How much of airline revenue comes from business travelers?

Airlines are in business to make money and although they can sometimes benefit from government bailouts, most of their income comes from travelers. Besides the cost of the tickets themselves, airlines can also collect fees from passengers that help increase their profit margins. But how much do the airlines earn? And how much of that income comes from their passengers? The numbers might surprise you.

Key points to remember

  • Airlines derive the majority of their income from travelers, although they can also benefit from affiliations with travel partners and credit card companies.
  • Business travelers make up 12% of airline passengers, but they are typically twice as lucrative, accounting for up to 75% of the profits.
  • Companies are generally willing to pay more to book last-minute, non-stop flight options, but rarely allow premium section seats for core employees.
  • Companies typically allow employees to take advantage of business travel to earn and retain miles and frequent flyer points, which are increasingly valuable to airlines as a source of revenue and data.

How Airlines Make Money

Airlines receive almost 60% of their revenue directly from passengers (the remaining 40% comes from the sale of loyalty miles to credit card companies and other travel partners such as hotels and car rental companies). These revenues include the cost of airline tickets, fees and other travel expenses charged by airlines.

But of these 60% of passengers returned, the big earnings come from business travelers, as opposed to those traveling for personal or leisure reasons, in percentages that far exceed their numbers. Business travelers represent 12% of airline passengers, but they are generally twice as profitable. In fact, on some flights, business passengers represent 75% of an airline’s income.

This has obviously changed in light of the pandemic, as overall air traffic was decimated in Q2 and Q3 2020 and was at one point down 96% (as of April 2020) compared to the same period in 2019, although that it “recovered” to be down only about 70% from the first week of October 2020 compared to the same week in 2019.

With the proliferation of Zoom meetings and most corporate workers working remotely, business travel, in particular, has been sharply reduced in 2020. Yet business and consumer credit card customers continue to grow. ” increase airline profits in the form of earning miles and points. with daily expenses, even though they are not currently redeemed for free travel in the current environment.

Important

When booking air travel, be sure to research up-to-date airport health and safety requirements both in the terminal and on board the aircraft.

Company comfort

Corporate travel policies emphasized saving money. However, (before the pandemic, anyway), given the tedious nature of air travel, managers were often concerned about employee comfort, convenience, and productivity – as it was counterproductive if an employee arrived too tired or stressed to do his job. Thus, companies were often willing to pay more to book last minute flights or nonstop options, although they usually did not settle in an elite section of the plane.

For senior executives or employees subject to a special corporate travel policy, first class and business class tickets can cost up to 10 times the price of coach tickets. This premium pricing generally provides passengers with better service and better quality. Approvals than the offers of economical tickets. Spending by high-end businesses and consumers on these goods and services encourages competition among airlines for the most lucrative passengers. Many airlines, to attract new passengers, introduce innovative services or refit planes for more first-class legroom.

Business travelers and high-end travelers also bring substantial income to airlines by purchasing additional services and using loyalty and other incentive programs.

advice

When booking First Class or Business Class fares, be sure to compare the cost of the flight and the amenities provided to see which one offers the best value.

Increase attention to business travel

With the potential to collect higher revenues from business travelers, many airlines are now focusing on corporate commerce. For example, since 2017 Southwest Airlines – once known for its low prices and low fares – has targeted business travel with a growing internal service. The airline has also undertaken other efforts, including working with corporate travel managers, the team may offer discounted fares or match a passenger’s status with other frequent flyer programs. For 2021, Southwest has announced additional plans to target business travelers and increase this segment of its revenue.

Loyalty programs and airline revenues

Frequent flyer mileage programs are increasingly valuable to airlines as business travelers and other first-class passengers link their credit cards to the programs and track their consumption and spending behaviors. High-income consumers have significant levels of disposable income to spend on a wide range of goods and services. Many businesses collect or purchase consumer spending data for use in developing a marketing strategy and product Research and development.

The data that airlines collect on high-end consumers using frequent flyer miles programs is extensive and extremely profitable. Some frequent flyer programs are now worth several times the value of the airlines that own them, in fact. For most airlines, these incentive programs are an essential source of revenue and profitability that allow them to offer better prices on tickets and more routes.

Many companies benefit from this data and are willing to pay for inexpensive airline programs. Any miles or travel points earned by consumers are not actually used due to lack of redemption or travel expiration (which is referred to as “breakage”), further reducing program costs and contribution. to profits.

advice

If you’re signed up for a loyalty program, consider opening a airline miles credit card to earn extra miles every time you travel.

The bottom line

Airlines earn their revenues in a variety of ways, but the lion’s share comes from business travelers, at least according to the latest industry data. Whether you are traveling business class, first class, or economy class, it is important to make sure that you get the best possible deal on flights. Finding fares and costs between airlines and using a travel rewards credit card earning miles or points on these purchases can help you manage your travel budget.

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