How Much Do Airlines Profit Off of Tickets?
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm J.R. Whalen in New York. Ever wonder how much of an airline ticket the airline actually gets to pocket as profit? Wall Street Journal Middle C columnist Scott McCartney did, and he joins us armed with numbers.
How much of the average $355 round‑trip ticket becomes airline profit?
So, Scott, even before we consider ticket prices, it would seem that airlines don't have an issue scoring profits when you consider all the fees they hit passengers with.
Well, that's right. What we've seen is a dramatic shift in profitability in the last five, six years or so. And basically what you pay in the ticket price covers the cost of the transportation these days. And airline profit really comes totally from baggage fees, cancellation fees, seed upgrades, early boarding, you name it, all that other stuff.
How do baggage and other ancillary fees drive airline profitability?
including selling frequent flyer miles and everywhere else they can put together revenue. That's where they're making their profits.
Yeah, it seems like there's a fee for everything. But, you know, for your story, you took an average round-trip fare across seven of the largest U.S. carriers. It comes out to $355. And the average profit from that is just about $20 or $40 round trip. Does that seem low?
You know, I think it's actually a pretty fair profit. It works out to a profit margin, net profit margin of about 9%, which is really kind of average for U.S. companies.
What is the typical per‑boarding fee contribution to airline profits?
There are tons of very profitable companies with lower profit margins, Walmart, grocery stores. Even last year, FedEx was at 5%. And there are plenty of companies that have higher profit margins and not just tech companies. So it's a healthy return. It's certainly enough for airlines to go out and buy new airplanes and invest in their real estate at airports and things like that. They're treating their employees a whole lot better. But I think it does sort of put into perspective that when you board a plane, last year, the average was $17.75. And that's every time you board.
How does a 9% net profit margin compare to other U.S. companies?
And over the last four years, the average was about $19.65. So we kind of called it, you know, a $20 bill every time you get on the airplane. And I think that's probably fair.
All right. And in terms of profits, Southwest has a unique story. They scored a very high 16.5% net profit margin last year, and yet it doesn't charge for fees like for baggage.
Yeah, Southwest is really unique. They love it when other airlines create new fees and raise their baggage fees and all of that. Southwest thinks it drives customers to them because they don't have that nickel and diming policy. They really want to be transparent. They really want to offer a fair price. Sometimes their tickets are higher priced, but travelers understand that they're not going to get nickel and dimed with a whole lot of fees. So Southwest basically is saying, and they've been under pressure from Wall Street and from analysts for years to start charging baggage fees because there's so much money there for airlines. And their feeling is they would rather have a few extra passengers on each flight who come to them because they don't charge fees than charging baggage fees to everybody.
Yeah.
Why did Southwest post a 16.5% profit margin without charging baggage fees?
Wall Street versus Main Street. Yes, very much. We're speaking with middle seat columnist Scott McCartney about how much money airlines pocket in profit from tickets. And you're listening to your money matters from The Wall Street Journal. Welcome back, everybody. So, Scott, as you point out in your story, some passengers are actually more profitable than others.
You know, we looked at an average, but it's important to remember that the business traveler who's buying high fares is a much more valuable customer to to an airline. Leisure travelers who will spend for extra legroom or spend for first class discounted first class fares. Those people are far more profitable. The people in the back of the airplane sometimes aren't covering the costs, and basically they're getting really low fares that are unprofitable for the airline by themselves, but the airline would rather have that money than fly an empty seat.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:02–0:23
2
How much of the average $355 round‑trip ticket becomes airline profit?
0:23–1:00
3
How do baggage and other ancillary fees drive airline profitability?
1:00–1:35
4
What is the typical per‑boarding fee contribution to airline profits?
1:35–2:15
5
How does a 9% net profit margin compare to other U.S. companies?
2:15–3:27
6
Why did Southwest post a 16.5% profit margin without charging baggage fees?
3:27–4:42
7
Which passengers are most profitable and how do airlines balance fares and load?
4:42–5:20
8
How do rising oil prices and competition threaten airline profit margins?
5:20–5:55
Speakers
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