A full flight does not mean it is profitable

In this installment we want to debunk the myth that a full flight will always beá rentable, when the reality is that a full flight does not mean it is always profitable.

Muchímany times we have seen how the Aerolílines close routes (for instance Quito – New York, Quito – Dallas or others around the world) that at first glance appear to be profitable and that there is no reasonómagic to stop flying, because the flights are always full until úlast seat or with occupancy averagesón of the 80% al 90%, but it really is that on a flight there are many pairsámeters that affect that profitability and that are reflected in the ticket price what users pay.

In a previous installment we talked about the reasons that make passengers more expensiveéprisoners and in another cómo is possible lower these prices, so now it's time to know cówhether a flight becomes profitable or not.

Profitable flight

The goal of all aerolílines in the world, even those social, is to maintain financial profitability in its operations for which it is necessary to frame and standardize some concepts:

• On previous posts I explain myselfó regarding fixed costs and variable costs and was leftó a link in the efficiency achieved by each aerosolínea under their políadministration ethicsón of its costs so we must define this time:
  • Direct Costs, They are those who intervene in the process of realizationón of the service that the company (development and operationón), clearly identified and that are directly related to the final price of the service provided and the profitability of the company is guaranteed. At higher direct cost, higher final sales price to the user.
  • Indirect Costs, are all additional costs that indirectly intervene in the provisionón of service like commercials, administrative and some financial. These costs areán directly related to the efficiency of the company by subtracting profitability.

We are going to relate these costs to the load factor or occupancy level.ón on airplanes, considering the múmultiple factors including nature voláutility of the demand.

In simple words, direct costs más indirect costs areán related to income so the final benefit will beá positive or negative monún the management of costs in such a way that an inefficiency in their management by más high employment factorón that they are maintained, produceá lost to the airínea.

Direct costs have been reduced due to operational efficiency.ón.

Indirect costs have increased due to the presence of unions, high personnel costs, heavy administrative structures (bureaucracy) etc, what this inefficiency has taken away competitiveness and reducing máprofitability margins and putting airlines at serious riskíregardless of the occupancy factorón be favorable to the statesíAerosol staticsídenies.

La administrationón and búStriking balance transfers this need to the user by raising fares and ticket costs., affecting theí directly to the occupationón transformábeing in a wheel by not attacking with strategies the efficient management of costs and specificationsíficaly, to the indirect ones that go through structural issues.

For the páprevious paragraph we can alsoén clarify the claim of some users for the closure of a route, who say what shouldíto increase the price of the ticket to make the route profitable, but clearly, by doing this you will harm yourselfá aún más, the occupationón affecting the intentionóuser purchase number.

It should be considered that these characteristicsíStatics are not exclusive to transportationéreo, But there are other sectors that find themselves in the same situations..

You feel itón howúThe fact that full planes generate high profits is not corroborated by the data because there are high direct and indirect costs.. This factor is what has led to innovationón in the airídenies, with the purpose of generating más income with the same occupancy factorón without attacking being efficient, as a central problem.

The real need isá in improving management capacityón to make an aerosolíefficient line in the face of constant changes in the industry and thusí avoid the closure of routes that have a significant occupationónot attractive.

Concludedón

• Direct costs are improved with better planningón and improvement of schedules.
• Reducing parking times and turnaround helps improve profitability.
• Indirect costs are improved with reductionónumber of personnel, light structures, efficient and use of new technologyías.
• SpaghettiéIt may be the case that a flight with low occupancyón is profitable for the airlineínea, all for the management of their costs and additional line of business, such as cargo transportation in the warehouse..
• Finally, spaghettiéThere are no cases that aerosolíairlines operate profitable flights, but they don't meet the paráexpected meters or projected base, despite generating income for the company.