How Do Airline Companies Make Profit?

India is one of the largest populated countries with over 1.3 billion people in the world with the biggest untapped domestic markets. Even this year, (2021), the Indian government has planned to spend $23.7 billion on building the transport infrastructure of which a huge part of the money would be invested in building airports. The aim is to comfort travelers by having easy access to airports as well as having efficient connectivity across the nation. This will also help increase the number of travelers to India and the travel and tourism of our country will continue to grow.

For Indian airlines this can be a boon to earn money, however, this is yet not the case. The airline companies in India do not have good earning sources due to many factors some of which are high operational costs, high fuel costs, taxes, etc. Due to such reasons, the airlines have started cutting costs in order to save money as well as earn profits. We've listed some strategies that the airline companies use to make profit below.

1. Overcharging for Overweight Luggage:

Airline companies want to save costs wherever possible. They earn through different ways as well and one of the most effective ones is to charge for overwight luggage. If any passenger crosses the weight of the luggage, the person will have to pay an extra amount.

2. Chargeable Food and Drinks:

Earlier many airline companies had tie-ups and partnerships with the restaurants here. The high-quality cuisine added more value to the passenger’s experience. After the Covid-19 pandemic hit hard, most companies have started taking extra caution money along with the normal food charges. Also, the companies who gave food and drinks complimentary have stopped these services so that the staff and passengers can be contactless.

3. Crammed Seating:

Often to save money the airline companies make the aircraft in a way where there is little or no space for a person to have comfort while traveling. In the same space, more people are accommodated.

Jet Airways Case Study | 5 Reasons Behind The jet airways bankruptcy

Jet Airways case study is now a popular in almost every Business School’scurriculum due to its unimaginable debacle. Founder Naresh Goyal is beinginvestigated by the Enforcement Directorate (ED) and a large number ofex-employees still remain jobless after the airline shut down its operations inA…

StartupTalkyLakshya Singh

4. No Pillow/Blankets:

Earlier, for long route flights and journeys, the passengers would get amenities like blankets and pillow to sleep, however, to save money, these companies have cut-down on these services and have now made them chargeable.

5. Optimized Allocation of Resources:

When the allocation of resources i.e. staff and equipment is deficient the airline companies need to pay a high amount of money. It is very important that the airline company uses optimization techniques for the robust allocation of resources.

6. Selecting Routes that have more Traffic:

A lot of times when there is less number of passengers traveling to a particular destination, the flights tend to get canceled or the passenger’s tickets are upgraded. At such times the airline companies select routes where there is scope of picking up more passengers, so that the company gets little traffic.

7. Increasing Fares during Festivals, Holidays, and Weekends:

Even when the airline companies want to maintain steady airfare rates, they aren’t able to. During the times of festivals, government holidays, or long weekends, these companies start charging heavily to customers and sell tickets at a very premium price. This is one of the easy ways in which Indian airline companies save their money.

8. Giving Discounts on Last-Minute Empty Seats:

There are times when the airline company gives discounts to the passengers at the very last moment so that their vacant seats don’t go unoccupied and they save a little amount of the cost.

Reasons Behind The Thomas Cook Bankruptcy Case | Thomas Cook Case Study

Thomas Cook Group was a British travel company which operated as both, anairline company and a tour and travel firm. The Group was founded after themerger of Thomas Cook AG and My Travel group in 2007. However, the brand “Thomas Cook” is 178 years old and was trusted by travellersglobally. Recen…

StartupTalkyLakshya Singh

9. Cutting Down In-Flight Entertainment:

Many flights used to have in-flight entertainment for the passengers. Since even that carries a little weight per seat, the total weight was larger than expected and hence forced the company to have a larger amount of fuel. On the domestic flights, many companies have now adjusted to a more no entertainment journey.

10. Reducing Labor Costs:

In the airline industry, labor accounts for almost 30% - 35% of the total operating expenses. When these airline companies see that there are less or no profits, they cut down the labor costs by laying off the laborers or by reducing their pays, or not giving them any benefits. This is a consequence of being in a business where there is cutthroat competition. In such cases, the airline companies sometimes compete on the prices and not the quality.

Final Words

These are just some of the general ways Airlines make profit. Given the dire situation where they had to be shut for months at an end it is not unlikely that there will be hike in prices for tickets and penalties as well as have previously free services now chargeable. That being said, airplanes are still a very convenient and fast way to reach a destination so it will always remain unavoidable.

Frequently Asked Questions - FAQs

Which is the No 1 airline in India?

Going by the number of passengers that use IndiGo, it is undoubtedly India's most loved low-cost carrier. They are also the largest one in the country.

Why airlines are not profitable in India?

Most Airlines in India struggle to turn a profit due to the high taxes, price ceilings, intense competition, and variable fuel prices.

Why do airlines take longer routes to reach shorter distances?

Airlines usually do this to pick up more passengers so that they do not waste any seat on the flight.