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Comment by 09bjb | Hacker News Reader

You may be right, but airlines are either the canary in the coal mine or an exceptional case. They operate on incredibly, incredibly small margins so vulnerability to small disturbances is, at least in this industry, totally expected. I.e. not necessarily true for other trade sectors.

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> They operate on incredibly, incredibly small margins

I've never understood how an industry so hard for competition to get into, so defensively positioned with regulatory capture, and so overpriced and gouge-happy from a consumer PoV, can somehow manage to be barely scraping by. What is going on at the airlines where they seemingly can't make ends meet despite a silver platter cornered market?

When I need to fly somewhere I look around and choose the cheapest way. Maybe they really are pinched and can't raise prices without loosing too many customers.

I uses to do that, but now I realize I'm willing to pay for legroom. I still look for low cost, but only after factoring in the legroom.

They have been underpricing themselves to maintain position against other companies. Regulations keep costs increasing. Unions keeps labor prices increasing.

Did you expect your $200-300 cross-country flight to really give much of a profit to airlines after airport taxes, landing fees, fuel, maintance costs plus labor, insurances and everything else?

Those flights should cost 10x as much if you want the golden treatment fliers received in the 60s.

And yet first class tickets often do cost 10x as much, and you get little more than a hot towel and some liquor to shut you up.

Ryanairs average flight price is $60 and this company is very profitable.

Warren Buffet has long since described the aviation industry as over competitive. This was decades ago, before the low cost airlines even entered the picture.

Airlines are a great example of competition driving prices down for consumers.

I think it's basically free to fly -- if you buy a $200 airline ticket, you are using $200 worth of fuel (total fuel / airplane capacity), aircraft depreciation, crew costs, etc. The airline can only make money because they figured out how to sell someone else a $300 ticket for their $200 worth of stuff. It's a precarious model, because if they sell you the $200 ticket but don't ever sell the $300 ticket, then they just lose money. Once the boarding door closes, there is no way to ever gain money on that flight.

The "gouging" is just to appeal to the truly cost sensitive; people with no brand loyalty, time constraints, etc. If you don't want a soda, a checked bag, a seat assignment, and the option to choose from 10 different times of day to leave... but do want $50 in cash... they have you covered. It rubs people the wrong way, but people "sort by lowest price first", not by "lowest hassle first", so they have to account for that somehow. (Tangent: I never really understood this. I feel like air travel would be way smoother if people checked their bags instead of fought each other for overhead bin space. They should charge for the bins, not for the cargo hold. But I guess that's too hard in practice.)

If you had an airline that just charged actual cost + desired profit for a certain load factor, the ticket would be $1000. Then someone else would show up and charge $999 because they can pay for a slightly less well-trained flight attendant. Then someone else comes along and puts the rows of seats 1" closer together. Eventually the price is what we pay today, because all that actually happened. I think the industry is so hyper-optimized that it's basically "free" to fly; you're just paying for transport at cost, or even less than cost if they have done their yield management correctly and you got the lowest fare on the flight. That's why the industry is so sensitive to disruptions -- it's balancing on a razor thin margin, because there are competitors ready to make $1 less to get your butt in their seat.

Anyway, I think your assertion about a silver platter cornered market is simply wrong. Flying is ridiculously inexpensive compared to the costs. As a comparison, get your ATP certification, buy a 737, and fly your friends around in it. Pretty expensive compared to a ticket on Southwest!

> Once the boarding door closes, there is no way to ever gain money on that flight.

What about in-flight food and alcohol? In-flight wifi/movies/media? Does Sky Mall pay a commission? I'd be curious how much all of those things add in revenue after the door closes.

They're not. If you look at southwest, they had about a 10% profit margin in the year before COVID. Incredibly typical type of profit margin.

This is a little bit misleading. You have to look at the entire history of the industry. A lot of consolidation has happened to eliminate competition. And pretty much every legacy airline has declared bankruptcy except for coincidentally, Southwest. Largely due to their founders strategy of avoiding overly leveraging the company. So much so that at one point during the pandemic when other airlines were overleveraged, their stock price did not crash and they were the most valuable airline in the country by a considerable amount.

The real answer is: look at their workforce. Their workforce has all the power in negotiating.

https://philip.greenspun.com/flying/unions-and-airlines

It's not really that hard to get into the airline business. There are usually a couple of new (small) airlines every decade. Equipment is easy to lease, maintenance is easy to contract, staff is ok to find when you don't need a lot. You might not be able to get slots where you want, but there are a lot of airports, you can find slots somewhere, and you can do business with a handful of routes.

But there is a lot of competition; wikipedia lists 10 major (doing $1B annually) US 'mainline' passenger airlines, and three more major regionals (although one is a subsidiary of a mainline). It's hard to stay non-competitive with 11 other big companies doing the same things as you; especially when non-majors can compete too.

That's not to say there's no gouging, there is a lot of opaque pricing and nickle and diming. But, if your route is served by multiple carriers, there's probably not a lot of consistent profit there. If you're flying out of a small airport that does two flights a day and the nearest airport is a 4 hour drive, there may be some more profit there, but it depends on utilization.

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