How Airlines Make Money? | How to get Cheapest Tickets?

 

Unveiling the Secrets of Airline Pricing: From Budget to Luxury Flights

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The Cost of an Average Flight Ticket

An average economy class flight ticket costs around ₹5,000 for a trip from Delhi to Mumbai. But can you guess the price of the most expensive flight ticket in the world? You might think it's ₹500,000, ₹1 million, or even ₹2 million, but you'd still be far from the actual figure.

The Residence by Etihad Airways

Etihad Airways offers a first-class seat called The Residence. This isn't just a seat; it's a hotel room in the sky. It includes a queen-sized double bed, a private bathroom, and a separate sitting area. Available only on select routes, such as from New York to Abu Dhabi, this 12.5-hour flight provides a personal butler and meals garnished and served to perfection. The total private area is 125 sq. ft., nearly as spacious as a hotel room. This luxury experience costs ₹5.5 million for one flight. To put it in perspective, you could buy more than 50 iPhone 15s, a luxurious car, or even a house in many places with this amount.

The Cheapest Flight Ticket

On the other end of the spectrum is Ryanair, a European airline known for its incredibly cheap flight tickets, typically priced between ₹800 and ₹1,500. Considering the higher per capita income in European countries, this price is unbelievably low. If we adjust for buying power in India, the equivalent cost would be around ₹100-₹200.

Profit Comparison: Ryanair vs. Etihad Airways

You might wonder which of these two airlines is more profitable. Surprisingly, it's Ryanair. In 2022, Etihad recorded its highest-ever profit of $296 million, while Ryanair's profit was $1.5 billion. How is this possible?

Understanding Airline Business Models

Airlines typically fall into two categories: Full-Service Airlines and Low-Cost Airlines.

Full-Service Airlines

These traditional airlines, such as Etihad Airways, Emirates, and Singapore Airlines, offer in-flight food, entertainment, baggage check-in, and ample seat space. In India, Air India and Vistara are examples of full-service airlines.

Low-Cost Airlines

Low-cost airlines, like Ryanair, SpiceJet, and IndiGo, offer cheap tickets but with fewer amenities. Passengers often face issues due to cost-cutting measures, such as extra charges for baggage, seat selection, food, and even using credit cards for booking.

The Secret to Low-Cost Airlines’ Profitability

Ancillary Revenue

Low-cost airlines generate significant income from ancillary revenue—extra charges for services not included in the ticket price. For instance, in 2019, 28% of Ryanair's revenue came from ancillary sources.

Dynamic Pricing

Both full-service and low-cost airlines use dynamic pricing, meaning ticket prices fluctuate based on demand, time, and other factors. Complex algorithms help airlines maximize profit while filling as many seats as possible.

Debunking Myths About Cheap Flight Tickets

1. Advance Booking: Booking 2-3 months in advance isn't always cheaper. It depends on demand.
2. Midnight Booking: There's no special discount hour. Prices change based on algorithms, not time of day.
3. Incognito Mode: Airlines track overall demand, not individual users, so browsing in incognito mode doesn't guarantee cheaper prices.

The Economics of Different Flight Classes

Airlines offer four types of seats: Economy, Premium Economy, Business, and First Class. Interestingly, the profitability per square foot varies. First-class seats often generate less profit per square foot compared to economy seats due to higher service costs. Business class seats tend to be the most profitable.

Trends in Airline Seating

Due to profitability concerns, many airlines are phasing out first-class seating in favor of business class. Premium Economy seats are also becoming more common due to their high profitability per square foot.

Strategies for Low-Cost Airlines

1. Uniform Fleet: Using a single type of aircraft, like Boeing 737, reduces maintenance and training costs.
2. Minimizing In-Flight Costs: Reducing unnecessary weight, simplifying seat mechanisms, and monetizing in-flight advertisements help cut costs.
3. Airport Strategy: Ryanair uses smaller, secondary airports to save on landing fees.
4. Frequent Flights: Shorter, more frequent flights increase profitability.

Consumer Strategies for Cheaper Flights

1. Travel on Weekdays: Flights are often cheaper on Tuesdays and Wednesdays.
2. Use Google Flights: Utilize the date grid and price graph features to find the cheapest dates.
3. Consider Nearby Airports: Flying to or from smaller airports can save money.
4. Opt for Stopover Flights: Sometimes, adding a stopover can be cheaper than a direct flight.
5. Compare Websites: Use multiple flight comparison sites like Kayak, Skyscanner, Kiwi, and Azair for the best deals.

Conclusion

Understanding the business models and strategies of different airlines can help you find the best deals and travel smarter. Whether you're looking for luxury or budget flights, knowing how airlines operate and set their prices can make a significant difference in your travel expenses.

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If you found this information helpful, you might enjoy our detailed case study on Air India. Thank you for reading!