Running an airline is an enormously fixed cost business. At 75% occupancy, you are barely covering the costs of renting airplanes and terminals, paying personne

Running an airline is an enormously fixed cost business. At 75% occupancy, you are barely covering the costs of renting airplanes and terminals, paying personnel, etc. Once you are clearing enough to pay all of that, your marginal profit margin jumps tremendously because all those costs don't increase with the number of passengers you have, so the only thing you have to pay for that extra person is gas, which is about 20% of the ticket price. That necessarily leads to a boom-bust type industry. Southwest has been consistently profitable to the extent that they have tried to actively undo that. They do so by flying out of airports with cheaper terminal rents, reducing the size of their maintenance crews by only flying 1 or 2 models of aircraft, etc. A professor at NYU posts lectures from his corporate finance classes online and actually goes through a thorough analysis of the industry in one of the lectures. Link: http://pages.stern.nyu.edu/~adamodar/ http://pages.stern.nyu.edu/~adamodar/