The old saying is that if you want to make a million bucks in aviation, start with ten million. Or, along the same lines, I can tell you that there is a lot of money in aviation because I put it there. Why, in other words, is it so hard for the airlines to make a profit?
The airlines are probably one of the most regulated industries in the world. There are rules for everything from when pilots can eat to what kind of screw must be used to assemble the sink in the lav. Even the font on the checklist is regulated. The pilot seats on the Canadair regional jet are north of $27,000. Twenty-seven grand! For a chair! And it isn’t even a Lazy Boy! The cost of the parts reflects the design, development and certification costs incurred by all parties involved, so I sit in a chair that costs more than a new car, and look through a window that costs almost as much as my house.
In addition to the federal regulations are the local airport rules that often vary from state to state. Each airport may have slightly different procedures for single-engine operations, deicing operations, fuel spill procedures, etc. Prior to 9/11, security (passenger screening) was much less standard than it is now. Some cities have also adopted trash recycling requirements that the airlines must comply with, and like everything else, there is a cost to that compliance (not to mention the fines for non-compliance).
One of the biggest problems is that the airlines only have two real ways to produce revenue. The first is their website, which is where you will buy your ticket, possibly rent your car and reserve your hotel room, and maybe even pay your baggage fees up front. The second source of revenue is the plane itself. It has to actually fly to allow the airline to ultimately keep your money, and it can produce ancillary revenue from liquor sales and last minute ticket sales, bag fees and in-flight movie purchases. Everything else in the airlines’ arsenal is an expense: tugs, computers, baggage carts, fuel, employees, etc. However, if those items are not available, or broken, they suddenly can produce stratospheric costs. When the Comair computer for schedule pilots failed several years ago, tens of millions of dollars were lost and/or spent re-accommodating passengers (including meal and hotel vouchers), shipping their luggage, or refunding fares, not to mention the black eye from all of the negative publicity. While some airlines produce revenue by taking on contract maintenance, this is not a standard practice, and is not a part of the normal business model.
Along the same lines, the most useless commodity to have is an empty seat on a plane, much like (but worse than) an empty seat in a movie theater or a stadium (you can come in late to a movie or a game). Once the plane pushes back from the gate, the empty seats can never be sold again. That means that if you have a 737 with 137 seats on it, and it pushes back with only 37 passengers, you have, in effect, an expensive 37 seat airplane. Those revenue opportunities will never present themselves again. This is why last minute deals are offered: something is better than nothing, and maybe the passenger that pays just enough to offset the cost of having him on board will buy a beer on board and generate a small profit….but maybe not. Empty seats drive marketers and CEOs crazy for that very reason.
Considering that the cost of air travel is the same in real dollars as it was in the 1980’s, the airlines have done well to make it as far as they have. That probably won’t make you feel better when you have to buy a short-notice ticket for $1000, but it might. And if it doesn’t, then fork over $7 for a beer, and live well with the knowledge that you may have single-handedly made your flight a profitable one.