How profitable is it to fly low-cost airlines?

Seven-hour flights across the Atlantic at a great price: low-cost Norwegian Airlines flies you from New York to Madrid for $154 one way. And such a fare is not an anomaly - airlines such as American Airlines and Lufthansa are competing for passengers, offering round-trip tickets between various cities in the US and Europe for less than $400, writes CNN.

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How do these airlines profit from such low fares?

They don't get it, says Gerald Cook, a professor at Embry-Riddle Aviation University. This is an integral part of the cost of the airline and the pricing of tickets, which Cook, the former head and pilot of the airline, calls "mysterious."

“This single low-cost ticket to Europe is not profitable for any airline, but it adds to the overall revenue of the flight,” Cook explained.

Low fares do not affect the total cost of the flight.

According to Cook, airfare does not depend on the cost of one place. Total flight costs include a huge fuel bill, a salary of two or more highly qualified pilots and flight attendants, food and cleaning expenses, and aircraft fees.

“A typical airline schedule is set twice a year. As a result, the costs associated with offering this schedule are virtually fixed. Fuel prices can change, but airlines have no control over that,” Cook said.

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Ryanair, the famous European budget carrier, is proud that its average fares do not actually cover the cost of a single passenger flight.

However, it is very profitable to make up the difference through baggage and seat fees, as well as through onboard sales - all higher-margin products than the seat itself. The airline operates as many flights per day as possible, so it can often charge for these extras in a way that standard long-haul airlines cannot.

“The real variable is not cost, but income. The airline's goal is to maximize revenue for a given flight on a given day based on expected and actual demand,” Cook said.

According to his estimates, about 10% of all places are sold at the cost of the basic economy class fare.

This means that on a typical wide-bodied aircraft to Europe, there are about 30 seats available at a reduced price. As soon as these tickets are sold, the fare usually increases as the date of travel approaches.

Discount hunters warn: "If you try to book a seat on the eve of a flight, you can pay 10 times the base economic fare."

Travelers are advised to book tickets as soon as they are determined with the date of the trip.

Happy math

“If airlines did not offer low fares to attract passengers - albeit with significant restrictions - seats would not be sold and would not generate revenue. It’s much more profitable for them to sell some seats at low rates,” Cook explained.

But fares should not be too low, and there should not be too many places like this, says Henry Harteveldt, founder of Atmosphere Research Group and an expert in the aviation industry.

“No airline will slash fares more than necessary. And no VP of revenue gets a bonus for discounts,” Harteveldt noted.

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He said the goal of established airlines is to sell as many tickets as possible at basic economy class fares to compete with low-cost airlines, and to push passengers to higher fare classes through special offers and services.

Airlines use sophisticated software to dynamically adjust prices based on historical data, competitor fares, expected and actual sales for a particular class of fares, as well as insignificant control of the carrier’s team.

“One software provider analyzes more than a billion fare combinations between London and New York, taking into account different fare classes, airlines and seats on individual flights along the route,” says Harteveldt.

Healthy demand

Harteveldt believes that modern prices for airline tickets are the "golden age".

“Tariffs are reduced where there is a competitor in the market with a competitive price and great potential to meet demand,” Harteveldt explained.

He noted that when Southwest enters the market, fares fall, citing an example of the airline’s recent entry into the Hawaiian market, where some flights from the US West Coast now cost just 49 dollars. Hawaiian Airlines and United, its main competitors, will also react with lower prices.

The same logic applies to transatlantic routes.

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“Even if you don't fly Norwegian Airlines, thank the company. It may result in your preferred airline offering lower fares,” Harteveldt said.

JetBlue is one of the latest US airlines to announce the introduction of transatlantic flights, starting flights from London to New York and Boston in 2021.

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