the work and get the money, you think it's "bleeding the company dry". Unions are one of the more effective ways for workers to fight back against "divide and conquer". Unions work to slightly adress the massive power imbalance between employer and employee; that's why the wealthy hate them and spread negative propaganda about them.
  - exabrial 5mo ago
    LOL the company is dead.
    - jodrellblank 5mo ago
      Management being the "buck stops here" people, being in their position because they claim to be good at running a company, being paid more to take responsibility for the safe running of the company. And now washing their hands of responsibility and blaming the employees. Why are you being hoodwinked by this?
Animats 5mo ago
> They basically should have turned into regulated utilities long ago They used to be. Read up on "Civil Aeronautics Board".
JumpCrisscross 5mo ago
> Flights don't make money Member-owned co-ops don't need to make money. Structuring an airline as a member-owned co-op is not a fundamentally-stupid idea.
missedthecue 5mo ago
Ryanair moves the most passengers of any airline in the world and doesn't have any cobranded credit cards or loyalty program.
- rhplus 5mo ago
  Ryanair is 3rd by passengers and 7th by passenger miles, according to this wiki page. https://en.wikipedia.org/wiki/Largest_airlines_in_the_world https://en.wikipedia.org/wiki/Largest_airlines_in_the_world Obviously their model is different to the big American carriers. Perhaps there’s something about the homogeneity of the US domestic market compared to the EU market that favors loyalty based airlines versus budget airlines.
  - childintime 5mo ago
    The comments here seem to suggest that the loyalty program funded with credit card margins are to blame for the difference. It suggests we'd be better of eliminating the absurdly high hidden taxes paid to the credit card companies, that in turn act to gamify the business. In the end they raise the cost of doing business, for virtually no benefit at all. It's a monopoly extracting as much wealth they can get away with. The question at the heart of this: How can "the shining light on a hill" be so stupid? It's digging its own demise.
nunez 5mo ago
They make a lot of money from loyalty programs and credit cards, but the legacy airlines do make money on flying alone. The margin they make on that is razor thin, but they do make money from the core product. Spirit was designed to be ultra low cost, which attracts flyers that are much more price sensitive. Higher Jet A costs means higher ticket prices, which means lost customers, which means lost revenue. Pulling a JetBlue and adding higher tier product offerings to attract the business travelers that _actually_ makes money for airlines would've required an overhaul of their entire business, which they couldn't afford to do. I agree that Spirit will be chopped up by whoever buys them. It happened to Braniff, PanAm, and a whole bunch of other airlines that weren't thrown a lifeline. (JetBlue tried to acquire Spirit to prevent this outcome, but the acquisition didn't pass antitrust. Everyone knew that that acquisiton failing was a death sentence to Spirit, but it was what it was.)
- eru 5mo ago
  > I agree that Spirit will be chopped up by whoever buys them. It happened to Braniff, PanAm, and a whole bunch of other airlines that weren't thrown a lifeline. But that's not necessarily a bad thing. If the company is worth more to the market and society when sold as pieces, so be it.
arcastroe 5mo ago
Does this imply that most people who sign up for frequent flier programs end up losing money in the long run, rather than benefitting from them?
- kqr2 5mo ago
  They can probably make money on business class travelers who spend their companies money on flights which aren't necessarily the cheapest but can reap the rewards for their own personal benefit.
eru 5mo ago
> Fundamental problem: Flights don't make money. Airlines actually make all of their money through loyalty programs and credit card payments. They basically should have turned into regulated utilities long ago, but loyalty program revenue saved them. I don't get it. Why should they have been turned into utilities? Just because the current iteration loses money? Please be aware that airline pricing is endogenous. That means, it's not set from the outside, but a reaction to market conditions and feeds back into market conditions. Eg airlines might be on the edge of profitability at time X, but when at time Y fuel prices drop a bit (or rise a bit) that doesn't mean that airline will suddenly all make lots of money (or all go bankrupt): the pricing of their product will adjust. That doesn't only go for fuel prices, but also for loyalty programme revenue. If such revenue is available and competition is fierce, then prices will go down until airline can just about stay afloat after taking that extra revenue into account. > Private equity will likely sell the company for parts. You say that like it's a bad thing.
cromka 5mo ago
And then you have RyanAir in Europe with no credit card or loyalty program offerings. They did have a loyalty subscription program, but it cost more than it generated. Best not to generalize.
- chadgpt1 5mo ago
  [dead]
- fundatus 5mo ago
  And Ryanair is the largest airline in Europe! And one of the largest in the world.
  - tim333 5mo ago
    And it got that way mostly be focusing on cheap flights rather than other nonsense.
- notahacker 5mo ago
  tbf, Ryanair generates a third of its revenues from other ancillary offerings (including kickbacks from insurers and car hire firms as well as its legendary fines and fees) so it does fit the general pattern of it being unprofitable to simply sell tickets in competitive markets...
  - wolvoleo 5mo ago
    Those other companies do too So it's not distorting the competition IMO. If none of them had kickbacks then the prices would be overall higher but people would still fly because most of us don't just fly for the hell of it but because we have places to go.
    - notahacker 5mo ago
      Nobody claimed it was distorting the competition. I pointed out the simple fact that Ryanair can't be considered a counterexample to airlines tending not to make money on flights since it relies on upsells to make a profit.
miki123211 5mo ago
This is like saying that movie theaters make money on popcorn, so they should just start selling popcorn and exit the movie business entirely. The reason those loyalty programs work is because of the flights. For a much deeper dive on this, see https://www.complexsystemspodcast.com/episodes/gary-leff-frequent-flier-programs/ https://www.complexsystemspodcast.com/episodes/gary-leff-fre... (there's a well-formatted text transcript)
- an0malous 5mo ago
  The point still stands that a dependency on creating a profitable airline company is a credit card company
- antasvara 5mo ago
  I read it more as "you buy an airline because you want to run an airline, but what you actually end up running is primarily a credit card company." That doesn't mean you stop doing flights, it just means that the part you want to do is the part that loses your company money. This sort of thing all the time when (for example) a movie lover opens a movie theater. Running a profitable movie theater is a lot less about movies and a lot more about maximizing concession revenue.
MagicMoonlight 5mo ago
Bullshit. Very few airlines even have points systems.
wolvoleo 5mo ago
I kinda doubt that. Ryanair make money and they don't have a loyalty program and companies in Europe don't make money off credit cards.
dzonga 5mo ago
some do - see RyanAir in Europe. yeah in the US airlines are fintechs.
tencentshill 5mo ago
They could pay Trump to gid rid of some of the more costly FAA regulations. Do you know how much it costs to train a pilot these days? We have this little thing called autopilot now! Put Musk on the job, he'll straighten out those crybabies and their "safety first" ethos.
skinfaxi 5mo ago
> Fundamental problem: Flights don't make money. Airlines actually make all of their money through loyalty programs and credit card payments. They basically should have turned into regulated utilities long ago, but loyalty program revenue saved them. Enough money for who? One person has a pay package north of $30 million.
evanjrowley 5mo ago
>Airlines actually make all of their money through loyalty programs and credit card payments. Spirit has been doing this since it's inception. The collapse of their business can't be through lack of this alone.
Eric_WVGG 5mo ago
Doesn’t have to be a profit-making venture though, just needs to cover the cost of flights — which are not money losers. If they can build a model similar to REI, count me in.
fooker 5mo ago
> turned into regulated utilities Regulation won't magically save low margin businesses. Nationalizing might, but then you make it difficult to compete for others. And of course, there's plenty of precedence of nationalized airlines failing catastrophically and having to be sold off to private or foreign entities to keep functioning.
tristor 5mo ago
> Unless this initiative will turn into a credit card company (which nobody likes or wants to do) it won't go anywhere There's another more fundamental problem with airlines like Spirit, which is they can't effectively make this change. Loyalty programs / credit card tiers require differentiated service. This is one of the drivers for why Southwest changed their entire seating model to match the other big players in the industry even though their Ops data showed faster boarding times using unassigned seating. When you're on the lower tier of the market like Southwest and other budget airlines, creating differentiated service mostly means making things worse for most passengers, not better, in order to have loyalty programs provide a pathway to avoid the suck.
rockostrich 5mo ago
Low cost carriers are almost an entirely different industry than traditional airlines. For example, Frontier has a loyalty program as well as their "Go Wild" pass which is essentially "Movie Pass" for flying domestically in the US, but that operates as a loss leader for ancillaries, where they make most of their money (around $70 per passenger). As others have mentioned, RyanAir also has a loyalty program that they lose money on. Traditional airlines are very much like Starbucks nowadays in that they are essentially banks, but low cost carriers are closer to movie theaters where they essentially make nothing selling the actual seat so the more people they get in the door, the more they can make on ancillaries.
bdunks 5mo ago
This is a common narrative that simply isn’t true. American Airlines has the largest loyalty program. In last week’s report to shareholders they project it will grow to $1.5B in pre tax revenue, against a total 2025 pre tax revenue of $54bn (50bn passenger revenue). The core business of airlines is still airlines. Optimizing TRASM & CASM, with tremendous effort on upsell and cross sell of premium services (seats, bags, food), at every point in the passenger flow.
- hnav 5mo ago
  profit != revenue. Airlines have thin margins and the argument is that they're getting most of their profit from the financial side of things. This is the end state of any endeavor in capitalism: up the value chain there's always the business of trading imaginary units.
  - boppo1 5mo ago
    Can you elaborate on your claim about capitalism and all activities being about trading imaginary units? My uni gave me a degree in finance & I can still basically explain CAPM off the top of my head, but I'm unfamiliar with this aspect. Always interested in expanding my understanding.
    - abustamam 5mo ago
      I know this is a bit tongue in cheek but I think they're referring to dollars being made uo, which is true, to the extent that anything else is made up. But just because it is made up doesn't mean it isn't real.
    - hnav 5mo ago
      I guess a better characterization is that it's more profitable to be in a meta-business than what's stated on the label. The original business is a almost a foot in the door and the money is all in value adds, ancillaries and side quests. McDonalds -> leasing land to franchisees. Private equity -> saddling existing business with debt while chopping them up for parts. Stock markets -> pump and dumps. Selling anything -> rewards programs and branded CCs. Car dealerships -> captive audience for servicing. Owning real estate with the goal of leasing it out -> speculation on its value.
ThePowerOfFuet 5mo ago
Tracking-free link: https://youtu.be/ggUduBmvQ_4?t=2m20s https://youtu.be/ggUduBmvQ_4?t=2m20s Bonus: auto-jumps to 2:20
m463 5mo ago
I don't know, reminds me of this article from a long time ago: https://philip.greenspun.com/flying/unions-and-airlines.html https://philip.greenspun.com/flying/unions-and-airlines.html

gtowey 5mo ago

Or they could actually charge ticket prices that cover the cost of doing business and stop treating their passengers like a it's a time-share sales pitch the whole way.

lotsofpulp 5mo ago
They do, it’s just barely enough to cover the cost of doing business and volatility.
acheron 5mo ago
Sounds like a good way to lose all your customers to the other airlines that charge less.
- AlexandrB 5mo ago
  Yup, and this is exacerbated by how services like Google Flights work. There's little visibility into any kind of "quality" metric, but prices are always front and center. So why would you optimize based on anything else?
  - asvitkine 5mo ago
    If the lowest prices cause insolvency for the company, then let your competitors go bankrupt to win in the long run?
    - iSnow 5mo ago
      I guess some of the legacy carriers are now drinking champagne since they got rid of one of the more aggressive ULCC competitors. However, if you wait till your competition goes broke, you need to ensure you survive long enough and stay big enough so you don't get bought. That's not exactly easy.
stackskipton 5mo ago
Consumers only look at bottom line. There is basically two markets with airlines, higher end market with credit cards and premium seating; lower end where consumer solely looks at ticket price.
- kulahan 5mo ago
  A huge number of businesses survive on whales, it's becoming really apparent. I'm kinda surprised how common it is. I wonder if this will be the next "market" to exploit if ad revenue ever dies down too much, or if it's one that's always been there, and I've simply never been a part of.
  - cybercatgurrl 5mo ago
    this is a direct result of the shrinking middle class and the greater concentration of wealth. this is the canary in the coal mine
tomhow 5mo ago
They can't do this most of the time because for most of the year on most routes, supply outstrips demand (i.e., many/most flights on most airlines fly at least a little bit empty, often significantly empty – overall load factors are about 80-85%). They have to charge fares that customers will be willing to pay, even if that means losing money on a given flight. They can only charge profitable fares on the routes and times of year when demand surges (peak routes, holiday periods, major events). They have to keep their network capacity high enough to satisfy the peak demand, but for most of the year and most of the network, demand is lower, so they have to settle for break-even or loss-minimization. (For the record, I co-founded a flight search startup that became a fare optimization platform.)
- dannyw 5mo ago
  Was that Flightfox? If so, I loved using it, helped me save so much money but also time :) It sounds like there’s a problem with having too many flights that are barely full and hence unprofitable. AFAIK the federal gov spends significant money subsidising many “small airport” routes even if they’re barely used.
  - Karrot_Kream 5mo ago
    The EAS Program (Essential Air Services) is the US Government program which subsidizes routes to small communities of you're curious.
  - bobthepanda 5mo ago
    That’s just the nature of the beast. Airlines have to align large capital intensive assets with fluctuating passenger demand and fuel prices. And at congested airports the slots are also expensive assets that get auctioned off, and operate on a use it or lose it basis. Spirit and the other LCC’s problem is that the legacy airlines are now offering a similar product in their basic economy that has less hassle, higher frequency, is sometimes eligible for earnings on their massive loyalty programs, etc.
- chadgpt1 5mo ago
  [dead]
hedora 5mo ago
Southwest used to do this, but then somehow got a CEO that burnt it all down instead of raising ticket prices by $20-30. Before them Alaska Air was similar, and is now similarly bad. Having the customers actually own the airline seems like a reasonable approach. The trick is kicking all the assholes off the board, so they can’t fire leadership for treating customers decently while turning a sustainable profit.
- wolvoleo 5mo ago
  True, Alaska skimped on maintenance so much they killed a plane full of passengers that should never have died. https://en.wikipedia.org/wiki/Alaska_Airlines_Flight_261 https://en.wikipedia.org/wiki/Alaska_Airlines_Flight_261 I can't fathom how this airline was allowed to keep existing.

wat10000 5mo ago

Sounds like the industry is extremely efficient. Why would we want to turn this into regulated utilities?

ajkjk 5mo ago
sounds like it's not efficient at all? it's barely functional as a business and is only surviving on grifty addons?
- avarun 5mo ago
  This is a textbook case of competition pushing profits down to 0. That's an ideal case scenario. Why would you want to change this?
  - chadgpt1 5mo ago
    [dead]
  - thesuitonym 5mo ago
    Maybe they would have been more profitable if they weren't funneling $1 million every year into their CEO's pocket?
    - wat10000 5mo ago
      They were losing hundreds of millions of dollars a year.
  - hakfoo 5mo ago
    Because at the end of the day, "profits down to 0" also means things like "reserve capacity down to 0", "safety margins down to 0", and "any aspect of the experience that makes it less miserable than being crammed into the cargo pen down to 0". A modest regulated profit could result in a healthier industry-- one where the least economic hiccup doesn't cause carriers to shut down with limited notice, where they can afford to not play chicken with hours-of-service laws and maintenance standards, and where people don't get promotions for trying to sell the idea of standing-room tickets.

cuuupid 5mo ago

The company is not forced to sell immediately to whoever offers it money, they can sell themselves off for parts. I heavily doubt PE firms are interested here as there is no potential for growth or a multiple. Spirit's assets are mainly their fleet, there are like 4 maybe 5 people who could buy, of these 2-3 are facing similar financial crises. In the US I think nobody except United can afford to make a move, more likely some Asian airlines will move; many have grown and have route demand they can't service due to lack of aircraft. If you fly to Asia often you'll note that much of the time Asian airlines have to operate an aircraft from a US airline.

selectodude 5mo ago
Spirit's assets are almost entirely their slots at ORD, EWR, LAX and LGA. They don't many of their planes.
- cuuupid 5mo ago
  I hear this a lot but their fleet is valued upwards of a billion, they own most of their fleet it was just financed with debt (it's not like a house where the bank has equity in the asset, the lender has debt with spirit and levers on that debt that control what it converts to on default but Spirit legally owns the planes). The slots are <100M total
victorbjorklund 5mo ago
Huh? What do you mean? They and Wizz air are public companies. Nothing would stop them from selling their planes etc.

gordon_freeman 5mo ago

> "Flights don't make money. Airlines actually make all of their money through loyalty programs and credit card payments." If that's the case then how RyanAir survived and is thriving?

addandsubtract 5mo ago
Not to mention that loyalty programs and credit card bonuses don't exist in Europe.
- Petersipoi 5mo ago
  This isn't true. European airlines do have loyalty programs with "miles". Air France, British Airways, Finnair, Turkish Airlines, just to name a few, all have miles programs. They just aren't tied to credit cards because the EU caps interchange fees to 0.3%, so there simply isn't enough money to have a meaningful credit card point system.
ggm 5mo ago
It isn't the case. It's a simplistic gloss on a complex finance outcome. Some flights make money. Some flights lose money. Some finance structures make money while looking like losses to acrue tax benefits for other activities. Sometimes the money is being made by holding companies not operating companies. Sometimes the assets are worth more as spares than operating. All companies are complex. I do not think "flights don't make money" is true for all airlines, all flights.
bombcar 5mo ago
Because people take "airline X makes $50k profit, and makes $55k off of the credit card, so therefore it makes all money from credit cards" which is true from a certain accounting point of view, and also entirely false, in that it's all accounting tricks and the credit card would be worthless without an airline.
- wolvoleo 5mo ago
  Credit cards aren't really a thing in Europe and even where people might have them they don't make money. There's no kickback schemes, cashback etc.

rtpg 5mo ago

If airlines stopped offering flights then their loyalty programs would not be useful. Even in this "airlines as point program companies" view of the world, flights don't make money in the same way that electricity going into data centers don't make money. It's a place where you have major costs and you want to try and gamify it, but at the end of the day it's pretty necessary for successful operations! Consider why airline points even work as a model in the first place! Airlines have blackout dates and don't offer every seat in a plane for points because _they can make money selling a seat for more than what the points are worth to them_.

4k0hz 5mo ago

Airlines were heavily regulated in the US and essentially operated as government contractors until 1978 [1] [1] https://en.wikipedia.org/wiki/Civil_Aeronautics_Board https://en.wikipedia.org/wiki/Civil_Aeronautics_Board

hedora 5mo ago
As I understand it, everything about the industry was better back then too. Case in point: Old Perry Mason shows where characters regularly drive to the airport, pay for a ticket and get on a plane. Flying was actually faster than driving back then, even when measured by time between deciding to leave and arriving at destination! (Yes, tickets used to cost a bit more. Whatever. Figure in the price for camping in the airport for 4-5 hours, and then tell me the current system is cheaper!)
- missedthecue 5mo ago
  "Yes, tickets used to cost a bit more" Tickets used to cost 4-8x what they cost now, depending on route. It wasn't a couple percent extra. A lot of what made flying seem like such a glamorous activity was that everyone but the upper classes was excluded. An economy class round trip from the US to Japan in the 1970s with Pan-Am was $8,900 in 2026 dollars. About $15,000 if you flew first class.
  - Conan_Kudo 5mo ago
    And for comparison, today you can do an economy round-trip flight with Delta Air Lines for roughly $1.6k (SEA-HND). A Delta One flight is roughly $8.5k. That's the apples-to-apples comparison. Deregulation also allowed international carriers to sell to us too. An ANA round-trip on economy class is a couple hundred dollars cheaper. Their business class is similarly cheaper than Delta One. Air travel is so much cheaper than it was back then that it is affordable for most people to take one international trip a year if they really want to. Even to exotic places in Asia or Southern Europe.
- tt24 5mo ago
  It would be prohibitively expensive for poor people to fly. I understand why you wouldn’t care about that, but some people are poor and still need to fly if you can believe it.

gizmo686 5mo ago

Why does any of this imply they should become a regulated utility? This seems like a textbook case of the free market pushing prices down to cost. Having alternative revenue streams pushed that minimal price down; but even without that, there is no reason to think the market would have done anything other than push prices to the lowest level possible in that environment as well.

gruez 5mo ago
Company makes too much money: "they're extracting monopolist rents! They need to be a regulated utility!" Company makes too little money: "there's no money in this industry! They need to be a regulated utility!"
- hilariously 5mo ago
  Company is valuable to us as a society in a fundamental way but is fucking us up in all sorts of unique ways: They might need to be a regulated utility.
  - parineum 5mo ago
    Hopefully we can regulate them like California electricity and let one airline be active per airport and let them charge more than triple national rates.
    - hilariously 5mo ago
      I am not trying to be flip - I am just saying the two sides are not bad regulation ripping us off and bad private companies ripping us off, we can instead do good things and attempt to do them well, we can hold people accountable and have integrity; these are choices we make every day.
- lostlogin 5mo ago
  Company, always: "We need government subsidy". Then hell yes to regulating what they do.

aninteger 5mo ago

Famous Richard Branson quote: "If you want to be a millionaire, start with a billion dollars and launch a new airline."

deleted 5mo ago
[deleted]

whazor 5mo ago

Both Southwest, but also Ryanair are profitable. Totally possible to make money off flights. But you have to follow the same model: use cheaper airports, a single modern aircraft type to simplify operations, high turnaround speed, charge a lot for extras.

oceanplexian 5mo ago
It’s not enough to “make a profit”. Southwest has 30B in assets and makes $441M in profit. Like most airlines it’s a miracle of modern economics and should practically be considered a charity or a nonprofit. You would make more in treasuries or corporate bonds.
- Finnucane 5mo ago
  Corporate bonds won't take you to Disneyland.
- rhplus 5mo ago
  Wow… at 1.5% annual return wouldn’t they be better off just renting those assets (aircraft) to other airlines?!
  - sithadmin 5mo ago
    The majority of airliners are on 'dry lease' to their respective airlines to begin with.
- HWR_14 5mo ago
  Their last earnings report says about 17B in non-cash assets with about 848M in profit based on those assets (assuming that the quarterly profit x 4 is a reasonable assumption). So where are your numbers from?

exabrial 5mo ago

Sadly only expensive because the unions bleed the companies dry.

victorbjorklund 5mo ago
Not really true. If over night all salaries in all airlines would drop by say 20% overnight. Then yes, they would make a lot of money very shorterm. But then same thing would happen. Competition where they all would lower prices towards where they again have the same margins.
- exabrial 5mo ago
  Lol. Be sure to actually go read the read the contracts and what they contain.
jodrellblank 5mo ago
When CEOs and shareholders take all the money out of a company while doing none of the work, you think it's fine. When workers do the work and get the money, you think it's "bleeding the company dry". Unions are one of the more effective ways for workers to fight back against "divide and conquer". Unions work to slightly adress the massive power imbalance between employer and employee; that's why the wealthy hate them and spread negative propaganda about them.
- exabrial 5mo ago
  LOL the company is dead.
  - jodrellblank 5mo ago
    Management being the "buck stops here" people, being in their position because they claim to be good at running a company, being paid more to take responsibility for the safe running of the company. And now washing their hands of responsibility and blaming the employees. Why are you being hoodwinked by this?

Animats 5mo ago

> They basically should have turned into regulated utilities long ago They used to be. Read up on "Civil Aeronautics Board".

JumpCrisscross 5mo ago

> Flights don't make money Member-owned co-ops don't need to make money. Structuring an airline as a member-owned co-op is not a fundamentally-stupid idea.

missedthecue 5mo ago

Ryanair moves the most passengers of any airline in the world and doesn't have any cobranded credit cards or loyalty program.

rhplus 5mo ago
Ryanair is 3rd by passengers and 7th by passenger miles, according to this wiki page. https://en.wikipedia.org/wiki/Largest_airlines_in_the_world https://en.wikipedia.org/wiki/Largest_airlines_in_the_world Obviously their model is different to the big American carriers. Perhaps there’s something about the homogeneity of the US domestic market compared to the EU market that favors loyalty based airlines versus budget airlines.
- childintime 5mo ago
  The comments here seem to suggest that the loyalty program funded with credit card margins are to blame for the difference. It suggests we'd be better of eliminating the absurdly high hidden taxes paid to the credit card companies, that in turn act to gamify the business. In the end they raise the cost of doing business, for virtually no benefit at all. It's a monopoly extracting as much wealth they can get away with. The question at the heart of this: How can "the shining light on a hill" be so stupid? It's digging its own demise.

nunez 5mo ago

They make a lot of money from loyalty programs and credit cards, but the legacy airlines do make money on flying alone. The margin they make on that is razor thin, but they do make money from the core product. Spirit was designed to be ultra low cost, which attracts flyers that are much more price sensitive. Higher Jet A costs means higher ticket prices, which means lost customers, which means lost revenue. Pulling a JetBlue and adding higher tier product offerings to attract the business travelers that _actually_ makes money for airlines would've required an overhaul of their entire business, which they couldn't afford to do. I agree that Spirit will be chopped up by whoever buys them. It happened to Braniff, PanAm, and a whole bunch of other airlines that weren't thrown a lifeline. (JetBlue tried to acquire Spirit to prevent this outcome, but the acquisition didn't pass antitrust. Everyone knew that that acquisiton failing was a death sentence to Spirit, but it was what it was.)

eru 5mo ago
> I agree that Spirit will be chopped up by whoever buys them. It happened to Braniff, PanAm, and a whole bunch of other airlines that weren't thrown a lifeline. But that's not necessarily a bad thing. If the company is worth more to the market and society when sold as pieces, so be it.

arcastroe 5mo ago

Does this imply that most people who sign up for frequent flier programs end up losing money in the long run, rather than benefitting from them?

kqr2 5mo ago
They can probably make money on business class travelers who spend their companies money on flights which aren't necessarily the cheapest but can reap the rewards for their own personal benefit.

eru 5mo ago

> Fundamental problem: Flights don't make money. Airlines actually make all of their money through loyalty programs and credit card payments. They basically should have turned into regulated utilities long ago, but loyalty program revenue saved them. I don't get it. Why should they have been turned into utilities? Just because the current iteration loses money? Please be aware that airline pricing is endogenous. That means, it's not set from the outside, but a reaction to market conditions and feeds back into market conditions. Eg airlines might be on the edge of profitability at time X, but when at time Y fuel prices drop a bit (or rise a bit) that doesn't mean that airline will suddenly all make lots of money (or all go bankrupt): the pricing of their product will adjust. That doesn't only go for fuel prices, but also for loyalty programme revenue. If such revenue is available and competition is fierce, then prices will go down until airline can just about stay afloat after taking that extra revenue into account. > Private equity will likely sell the company for parts. You say that like it's a bad thing.

cromka 5mo ago

And then you have RyanAir in Europe with no credit card or loyalty program offerings. They did have a loyalty subscription program, but it cost more than it generated. Best not to generalize.

chadgpt1 5mo ago
[dead]
fundatus 5mo ago
And Ryanair is the largest airline in Europe! And one of the largest in the world.
- tim333 5mo ago
  And it got that way mostly be focusing on cheap flights rather than other nonsense.
notahacker 5mo ago
tbf, Ryanair generates a third of its revenues from other ancillary offerings (including kickbacks from insurers and car hire firms as well as its legendary fines and fees) so it does fit the general pattern of it being unprofitable to simply sell tickets in competitive markets...
- wolvoleo 5mo ago
  Those other companies do too So it's not distorting the competition IMO. If none of them had kickbacks then the prices would be overall higher but people would still fly because most of us don't just fly for the hell of it but because we have places to go.
  - notahacker 5mo ago
    Nobody claimed it was distorting the competition. I pointed out the simple fact that Ryanair can't be considered a counterexample to airlines tending not to make money on flights since it relies on upsells to make a profit.

miki123211 5mo ago

This is like saying that movie theaters make money on popcorn, so they should just start selling popcorn and exit the movie business entirely. The reason those loyalty programs work is because of the flights. For a much deeper dive on this, see https://www.complexsystemspodcast.com/episodes/gary-leff-frequent-flier-programs/ https://www.complexsystemspodcast.com/episodes/gary-leff-fre... (there's a well-formatted text transcript)

an0malous 5mo ago
The point still stands that a dependency on creating a profitable airline company is a credit card company
antasvara 5mo ago
I read it more as "you buy an airline because you want to run an airline, but what you actually end up running is primarily a credit card company." That doesn't mean you stop doing flights, it just means that the part you want to do is the part that loses your company money. This sort of thing all the time when (for example) a movie lover opens a movie theater. Running a profitable movie theater is a lot less about movies and a lot more about maximizing concession revenue.

MagicMoonlight 5mo ago

Bullshit. Very few airlines even have points systems.

wolvoleo 5mo ago

I kinda doubt that. Ryanair make money and they don't have a loyalty program and companies in Europe don't make money off credit cards.

dzonga 5mo ago

some do - see RyanAir in Europe. yeah in the US airlines are fintechs.

tencentshill 5mo ago

They could pay Trump to gid rid of some of the more costly FAA regulations. Do you know how much it costs to train a pilot these days? We have this little thing called autopilot now! Put Musk on the job, he'll straighten out those crybabies and their "safety first" ethos.

skinfaxi 5mo ago

evanjrowley 5mo ago

>Airlines actually make all of their money through loyalty programs and credit card payments. Spirit has been doing this since it's inception. The collapse of their business can't be through lack of this alone.

Eric_WVGG 5mo ago

Doesn’t have to be a profit-making venture though, just needs to cover the cost of flights — which are not money losers. If they can build a model similar to REI, count me in.

fooker 5mo ago

> turned into regulated utilities Regulation won't magically save low margin businesses. Nationalizing might, but then you make it difficult to compete for others. And of course, there's plenty of precedence of nationalized airlines failing catastrophically and having to be sold off to private or foreign entities to keep functioning.

tristor 5mo ago

> Unless this initiative will turn into a credit card company (which nobody likes or wants to do) it won't go anywhere There's another more fundamental problem with airlines like Spirit, which is they can't effectively make this change. Loyalty programs / credit card tiers require differentiated service. This is one of the drivers for why Southwest changed their entire seating model to match the other big players in the industry even though their Ops data showed faster boarding times using unassigned seating. When you're on the lower tier of the market like Southwest and other budget airlines, creating differentiated service mostly means making things worse for most passengers, not better, in order to have loyalty programs provide a pathway to avoid the suck.

rockostrich 5mo ago

Low cost carriers are almost an entirely different industry than traditional airlines. For example, Frontier has a loyalty program as well as their "Go Wild" pass which is essentially "Movie Pass" for flying domestically in the US, but that operates as a loss leader for ancillaries, where they make most of their money (around $70 per passenger). As others have mentioned, RyanAir also has a loyalty program that they lose money on. Traditional airlines are very much like Starbucks nowadays in that they are essentially banks, but low cost carriers are closer to movie theaters where they essentially make nothing selling the actual seat so the more people they get in the door, the more they can make on ancillaries.

bdunks 5mo ago

This is a common narrative that simply isn’t true. American Airlines has the largest loyalty program. In last week’s report to shareholders they project it will grow to $1.5B in pre tax revenue, against a total 2025 pre tax revenue of $54bn (50bn passenger revenue). The core business of airlines is still airlines. Optimizing TRASM & CASM, with tremendous effort on upsell and cross sell of premium services (seats, bags, food), at every point in the passenger flow.

hnav 5mo ago
profit != revenue. Airlines have thin margins and the argument is that they're getting most of their profit from the financial side of things. This is the end state of any endeavor in capitalism: up the value chain there's always the business of trading imaginary units.
- boppo1 5mo ago
  Can you elaborate on your claim about capitalism and all activities being about trading imaginary units? My uni gave me a degree in finance & I can still basically explain CAPM off the top of my head, but I'm unfamiliar with this aspect. Always interested in expanding my understanding.
  - abustamam 5mo ago
    I know this is a bit tongue in cheek but I think they're referring to dollars being made uo, which is true, to the extent that anything else is made up. But just because it is made up doesn't mean it isn't real.
  - hnav 5mo ago
    I guess a better characterization is that it's more profitable to be in a meta-business than what's stated on the label. The original business is a almost a foot in the door and the money is all in value adds, ancillaries and side quests. McDonalds -> leasing land to franchisees. Private equity -> saddling existing business with debt while chopping them up for parts. Stock markets -> pump and dumps. Selling anything -> rewards programs and branded CCs. Car dealerships -> captive audience for servicing. Owning real estate with the goal of leasing it out -> speculation on its value.

ThePowerOfFuet 5mo ago

Tracking-free link: https://youtu.be/ggUduBmvQ_4?t=2m20s https://youtu.be/ggUduBmvQ_4?t=2m20s Bonus: auto-jumps to 2:20

m463 5mo ago

I don't know, reminds me of this article from a long time ago: https://philip.greenspun.com/flying/unions-and-airlines.html https://philip.greenspun.com/flying/unions-and-airlines.html