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MEL_Traveller

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There you go. If you have to include a minimum of $300 other spend, that probably represents about $150 on the airfare, bringing it to about $850. Maybe less, but would be interesting to see the going prices for the accommodation booked independently. On travel insurance I believe the TA can get 60% or more cut of the premium.

As an aside... Qatar has released a fare sale today AU-Europe for $1039. That's more than a third longer flying time, double the meals, double the ground handling (loading bags, bag transfers, gate agent staff for boarding etc).

So I don't think $699 is heralding the end of the civilised world as we know it (on the 'aviation industry predicts recession model')
 
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Frequent boarder

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$300 min probably represents $240 to $270 net do ok add $30 to $60 maybe to airfare. Any $1000 airfares to eu return is a loss leader

All these crazy low airfares continually only mean 1 thing-poor future bookings. Airlines have to start cutting flights or more will fold
 

ozfflyer

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Not necessarily: The Cost of Operating a Commercial Flight

AA calculates profitability per flight, not per passenger. So you have to take in to account freight and premium pax.
Higher fares offset the loss leaders, but $1000 to EU is definitely a loss leader. Taxes out govt taxes & charges & not much left.

The difference with the $699 deal above, is that it's in school holidays. Most or all of the $750 ish fares to LAX or SFO return have been in Feb & other low seasons.

So if depart 17 Jan, then have 10 nights in USA, can still get back for kids school or they might miss a day or 2.

The smarter airlines are slowly filling their low season flights & now flights on the edge of high season. You would get this deal for early January departures.
 

MEL_Traveller

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Higher fares offset the loss leaders, but $1000 to EU is definitely a loss leader.

This doesn't seem to make sense. If it was a 'loss leader' wouldn't the airline 'make' more money by leaving it empty rather than selling it?

The definition of a 'loss leader' is a product sold at a loss to attract customers. The customers come to the store and buy other items.

If pax choosing the $1000 fare are purely price concious, the loss leader will not achieve its goal. What else is the passenger going to buy? Food, alcohol and baggage is included.

Will it attract loyalty? Again, if the passenger is price concious, I doubt they will fly QR next year if the same fare is $2000. Instead the passenger will move to another carrier for $1000.
 

dajop

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This doesn't seem to make sense. If it was a 'loss leader' wouldn't the airline 'make' more money by leaving it empty rather than selling it?

I agree with you. However It may well be making a loss if you consider the seat as a discrete entity, and account for the fixed costs of providing that seat. However, if the seat was likely to go out empty anyway, all you have to do is cover the variable costs (catering, luggage handling and an extra fuel needed to carry an extra 100-150kg), and the airline could be better off (subject to training of consumer behaviour to expect such fares). So to say “it is crazy to offer such fares”. ... is well, crazy.

Rank amateurs, like most of us on the forum, myself included, have no idea how airlines account for profitability of services. Probably a discussion for a different thread but so many variables go into it. For example there will be times when services in one direction will run at a loss, to enable big fares to be charged in the other direction, such that the overall return service will make more money than not operating at all, despite the loss in one direction.

Yield management is certainly a black art.
 

ozfflyer

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Higher fares offset the loss leaders, but $1000 to EU is definitely a loss leader. Taxes out govt taxes & charges & not much left.

The difference with the $699 deal above, is that it's in school holidays. Most or all of the $750 ish fares to LAX or SFO return have been in Feb & other low seasons.

So if depart 17 Jan, then have 10 nights in USA, can still get back for kids school or they might miss a day or 2.

The smarter airlines are slowly filling their low season flights & now flights on the edge of high season. You would get this deal for early January departures.
no, airlines don't want empty seats, especially in a recession.

think of it this way .........

Say break even is $1000/seat for a return flight over route A to B, not inc any taxes. They are better off selling a seat for $800 + taxes & loosing $200, than having risk this seat going empty & possibly losing $900 ($1000 less a bit for fuel catering etc). Sophisticated yield management programmes, work to fill the aircraft to as close to 100% as possible, as at high a yield as possible. Sure the airline would have to pay for more fuel, meals etc., but the consumer thinks if they see an aircraft 1/2 full then that airline must be in trouble, without knowing the yield, whereas a full flight, with almost every seat sold below cost & the consumer says, oh it was full, they must be doing well. Reporters can be easily conned this way.
 

MEL_Traveller

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no, airlines don't want empty seats, especially in a recession.

think of it this way .........

Say break even is $1000/seat for a return flight over route A to B, not inc any taxes. They are better off selling a seat for $800 + taxes & loosing $200, than having risk this seat going empty & possibly losing $900 ($1000 less a bit for fuel catering etc). Sophisticated yield management programmes, work to fill the aircraft to as close to 100% as possible, as at high a yield as possible. Sure the airline would have to pay for more fuel, meals etc., but the consumer thinks if they see an aircraft 1/2 full then that airline must be in trouble, without knowing the yield, whereas a full flight, with almost every seat sold below cost & the consumer says, oh it was full, they must be doing well. Reporters can be easily conned this way.

I think the bold text is unsubstantiated. 99% of passengers think their dream has come true with a half full aircraft and enjoy the space to stretch out and sleep. i don't think any of the pax sit there wide awake worried about the airline's financials. (The 1% difference is for the airline staff that might give it a thought, although they're more than likely enjoying their holiday on staff discount.)

Perhaps you mean 'cost recovery' rather than 'loss leader'?
 

juddles

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I am certain of four things regarding airline profitability.

1.- Premium cabins make money.
2.- Freight makes money.
3.- Economy is a juggling game to keep the planes topped up without losing too much money.
4.- The art of "yield management" is the key to an airlines prosperity, and none of us who are not directly employed in such have a snow-balls chance in hell of actualy understanding it :)
 

ozfflyer

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I am certain of four things regarding airline profitability.

1.- Premium cabins make money.
2.- Freight makes money.
3.- Economy is a juggling game to keep the planes topped up without losing too much money.
4.- The art of "yield management" is the key to an airlines prosperity, and none of us who are not directly employed in such have a snow-balls chance in hell of actualy understanding it :)
agree in some part

1. makes money as long as full & not because of upgrades. Problem is not many buying premium anything these days. Airlines tell me bus cl not selling very well, as everyone trying to use points/miles to upgrade, but airlines want $$$ not points.

2. freight makes money, as long as carry as much as can. Yields in freight have apparently been dropping

3. economy like all classes is a juggling game. Airlines like Southwest, Ryanair + many LCCs & ULCCs make good money, as long as they keep their eye on the ball & don't try to be something they are not.

4. yield management is not that complicated (you have to try to sell every seats for as much as the market will bear)

but large airlines have to manage it very well or they can fall over just like all the smaller airlines & not so small airlines that have fallen over recently.

The big catch in a recession, if doing long haul, is airlines can't always match supply to demand. You can't send 1/2 widebody & if you reduce frequency from say daily to 4 or 5 days a week to match reduced demand, you start to lose the business types who pay the high fares, that allow loss leaders to be sold.
 

juddles

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agree in some part

1. makes money as long as full & not because of upgrades. Problem is not many buying premium anything these days. Airlines tell me bus cl not selling very well, as everyone trying to use points/miles to upgrade, but airlines want $$$ not points.

2. freight makes money, as long as carry as much as can. Yields in freight have apparently been dropping

3. economy like all classes is a juggling game. Airlines like Southwest, Ryanair + many LCCs & ULCCs make good money, as long as they keep their eye on the ball & don't try to be something they are not.

4. yield management is not that complicated (you have to try to sell every seats for as much as the market will bear)

but large airlines have to manage it very well or they can fall over just like all the smaller airlines & not so small airlines that have fallen over recently.

The big catch in a recession, if doing long haul, is airlines can't always match supply to demand. You can't send 1/2 widebody & if you reduce frequency from say daily to 4 or 5 days a week to match reduced demand, you start to lose the business types who pay the high fares, that allow loss leaders to be sold.

Disagree big time with two areas:

1.- "not many buying premium" - I think this is more perception rather than real economic life.

4.- "yeild management is not complicated" - I beg to differ - that is where airlines have to shine, and it is an extremely convoluted and dynamic area.
 

MEL_Traveller

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1.- "not many buying premium" - I think this is more perception rather than real economic life.

Agree with this. There are some massive premium cabins out there and airlines aren't in a hurry to downsize those. They may be getting rid of first in some markets, but that will potentially boost their business cabin loads. Qantas is sunstantially increasing their PEY cabins on the A380 with another 25 seats. And thse fares are anything but cheap.

Ozfflyer - even awards/upgrades make money for the airline... either from selling points for those seats/upgrades, pax earning them in the first place, or through paying higher fares in order to be able to upgrade.
 

ozfflyer

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Agree with this. There are some massive premium cabins out there and airlines aren't in a hurry to downsize those. They may be getting rid of first in some markets, but that will potentially boost their business cabin loads. Qantas is sunstantially increasing their PEY cabins on the A380 with another 25 seats. And thse fares are anything but cheap.

Ozfflyer - even awards/upgrades make money for the airline... either from selling points for those seats/upgrades, pax earning them in the first place, or through paying higher fares in order to be able to upgrade.
some airlines allow you to upgrade from economy class to business class from ANY fare. PE is the new bus class, but in reality, it's really like the old economy.
 

dajop

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1.- Premium cabins make money.
2.- Freight makes money.
3.- Economy is a juggling game to keep the planes topped up without losing too much money.
4.- The art of "yield management" is the key to an airlines prosperity, and none of us who are not directly employed in such have a snow-balls chance in hell of actualy understanding it :)

I wouldn't be so certain about 1) and 3). I think Premium cabins bring in a lot of cash, but I'm not always sure they make all that much if you account for the capital and the weight of the plane they take up, in addition to just the fuel cost. I'd say its the higher fare levels that make money, irrespective of class and the discounted fares are the juggling game to keep the planes topped up.

It sort of struck me, when I returned from ZRH from SIN a couple of years ago .. my return fare from SIN-ZRH in business was about $5800. A week later I travelled to CGK and back for about $950. The first involved 25 hours of travelling, the second 3.5 hrs. So $230/hr in business vs $270/hr in economy. ( I know, it take a lot of fuel to get into the air, and once up there you it doesn't take so much, but I had 3-4 times the space in business).

Another perspective is that it takes a lot more plane to put a business class passenger in the air. Comparing SQ A350-900ULR to TG A350-900 (which are same aircraft, except for fuel system), between exit doors #2 and #3, TG operates all economy, whilst SQ has all business. In this space, SQ has 44 J seats, whilst TG has 162 Y seats, a ratio of ~3.7. For arguments sake, let's say an all economy version of such plane holds 400 seats, lets ignore freight and assume the plane weight (empty, no fuel etc) is about 135000 kg. So each economy passenger uses 0.25% of the plane and to lift the passenger into the air, you also need to lift 337.5kg of plane into the air. A business class passenger will use about 0.9% of the plane and you need to lift 1240 kg of plane into the air.

So how do you measure the true cost of someone in business vs economy ? Do you just look at fuel per passenger + catering, or do you account for the capital cost and weight that is needed to support each passenger as well (or each cabin)? I don't know the answer, but I still come back to the idea that it's the higher fare buckets in all classes that make the money. The rest simply are there to enable them to support the sort of service/frequencies/flexibility that higher fare buckets demand.
 

MEL_Traveller

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'Real estate' per passenger is certianly one of the factors regarding yield. Most airlines talk about it when they give interviews. And it's why they like premium economy so much. They are able to charge multiples of what the space is actually worth. (Which usually means poor value for the consumer.)
 
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