How do Airlines make Money?

I don't get it. If your average jet costs $20 million each- or more- how do airlines make money? Even if all 100-300 seats sell for $200 each, that's still a considerable profit loss. And that's just for one jet. So how do Airlines make cash?

When people fly the airlines

Some Don't.
Consider the unseen money of Air Freight, and Express Shipments. As well as Global "Snail" Mail.

First, a modern airliner costs anywhere between $60 million and over $200 million.

Second, planes fly more than once. A Boeing 737 or an Airbus A320 typically makes six to nine flights per day. A long range aircraft like an Airbus A330 or a Boeing 777 and 787 fly two to four times per day. With proper maintenance an airliner can last pretty much indefinitely, though after about 20-25 years the cost of maintenance becomes prohibitively expensive. However, there are still some Boeing 747-200s still flying that are over 35 years old.

Having said this, I should also mention that airline industry lurches from feast to famine. The industry has very good years when it makes record profits, followed by lean years where they loose even more money. In fact, since the first airlines started one hundred years ago the airline industry, as a whole, lost more money than it made. The history of commercial aviation is paved with airline tombstones: Pan Am, Eastern, Braniff, Laker SkyTrain, Malev, Varig, Vasp, Olympic Airways, Aloha just to name a few.

Multiple flights with thousands of passengers. That one plane flies each and every day carrying paying passengers and some freight. Over time they make enough money to pay for the plane and then they start making a profit. One plane may fly as many as 10 legs a day on short trips. It takes a large volume of passengers and cargo for an airline to succeed and they all do not.

Its all about cash flow. Managing the business so that the money that comes in each month is more than the money going out.

Airlines do not pay the entire cost of the airplane upfront. Airlines generally obtain their aircraft in one of 3 ways:

1. New purchase - this is where they buy straight from Boeing, Airbus, or whatever company made the plane. But even here they don't pay full price. They finance the airplane by borrowing the money from a bank (or in many cases a government). Like any loan, the airline then makes monthly payments to the lender - usually spread out over 15-20 years at very low interest rates. So a new airplane that costs $200 million might have a monthly payment of around $1 million per month. On a 20 year loan that means they end up paying $240 million with interest over 240 months.

That's still a lot of money, but if that airplane seats 300 people and flys long routes where tickets cost $1000 each, then its generating $300,000 per flight and if it makes 2 flights per day its generating $600k per day in revenue. So it can generate enough cash to pay the monthly payment in less than 2 days. Of course there's also fuel, maintenance, airport fees, and employee salaries to pay, but you can see that the actual purchase price of the airplane is only a small fraction of the overall financial picture.

2. Lease - many airlines simply lease their airplanes from 3rd party companies. This typically costs a little more in the long run but gives them more flexibility since they can simply terminate a lease (with modest penalties) when they no longer need an aircraft. Many people don't realize that many of the planes they fly on are actually leased. If I asked you who you think is Boeing's biggest customer (for commercial airplanes) you might guess Delta, or United or some other major airline, or maybe Southwest since their entire fleet is Boeing 737's - but those guesses would be wrong. Boeing's biggest customer is a company you've probably never heard of, called Air Lease Finance Corporation (ALFC) - they buy planes from Boeing (and Airbus and every other airplane company) and then lease those airplanes to airlines. The airplanes get painted with the logo of the airline that is leasing them, so you'd never know its leased.

3. Used - Just like with cars, there's an entire market for used airplanes. Some airlines operate on the business model that buying used planes is cheaper. So they might buy an older airplane outright with no payments, but it will cost them more in maintenance and fuel so the monthly operating cost may or may not actually be cheaper.

Commercial airplanes don't just sit around on the tarmac after one flight, Skippy. MOST airplanes fly several flights per day. Using YOUR numbers, 200 seats @ $200 each = $40,000 for each flight. If an airplane flies four flights per day, that's $160,000 EVERY DAY. Even if half of that goes to pay overhead costs like crew, fuel and maintenance, that's STILL $80,000 profit PER DAY. Even if the airplane only flies 200 days a year, that's $16 MILLION for ONE year. The average life expectancy of a passenger jet like the Boeing 737 is 30 years! You can do the math from here.

Many don't especially state owned ones which are subsidised by that country's government (i.e taxpayers).

Each aircraft will fly several times a day.