Air travel is something that has gone from being a luxury available only to the richest in society to something hundreds of millions of people do every year.
In this episode, we'll explore how the cost of flying has changed over time, how airline companies make money, and what this means for us, our society, and the world we live in.
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:22] I'm Alastair Budge, and today we are going to be talking about the cost of flying and the economics of air travel.
[00:00:31] Air travel is something that has gone from being a luxury available only to the richest in society to something that, at least in most parts of the developed world, is available to everyone.
[00:00:45] This all happened over the space of less than 100 years. The first commercial flight happened in 1914. It cost today’s equivalent of thousands of dollars and less than a century later it was possible to buy a ticket on an aeroplane for less than 5 euros.
[00:01:04] So, how did this all happen, when and why did flying become so cheap, and how do airline companies actually make money, and how has this changed over time?
[00:01:17] We have a lot to get through in today’s episode, so let’s get started right away.
[00:01:24] On December 17th of 1903, the Wright brothers, Wilbur and Orville, of Dayton, Ohio, became the first people to ever successfully fly a powered aeroplane.
[00:01:38] It wasn’t fast - it only went at around 50km per hour - and it wasn’t long - it only lasted 12 seconds, but it did make history.
[00:01:51] The potential use of the aeroplane was immediately obvious. It means you can go anywhere without relying on a road or rail network. You can go over seas, mountains, across rivers. You can transport people, goods, letters, anything.
[00:02:09] Although commercial passenger flight got started in the 1920s, for several decades it remained the preserve of only the richest in society.
[00:02:21] Put simply, flying was a luxury.
[00:02:24] The experience itself was a luxury, but the service on board was also premium.
[00:02:31] Passengers would have received equivalent service to what you might get in a fancy restaurant, with drinks and food being served to you.
[00:02:41] It wouldn’t have been particularly comfortable, given that the planes travelled at a much lower altitude and therefore there would have been a lot more turbulence, the plane would have moved up and down a lot, but perhaps the freely available alcohol would have helped the passengers manage this.
[00:03:02] As technology advanced, aeroplanes became larger and more comfortable, flight distances were increased, and as we get to the 1940s and 1950s it became the real heyday of glamorous commercial flying. It was the era of Pan Am, the “golden age of flight”.
[00:03:24] It was still expensive, and flights were rarely full.
[00:03:29] Passengers were a mix of individual and business travellers.
[00:03:34] There were only two classes of ticket: tourist class and business class. Tourist class, as you might expect, was slightly cheaper.
[00:03:44] But there was no difference in experience once you were on the plane.
[00:03:49] The difference was about how flexible the tickets were.
[00:03:54] Tourist class tickets weren’t flexible at all. They were for a fixed date in the future. If you’re going on holiday, you normally choose a date, and it doesn’t tend to change, so tourists don’t really need flexibility.
[00:04:10] Business class tickets, on the other hand, were more flexible. You could simply arrive at the airport at the last minute and book a ticket, or you could book a ticket that could be used on different flights, both of which were useful for business travellers who might be called to a last-minute meeting.
[00:04:30] Airlines realised that they could charge more for this, and given that it was the company paying, not the individual, the individual passenger wouldn’t care so much about the price being higher.
[00:04:44] The airline industry was also a highly regulated industry, especially in the US, because flight was considered to be a public good, similar to the railways. This meant that routes, fares, and schedules were all regulated by the government.
[00:05:02] If an airline wanted to add a new route or change its price, it would have to seek official approval to do so. This worked fine for the existing airlines, because their profits were virtually guaranteed–if you wanted to fly on certain routes, you didn’t have many options and you just had to pay whatever the price was–but it meant that it was very hard for any new routes to be added, new airlines to be created, or for real improvements to happen.
[00:05:36] In the late 1970s this all changed, for a few reasons.
[00:05:42] First off, an initiative was led by an economics professor named Alfred E. Kahn, who would later be given the nickname “The Father of Airline Deregulation”.
[00:05:55] He changed the legislation to do away with, to get rid of most of this regulation that he felt was stifling competition, that was getting in the way of competition.
[00:06:09] The result was that all of a sudden airlines could do what they wanted, within reason of course. They could open up new routes without government approval, they could change their prices, they could do whatever they wanted in order to attract customers and maximise profits.
[00:06:28] It also meant that it was far easier for new airlines to enter the market, offering new routes, new prices, and new services.
[00:06:38] As any good student of economics knows, when there is an increase in competition this typically results in lower prices for consumers.
[00:06:48] Deregulation meant that it was possible to find much cheaper tickets, especially for international routes.
[00:06:55] For example, a return flight from London to New York in 1970 cost the equivalent of almost €3,000. Today you can find tickets for around €300, about 10% of the cost.
[00:07:12] The second development was the arrival of the 747 aeroplane. It was simply a much bigger plane, taking up to 500 passengers. This meant that airlines could experiment with different seating classes, and they started adding more expensive seat types with more space, reclining seats, the seats that go back, and some even a lounge area with a piano!
[00:07:41] Airlines did invest into differentiating their ticket types, changing their aeroplanes to allow for first and business class areas.
[00:07:51] Although business and first class were the most profitable category of seats, as we’ll come to discuss in a minute, several airline history experts have suggested that the airlines didn’t fully commit to turning their new aeroplanes into first and business class paradises because they thought something else was coming, a new technological invention: Concorde.
[00:08:17] As a reminder, Concorde was a supersonic plane, a plane that could travel at over twice the speed of sound, meaning it could travel from London to New York in 3.5 hours, half what normal planes would do it in.
[00:08:34] The airlines thought that Concorde would become the new version of first class, that passengers who were currently travelling in First Class on a normal plane would soon switch to travelling in a Concorde.
[00:08:49] After all, the cost of a Concorde ticket could be less than the cost of a first class ticket on a normal flight, and if money were no object wouldn’t you rather get to your destination twice as fast than have a couple of extra glasses of champagne in the air?
[00:09:07] I know I certainly would.
[00:09:09] As we know, Concorde didn’t work out, and this caused these legacy airlines to rethink their premium offerings completely, as we’ll come to discuss in a minute.
[00:09:21] Another factor that disrupted the legacy airline carriers was the arrival of private jets.
[00:09:29] In fact, in the US at least private jets had really been in existence since after the Second World War, as military pilots and large amounts of fighter planes returned back home.
[00:09:43] Former military pilots would offer to fly these planes privately, and it was an alternative to travelling on a commercial flight, especially going to and from less popular destinations.
[00:09:57] In the early days, these weren’t particularly comfortable but in the 1960s private jet companies realised that they could cater for a time-poor and cash-rich traveller.
[00:10:11] If you didn’t want to go through a normal airport, and you wanted to be able to go anywhere at any time of day, well, a private jet was an option. Many large businesses bought their own jets, and companies sprung up that would offer seats on private jets.
[00:10:31] The growth of the private jet industry put a limit on how much a commercial airline could charge for its business and first class tickets. If it was too much then it wouldn’t be competitive against the option of hiring or even buying a private jet.
[00:10:50] Now, moving on to a very different type of passenger, the 1970s and 1980s also saw the arrival of the so-called “low cost airlines”, starting with SouthWest in the United States and followed by companies such as Ryanair and EasyJet in Europe after EU deregulation in 1992, as well as others such as AirAsia in southeast Asia.
[00:11:19] These companies realised that what people really wanted from a flight was to get from one place to another, and the extra cost that came from providing things like free drinks, being able to choose your seat, free bags, and so on, the cost of all of this outweighed the value of it.
[00:11:41] In other words, people would rather pay less for their ticket and have a more basic experience than pay more and have included baggage, check-in, on-board drinks and so on.
[00:11:55] So, these low-cost carriers looked at all of the costs that went into transporting someone from A to B and gradually stopped including them in the cost of the ticket.
[00:12:07] In terms of things that a customer would see, as I’m sure you know, with Ryanair for example you have to pay extra to take luggage, to choose your seat, for any food or drink on board, to print your boarding pass, even to get an SMS confirmation of your flight details.
[00:12:26] The CEO of Ryanair has even publicly joked about charging passengers to use the toilets onboard the aeroplane.
[00:12:36] And in terms of things that we, customers, don’t see, Ryanair’s behind the scenes cost-cutting is extensive.
[00:12:45] It only buys one type of plane, the Boeing 737-800, and it buys this plane in large quantities, which leads to discounts on the price. It means the planes can be customised to be very basic so they rarely need to be repaired, and it means staff don’t need to be trained on how to operate different types of plane.
[00:13:10] Ryanair and all of these other budget air carriers, these low cost air carriers also negotiate hard with airports for favourable prices to land and take-off, essentially telling an airport that they will bring millions of passengers through the doors, all of whom will spend money in the airport and create jobs in the local area.
[00:13:34] Anyone who has taken a Ryanair flight and arrived at “London” Luton or the Paris “Vatry” airport will have found out the hard way that the airline also saves money by using airports that are generally further away from the city. From Paris Vatry airport it takes a similar time to drive to the centre of Paris as it would take you to drive to the Belgian, Luxembourg and even German border!
[00:14:03] There are all sorts of other reasons that low-cost airlines cut costs that we, as consumers, are often unaware of: they often hire staff on short term contracts, meaning their employment costs are lower, they don’t do transit flights, so they don’t need infrastructure on the ground, they turn around their planes more quickly, so they aren’t sitting on the tarmac doing nothing, they have much fewer staff to every passenger, and they are better at selling their tickets directly to consumers, so they don’t have to pay agency fees or commissions.
[00:14:42] Now, that is a very brief summary of how we have got to where we are today, but now let’s delve into the actual numbers of how airlines work.
[00:14:53] The easiest way to think about this is by splitting airlines into two categories: the legacy carriers, which are the older, more established airlines, which normally offer higher levels of service and more expensive tickets.
[00:15:09] By this I mean carriers such as British Airways, Air France, Iberia, KLM, and so on.
[00:15:17] And the low-cost carriers, companies that offer what’s called “no frills”, cheap tickets with nothing extra included in the price.
[00:15:27] Companies like Ryanair, EasyJet, Norwegian Air, and so on.
[00:15:33] So, firstly, the legacy carriers.
[00:15:36] The interesting point to note here is that many of these carriers still offer the luxury options of the 1950s and 60s, and really it is exactly the same type of people who are buying the luxury, premium, tickets as those who travelled in the “normal”, or tourist or business, class tickets of 50 or 60 years ago.
[00:16:00] The only addition is of an “economy” class, of the type of person like me and perhaps like you who is prepared to save money on the cost of their flight by opting for a slightly less comfortable experience.
[00:16:17] So, the legacy carriers, companies such as British Airways, are split into sometimes up to 4 different classes on a plane: Economy, Premium Economy, Business and First.
[00:16:32] Where it gets really interesting is what this actually means in terms of where the airlines make money.
[00:16:40] Despite the majority of passengers on an airline travelling in economy class, on the cheapest ticket, these passengers typically represent a minority of the revenue, less than 50% of the cost of the tickets.
[00:16:58] Airlines don’t often release the breakdowns of where all of their revenue comes from, but some estimates have up to two-thirds of the money a legacy airline makes coming from the premium tickets.
[00:17:13] Tickets for business and first class can be ten times more expensive than economy, and in the case of long-haul flights this can be thousands if not tens of thousands of Euros. The cost to deliver that premium service might be a few hundred Euros more, so it’s with these premium ticket offerings that these legacy carriers can really make their money, make their profits.
[00:17:41] If you’re interested in this, there’s an amazing video on YouTube called “The Economics of Airline Class”.
[00:17:48] Now, let’s move onto the low-cost carriers, because the way they operate is very different.
[00:17:55] And just because their tickets might be cheap, it certainly doesn’t mean that they aren’t able to be incredibly profitable. Ryanair, for example, is one of the most profitable airlines in the world, despite selling tickets that are alarmingly cheap.
[00:18:12] Well, as anyone who has flown Ryanair before, they might look alarmingly cheap before you actually buy them, but if you want to do anything more than travel from A to B, such as sit next to your friend or take a bag, the costs start to rack up.
[00:18:32] Indeed, Ryanair makes an average of just under €15 per passenger on these extra charges, which is around 7 million Euros a day, and makes up around 35% of its total revenue. And a lot of this is pure profit - it costs fractions of a penny to send a text message, for example, and a passenger pays €3 to receive it.
[00:18:59] Combined with cutting costs on planes, training, and staff, this has meant that Ryanair is an incredibly profitable organisation, despite selling cut-price tickets.
[00:19:12] Now, let’s take a minute to reflect on the lie of the land today, and what we might see in the future.
[00:19:20] In the one corner there are the legacy carriers which cater to both the premium traveller and the cost-conscious traveller. For a hefty fee, for a lot of money, you can travel in luxury, and for a more reasonable price you can simply get from A to B.
[00:19:38] The premium travellers might make up the lion’s share of the profits, but there is a cap on how much airlines can charge for this, given that another option for the wealthiest of travellers is to go by private jet.
[00:19:54] In the other corner there are the low-cost carriers, companies that cater for people who simply want to go from A to B and will choose the cheapest option, people for whom flying is simply a commodity.
[00:20:09] These low-cost carriers have opened up flying to the average person, and made international and long-distance travel an option that simply was too expensive 50 years ago.
[00:20:22] We’ll touch on some of the problems that have come with this in a minute, but low-cost flight has been a great equaliser in terms of who is able to travel - it is no longer the preserve of the rich; anyone can fly, at least anyone in the developed world.
[00:20:41] The one thing that unites the legacy carriers and the low cost carriers is that they have become incredibly efficient at making as much money from each flight as possible.
[00:20:53] Their approach to this is, of course, vastly different.
[00:20:56] For low-cost carriers like Ryanair, they simply want to get as many people onto the plane as possible, which is why you can find tickets for even 5 or 10 Euros. It knows exactly how much it can charge on each route at each time, so it has become incredibly efficient at filling its planes.
[00:21:18] That’s why, by the way, it can claim to be “environmentally friendly”, because on a per person basis Ryanair flights typically burn less fuel than most other airline carriers.
[00:21:32] Now, when it comes to the legacy carriers, they aren’t always so concerned about filling every seat, especially the most expensive ones. Historically they would sell very few First class tickets, and instead would upgrade loyal travellers from Business class to First class, thus making them more loyal and likely to book again, especially if their company was paying.
[00:21:59] Most airlines have got better at selling their more expensive tickets, knowing what is the most that they can charge for a ticket before it becomes uncompetitive, but still keeping them priced sufficiently high that they are aspirational, and that people want to continue to fly with that airline to collect loyalty points and hopefully, one day, be upgraded to first class.
[00:22:25] Of course, both legacy and low-cost carriers alike were blindsided, they were hit hard by COVID, as flights were grounded. People simply couldn’t travel, and airlines had to look to the government for bailouts.
[00:22:40] While analysts suggest that the low-cost operators will recover more quickly, given that they have a more healthy cost structure and they are less reliant on business travellers, the future isn’t bright for many of the legacy carriers, and many have already gone bankrupt.
[00:22:59] They rely heavily on business travellers, their most profitable customer segment, and COVID has shown that a lot of business travel was simply unnecessary, or not nearly as necessary as people had believed it to be.
[00:23:15] There are serious question marks about if at all the business travel segment will recover to pre-COVID levels, as people have realised that they can save a lot of time and money by simply having a virtual meeting rather than jumping on an aeroplane.
[00:23:34] Now, it would be negligent to not mention some of the negative consequences that have come from the mass availability of commercial flight, the greatest of which is of course its impact on global warming.
[00:23:47] Approximately 2.4% of all global emissions come from aeroplanes.
[00:23:53] Although this might sound like a small amount, flying frequently is one of the individual largest contributors to someone’s carbon footprint.
[00:24:03] A return flight from London to San Francisco on economy is responsible for 5.5 tonnes of CO2. That's more than twice the emissions produced by driving a petrol-powered car every year, you would save an equivalent amount of CO2 by recycling for 25 years or switching to a meat-free diet for almost 7 years.
[00:24:28] You might be thinking - surely if the emissions are so large, is it really only 2.4%? Well, yes it is, and this is because it’s estimated that less than 20% of the world’s population has ever been on an aeroplane.
[00:24:45] And talking specifically in terms of the cost of flying and the economics of air travel, the worrying factor is that the most profitable customers, those travelling in First and Business class, are the largest emitters of CO2. Because the seats, and often even full beds, in First and Business class can take up to 7 times as much space as those in Economy, the carbon footprint of those tickets is seven times more.
[00:25:17] To help you visualise this, with our example of the return flight from London to San Francisco, the carbon footprint of that one flight in First Class would be the same as what you would save by eating a meat-free diet for almost 50 years!
[00:25:36] So, what’s next for air travel?
[00:25:39] Obviously that is the billion, or probably even trillion dollar question. While there have been significant improvements in fuel efficiency, the reality is that we power aeroplanes in a similar way to how we always have - with large amounts of fossil fuels - and that doesn’t look like it is going to change that much in the near future.
[00:26:02] And the airlines have two main ways of making money.
[00:26:06] Either they offer premium service to high-paying customers, meaning the aeroplanes are relatively empty, or they fill their aeroplanes with as many people as possible, enticing passengers with low ticket prices, so that more and more people decide to take planes as a mode of transportation.
[00:26:28] Neither of which bodes well for the planet.
[00:26:31] There are all sorts of political and economic options that have been proposed, such as increased taxes on tickets that would go towards green initiatives, but if that happens then the cost of flying will go up, meaning a retreat to the days where it was a luxury that only the richest in society could afford.
[00:26:52] Perhaps this is the price that is needed to be paid for a sustainable future, but it would cause huge disruption to the travel and tourism industries that have grown dependent on flying being something available to all.
[00:27:08] For the time being at least, there seems to be little that will stop the growth of air travel, and for as long as tickets are cheap and exotic new destinations are only a short trip away, then there is not much that will stop passengers from travelling, and the airline companies making a lot of money in the process.
[00:27:30] OK then, that is it for today's episode on the cost of flying and how airlines make their money.
[00:27:37] I hope it's been an interesting one, that you've learnt something new, and whether you are a frequent flier, either on one of the legacy carriers or on a low-cost carrier, or you’ve never been on an aeroplane in your life then it’s made you think about air travel in a slightly different way.
[00:27:56] As always, I would love to know what you thought of this episode.
[00:27:59] What do you think the future holds for the airline industry?
[00:28:03] Were you surprised by how much money airline companies make from their first class tickets?
[00:28:09] If you have flown on Ryanair or one of the other low-cost airlines, do you love or loathe them?
[00:28:17] I would love to know, so let’s get the discussion started.
[00:28:20] The place for that is our community forum, which is at community.leonardoenglish.com.
[00:28:26] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:28:32] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:22] I'm Alastair Budge, and today we are going to be talking about the cost of flying and the economics of air travel.
[00:00:31] Air travel is something that has gone from being a luxury available only to the richest in society to something that, at least in most parts of the developed world, is available to everyone.
[00:00:45] This all happened over the space of less than 100 years. The first commercial flight happened in 1914. It cost today’s equivalent of thousands of dollars and less than a century later it was possible to buy a ticket on an aeroplane for less than 5 euros.
[00:01:04] So, how did this all happen, when and why did flying become so cheap, and how do airline companies actually make money, and how has this changed over time?
[00:01:17] We have a lot to get through in today’s episode, so let’s get started right away.
[00:01:24] On December 17th of 1903, the Wright brothers, Wilbur and Orville, of Dayton, Ohio, became the first people to ever successfully fly a powered aeroplane.
[00:01:38] It wasn’t fast - it only went at around 50km per hour - and it wasn’t long - it only lasted 12 seconds, but it did make history.
[00:01:51] The potential use of the aeroplane was immediately obvious. It means you can go anywhere without relying on a road or rail network. You can go over seas, mountains, across rivers. You can transport people, goods, letters, anything.
[00:02:09] Although commercial passenger flight got started in the 1920s, for several decades it remained the preserve of only the richest in society.
[00:02:21] Put simply, flying was a luxury.
[00:02:24] The experience itself was a luxury, but the service on board was also premium.
[00:02:31] Passengers would have received equivalent service to what you might get in a fancy restaurant, with drinks and food being served to you.
[00:02:41] It wouldn’t have been particularly comfortable, given that the planes travelled at a much lower altitude and therefore there would have been a lot more turbulence, the plane would have moved up and down a lot, but perhaps the freely available alcohol would have helped the passengers manage this.
[00:03:02] As technology advanced, aeroplanes became larger and more comfortable, flight distances were increased, and as we get to the 1940s and 1950s it became the real heyday of glamorous commercial flying. It was the era of Pan Am, the “golden age of flight”.
[00:03:24] It was still expensive, and flights were rarely full.
[00:03:29] Passengers were a mix of individual and business travellers.
[00:03:34] There were only two classes of ticket: tourist class and business class. Tourist class, as you might expect, was slightly cheaper.
[00:03:44] But there was no difference in experience once you were on the plane.
[00:03:49] The difference was about how flexible the tickets were.
[00:03:54] Tourist class tickets weren’t flexible at all. They were for a fixed date in the future. If you’re going on holiday, you normally choose a date, and it doesn’t tend to change, so tourists don’t really need flexibility.
[00:04:10] Business class tickets, on the other hand, were more flexible. You could simply arrive at the airport at the last minute and book a ticket, or you could book a ticket that could be used on different flights, both of which were useful for business travellers who might be called to a last-minute meeting.
[00:04:30] Airlines realised that they could charge more for this, and given that it was the company paying, not the individual, the individual passenger wouldn’t care so much about the price being higher.
[00:04:44] The airline industry was also a highly regulated industry, especially in the US, because flight was considered to be a public good, similar to the railways. This meant that routes, fares, and schedules were all regulated by the government.
[00:05:02] If an airline wanted to add a new route or change its price, it would have to seek official approval to do so. This worked fine for the existing airlines, because their profits were virtually guaranteed–if you wanted to fly on certain routes, you didn’t have many options and you just had to pay whatever the price was–but it meant that it was very hard for any new routes to be added, new airlines to be created, or for real improvements to happen.
[00:05:36] In the late 1970s this all changed, for a few reasons.
[00:05:42] First off, an initiative was led by an economics professor named Alfred E. Kahn, who would later be given the nickname “The Father of Airline Deregulation”.
[00:05:55] He changed the legislation to do away with, to get rid of most of this regulation that he felt was stifling competition, that was getting in the way of competition.
[00:06:09] The result was that all of a sudden airlines could do what they wanted, within reason of course. They could open up new routes without government approval, they could change their prices, they could do whatever they wanted in order to attract customers and maximise profits.
[00:06:28] It also meant that it was far easier for new airlines to enter the market, offering new routes, new prices, and new services.
[00:06:38] As any good student of economics knows, when there is an increase in competition this typically results in lower prices for consumers.
[00:06:48] Deregulation meant that it was possible to find much cheaper tickets, especially for international routes.
[00:06:55] For example, a return flight from London to New York in 1970 cost the equivalent of almost €3,000. Today you can find tickets for around €300, about 10% of the cost.
[00:07:12] The second development was the arrival of the 747 aeroplane. It was simply a much bigger plane, taking up to 500 passengers. This meant that airlines could experiment with different seating classes, and they started adding more expensive seat types with more space, reclining seats, the seats that go back, and some even a lounge area with a piano!
[00:07:41] Airlines did invest into differentiating their ticket types, changing their aeroplanes to allow for first and business class areas.
[00:07:51] Although business and first class were the most profitable category of seats, as we’ll come to discuss in a minute, several airline history experts have suggested that the airlines didn’t fully commit to turning their new aeroplanes into first and business class paradises because they thought something else was coming, a new technological invention: Concorde.
[00:08:17] As a reminder, Concorde was a supersonic plane, a plane that could travel at over twice the speed of sound, meaning it could travel from London to New York in 3.5 hours, half what normal planes would do it in.
[00:08:34] The airlines thought that Concorde would become the new version of first class, that passengers who were currently travelling in First Class on a normal plane would soon switch to travelling in a Concorde.
[00:08:49] After all, the cost of a Concorde ticket could be less than the cost of a first class ticket on a normal flight, and if money were no object wouldn’t you rather get to your destination twice as fast than have a couple of extra glasses of champagne in the air?
[00:09:07] I know I certainly would.
[00:09:09] As we know, Concorde didn’t work out, and this caused these legacy airlines to rethink their premium offerings completely, as we’ll come to discuss in a minute.
[00:09:21] Another factor that disrupted the legacy airline carriers was the arrival of private jets.
[00:09:29] In fact, in the US at least private jets had really been in existence since after the Second World War, as military pilots and large amounts of fighter planes returned back home.
[00:09:43] Former military pilots would offer to fly these planes privately, and it was an alternative to travelling on a commercial flight, especially going to and from less popular destinations.
[00:09:57] In the early days, these weren’t particularly comfortable but in the 1960s private jet companies realised that they could cater for a time-poor and cash-rich traveller.
[00:10:11] If you didn’t want to go through a normal airport, and you wanted to be able to go anywhere at any time of day, well, a private jet was an option. Many large businesses bought their own jets, and companies sprung up that would offer seats on private jets.
[00:10:31] The growth of the private jet industry put a limit on how much a commercial airline could charge for its business and first class tickets. If it was too much then it wouldn’t be competitive against the option of hiring or even buying a private jet.
[00:10:50] Now, moving on to a very different type of passenger, the 1970s and 1980s also saw the arrival of the so-called “low cost airlines”, starting with SouthWest in the United States and followed by companies such as Ryanair and EasyJet in Europe after EU deregulation in 1992, as well as others such as AirAsia in southeast Asia.
[00:11:19] These companies realised that what people really wanted from a flight was to get from one place to another, and the extra cost that came from providing things like free drinks, being able to choose your seat, free bags, and so on, the cost of all of this outweighed the value of it.
[00:11:41] In other words, people would rather pay less for their ticket and have a more basic experience than pay more and have included baggage, check-in, on-board drinks and so on.
[00:11:55] So, these low-cost carriers looked at all of the costs that went into transporting someone from A to B and gradually stopped including them in the cost of the ticket.
[00:12:07] In terms of things that a customer would see, as I’m sure you know, with Ryanair for example you have to pay extra to take luggage, to choose your seat, for any food or drink on board, to print your boarding pass, even to get an SMS confirmation of your flight details.
[00:12:26] The CEO of Ryanair has even publicly joked about charging passengers to use the toilets onboard the aeroplane.
[00:12:36] And in terms of things that we, customers, don’t see, Ryanair’s behind the scenes cost-cutting is extensive.
[00:12:45] It only buys one type of plane, the Boeing 737-800, and it buys this plane in large quantities, which leads to discounts on the price. It means the planes can be customised to be very basic so they rarely need to be repaired, and it means staff don’t need to be trained on how to operate different types of plane.
[00:13:10] Ryanair and all of these other budget air carriers, these low cost air carriers also negotiate hard with airports for favourable prices to land and take-off, essentially telling an airport that they will bring millions of passengers through the doors, all of whom will spend money in the airport and create jobs in the local area.
[00:13:34] Anyone who has taken a Ryanair flight and arrived at “London” Luton or the Paris “Vatry” airport will have found out the hard way that the airline also saves money by using airports that are generally further away from the city. From Paris Vatry airport it takes a similar time to drive to the centre of Paris as it would take you to drive to the Belgian, Luxembourg and even German border!
[00:14:03] There are all sorts of other reasons that low-cost airlines cut costs that we, as consumers, are often unaware of: they often hire staff on short term contracts, meaning their employment costs are lower, they don’t do transit flights, so they don’t need infrastructure on the ground, they turn around their planes more quickly, so they aren’t sitting on the tarmac doing nothing, they have much fewer staff to every passenger, and they are better at selling their tickets directly to consumers, so they don’t have to pay agency fees or commissions.
[00:14:42] Now, that is a very brief summary of how we have got to where we are today, but now let’s delve into the actual numbers of how airlines work.
[00:14:53] The easiest way to think about this is by splitting airlines into two categories: the legacy carriers, which are the older, more established airlines, which normally offer higher levels of service and more expensive tickets.
[00:15:09] By this I mean carriers such as British Airways, Air France, Iberia, KLM, and so on.
[00:15:17] And the low-cost carriers, companies that offer what’s called “no frills”, cheap tickets with nothing extra included in the price.
[00:15:27] Companies like Ryanair, EasyJet, Norwegian Air, and so on.
[00:15:33] So, firstly, the legacy carriers.
[00:15:36] The interesting point to note here is that many of these carriers still offer the luxury options of the 1950s and 60s, and really it is exactly the same type of people who are buying the luxury, premium, tickets as those who travelled in the “normal”, or tourist or business, class tickets of 50 or 60 years ago.
[00:16:00] The only addition is of an “economy” class, of the type of person like me and perhaps like you who is prepared to save money on the cost of their flight by opting for a slightly less comfortable experience.
[00:16:17] So, the legacy carriers, companies such as British Airways, are split into sometimes up to 4 different classes on a plane: Economy, Premium Economy, Business and First.
[00:16:32] Where it gets really interesting is what this actually means in terms of where the airlines make money.
[00:16:40] Despite the majority of passengers on an airline travelling in economy class, on the cheapest ticket, these passengers typically represent a minority of the revenue, less than 50% of the cost of the tickets.
[00:16:58] Airlines don’t often release the breakdowns of where all of their revenue comes from, but some estimates have up to two-thirds of the money a legacy airline makes coming from the premium tickets.
[00:17:13] Tickets for business and first class can be ten times more expensive than economy, and in the case of long-haul flights this can be thousands if not tens of thousands of Euros. The cost to deliver that premium service might be a few hundred Euros more, so it’s with these premium ticket offerings that these legacy carriers can really make their money, make their profits.
[00:17:41] If you’re interested in this, there’s an amazing video on YouTube called “The Economics of Airline Class”.
[00:17:48] Now, let’s move onto the low-cost carriers, because the way they operate is very different.
[00:17:55] And just because their tickets might be cheap, it certainly doesn’t mean that they aren’t able to be incredibly profitable. Ryanair, for example, is one of the most profitable airlines in the world, despite selling tickets that are alarmingly cheap.
[00:18:12] Well, as anyone who has flown Ryanair before, they might look alarmingly cheap before you actually buy them, but if you want to do anything more than travel from A to B, such as sit next to your friend or take a bag, the costs start to rack up.
[00:18:32] Indeed, Ryanair makes an average of just under €15 per passenger on these extra charges, which is around 7 million Euros a day, and makes up around 35% of its total revenue. And a lot of this is pure profit - it costs fractions of a penny to send a text message, for example, and a passenger pays €3 to receive it.
[00:18:59] Combined with cutting costs on planes, training, and staff, this has meant that Ryanair is an incredibly profitable organisation, despite selling cut-price tickets.
[00:19:12] Now, let’s take a minute to reflect on the lie of the land today, and what we might see in the future.
[00:19:20] In the one corner there are the legacy carriers which cater to both the premium traveller and the cost-conscious traveller. For a hefty fee, for a lot of money, you can travel in luxury, and for a more reasonable price you can simply get from A to B.
[00:19:38] The premium travellers might make up the lion’s share of the profits, but there is a cap on how much airlines can charge for this, given that another option for the wealthiest of travellers is to go by private jet.
[00:19:54] In the other corner there are the low-cost carriers, companies that cater for people who simply want to go from A to B and will choose the cheapest option, people for whom flying is simply a commodity.
[00:20:09] These low-cost carriers have opened up flying to the average person, and made international and long-distance travel an option that simply was too expensive 50 years ago.
[00:20:22] We’ll touch on some of the problems that have come with this in a minute, but low-cost flight has been a great equaliser in terms of who is able to travel - it is no longer the preserve of the rich; anyone can fly, at least anyone in the developed world.
[00:20:41] The one thing that unites the legacy carriers and the low cost carriers is that they have become incredibly efficient at making as much money from each flight as possible.
[00:20:53] Their approach to this is, of course, vastly different.
[00:20:56] For low-cost carriers like Ryanair, they simply want to get as many people onto the plane as possible, which is why you can find tickets for even 5 or 10 Euros. It knows exactly how much it can charge on each route at each time, so it has become incredibly efficient at filling its planes.
[00:21:18] That’s why, by the way, it can claim to be “environmentally friendly”, because on a per person basis Ryanair flights typically burn less fuel than most other airline carriers.
[00:21:32] Now, when it comes to the legacy carriers, they aren’t always so concerned about filling every seat, especially the most expensive ones. Historically they would sell very few First class tickets, and instead would upgrade loyal travellers from Business class to First class, thus making them more loyal and likely to book again, especially if their company was paying.
[00:21:59] Most airlines have got better at selling their more expensive tickets, knowing what is the most that they can charge for a ticket before it becomes uncompetitive, but still keeping them priced sufficiently high that they are aspirational, and that people want to continue to fly with that airline to collect loyalty points and hopefully, one day, be upgraded to first class.
[00:22:25] Of course, both legacy and low-cost carriers alike were blindsided, they were hit hard by COVID, as flights were grounded. People simply couldn’t travel, and airlines had to look to the government for bailouts.
[00:22:40] While analysts suggest that the low-cost operators will recover more quickly, given that they have a more healthy cost structure and they are less reliant on business travellers, the future isn’t bright for many of the legacy carriers, and many have already gone bankrupt.
[00:22:59] They rely heavily on business travellers, their most profitable customer segment, and COVID has shown that a lot of business travel was simply unnecessary, or not nearly as necessary as people had believed it to be.
[00:23:15] There are serious question marks about if at all the business travel segment will recover to pre-COVID levels, as people have realised that they can save a lot of time and money by simply having a virtual meeting rather than jumping on an aeroplane.
[00:23:34] Now, it would be negligent to not mention some of the negative consequences that have come from the mass availability of commercial flight, the greatest of which is of course its impact on global warming.
[00:23:47] Approximately 2.4% of all global emissions come from aeroplanes.
[00:23:53] Although this might sound like a small amount, flying frequently is one of the individual largest contributors to someone’s carbon footprint.
[00:24:03] A return flight from London to San Francisco on economy is responsible for 5.5 tonnes of CO2. That's more than twice the emissions produced by driving a petrol-powered car every year, you would save an equivalent amount of CO2 by recycling for 25 years or switching to a meat-free diet for almost 7 years.
[00:24:28] You might be thinking - surely if the emissions are so large, is it really only 2.4%? Well, yes it is, and this is because it’s estimated that less than 20% of the world’s population has ever been on an aeroplane.
[00:24:45] And talking specifically in terms of the cost of flying and the economics of air travel, the worrying factor is that the most profitable customers, those travelling in First and Business class, are the largest emitters of CO2. Because the seats, and often even full beds, in First and Business class can take up to 7 times as much space as those in Economy, the carbon footprint of those tickets is seven times more.
[00:25:17] To help you visualise this, with our example of the return flight from London to San Francisco, the carbon footprint of that one flight in First Class would be the same as what you would save by eating a meat-free diet for almost 50 years!
[00:25:36] So, what’s next for air travel?
[00:25:39] Obviously that is the billion, or probably even trillion dollar question. While there have been significant improvements in fuel efficiency, the reality is that we power aeroplanes in a similar way to how we always have - with large amounts of fossil fuels - and that doesn’t look like it is going to change that much in the near future.
[00:26:02] And the airlines have two main ways of making money.
[00:26:06] Either they offer premium service to high-paying customers, meaning the aeroplanes are relatively empty, or they fill their aeroplanes with as many people as possible, enticing passengers with low ticket prices, so that more and more people decide to take planes as a mode of transportation.
[00:26:28] Neither of which bodes well for the planet.
[00:26:31] There are all sorts of political and economic options that have been proposed, such as increased taxes on tickets that would go towards green initiatives, but if that happens then the cost of flying will go up, meaning a retreat to the days where it was a luxury that only the richest in society could afford.
[00:26:52] Perhaps this is the price that is needed to be paid for a sustainable future, but it would cause huge disruption to the travel and tourism industries that have grown dependent on flying being something available to all.
[00:27:08] For the time being at least, there seems to be little that will stop the growth of air travel, and for as long as tickets are cheap and exotic new destinations are only a short trip away, then there is not much that will stop passengers from travelling, and the airline companies making a lot of money in the process.
[00:27:30] OK then, that is it for today's episode on the cost of flying and how airlines make their money.
[00:27:37] I hope it's been an interesting one, that you've learnt something new, and whether you are a frequent flier, either on one of the legacy carriers or on a low-cost carrier, or you’ve never been on an aeroplane in your life then it’s made you think about air travel in a slightly different way.
[00:27:56] As always, I would love to know what you thought of this episode.
[00:27:59] What do you think the future holds for the airline industry?
[00:28:03] Were you surprised by how much money airline companies make from their first class tickets?
[00:28:09] If you have flown on Ryanair or one of the other low-cost airlines, do you love or loathe them?
[00:28:17] I would love to know, so let’s get the discussion started.
[00:28:20] The place for that is our community forum, which is at community.leonardoenglish.com.
[00:28:26] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:28:32] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:22] I'm Alastair Budge, and today we are going to be talking about the cost of flying and the economics of air travel.
[00:00:31] Air travel is something that has gone from being a luxury available only to the richest in society to something that, at least in most parts of the developed world, is available to everyone.
[00:00:45] This all happened over the space of less than 100 years. The first commercial flight happened in 1914. It cost today’s equivalent of thousands of dollars and less than a century later it was possible to buy a ticket on an aeroplane for less than 5 euros.
[00:01:04] So, how did this all happen, when and why did flying become so cheap, and how do airline companies actually make money, and how has this changed over time?
[00:01:17] We have a lot to get through in today’s episode, so let’s get started right away.
[00:01:24] On December 17th of 1903, the Wright brothers, Wilbur and Orville, of Dayton, Ohio, became the first people to ever successfully fly a powered aeroplane.
[00:01:38] It wasn’t fast - it only went at around 50km per hour - and it wasn’t long - it only lasted 12 seconds, but it did make history.
[00:01:51] The potential use of the aeroplane was immediately obvious. It means you can go anywhere without relying on a road or rail network. You can go over seas, mountains, across rivers. You can transport people, goods, letters, anything.
[00:02:09] Although commercial passenger flight got started in the 1920s, for several decades it remained the preserve of only the richest in society.
[00:02:21] Put simply, flying was a luxury.
[00:02:24] The experience itself was a luxury, but the service on board was also premium.
[00:02:31] Passengers would have received equivalent service to what you might get in a fancy restaurant, with drinks and food being served to you.
[00:02:41] It wouldn’t have been particularly comfortable, given that the planes travelled at a much lower altitude and therefore there would have been a lot more turbulence, the plane would have moved up and down a lot, but perhaps the freely available alcohol would have helped the passengers manage this.
[00:03:02] As technology advanced, aeroplanes became larger and more comfortable, flight distances were increased, and as we get to the 1940s and 1950s it became the real heyday of glamorous commercial flying. It was the era of Pan Am, the “golden age of flight”.
[00:03:24] It was still expensive, and flights were rarely full.
[00:03:29] Passengers were a mix of individual and business travellers.
[00:03:34] There were only two classes of ticket: tourist class and business class. Tourist class, as you might expect, was slightly cheaper.
[00:03:44] But there was no difference in experience once you were on the plane.
[00:03:49] The difference was about how flexible the tickets were.
[00:03:54] Tourist class tickets weren’t flexible at all. They were for a fixed date in the future. If you’re going on holiday, you normally choose a date, and it doesn’t tend to change, so tourists don’t really need flexibility.
[00:04:10] Business class tickets, on the other hand, were more flexible. You could simply arrive at the airport at the last minute and book a ticket, or you could book a ticket that could be used on different flights, both of which were useful for business travellers who might be called to a last-minute meeting.
[00:04:30] Airlines realised that they could charge more for this, and given that it was the company paying, not the individual, the individual passenger wouldn’t care so much about the price being higher.
[00:04:44] The airline industry was also a highly regulated industry, especially in the US, because flight was considered to be a public good, similar to the railways. This meant that routes, fares, and schedules were all regulated by the government.
[00:05:02] If an airline wanted to add a new route or change its price, it would have to seek official approval to do so. This worked fine for the existing airlines, because their profits were virtually guaranteed–if you wanted to fly on certain routes, you didn’t have many options and you just had to pay whatever the price was–but it meant that it was very hard for any new routes to be added, new airlines to be created, or for real improvements to happen.
[00:05:36] In the late 1970s this all changed, for a few reasons.
[00:05:42] First off, an initiative was led by an economics professor named Alfred E. Kahn, who would later be given the nickname “The Father of Airline Deregulation”.
[00:05:55] He changed the legislation to do away with, to get rid of most of this regulation that he felt was stifling competition, that was getting in the way of competition.
[00:06:09] The result was that all of a sudden airlines could do what they wanted, within reason of course. They could open up new routes without government approval, they could change their prices, they could do whatever they wanted in order to attract customers and maximise profits.
[00:06:28] It also meant that it was far easier for new airlines to enter the market, offering new routes, new prices, and new services.
[00:06:38] As any good student of economics knows, when there is an increase in competition this typically results in lower prices for consumers.
[00:06:48] Deregulation meant that it was possible to find much cheaper tickets, especially for international routes.
[00:06:55] For example, a return flight from London to New York in 1970 cost the equivalent of almost €3,000. Today you can find tickets for around €300, about 10% of the cost.
[00:07:12] The second development was the arrival of the 747 aeroplane. It was simply a much bigger plane, taking up to 500 passengers. This meant that airlines could experiment with different seating classes, and they started adding more expensive seat types with more space, reclining seats, the seats that go back, and some even a lounge area with a piano!
[00:07:41] Airlines did invest into differentiating their ticket types, changing their aeroplanes to allow for first and business class areas.
[00:07:51] Although business and first class were the most profitable category of seats, as we’ll come to discuss in a minute, several airline history experts have suggested that the airlines didn’t fully commit to turning their new aeroplanes into first and business class paradises because they thought something else was coming, a new technological invention: Concorde.
[00:08:17] As a reminder, Concorde was a supersonic plane, a plane that could travel at over twice the speed of sound, meaning it could travel from London to New York in 3.5 hours, half what normal planes would do it in.
[00:08:34] The airlines thought that Concorde would become the new version of first class, that passengers who were currently travelling in First Class on a normal plane would soon switch to travelling in a Concorde.
[00:08:49] After all, the cost of a Concorde ticket could be less than the cost of a first class ticket on a normal flight, and if money were no object wouldn’t you rather get to your destination twice as fast than have a couple of extra glasses of champagne in the air?
[00:09:07] I know I certainly would.
[00:09:09] As we know, Concorde didn’t work out, and this caused these legacy airlines to rethink their premium offerings completely, as we’ll come to discuss in a minute.
[00:09:21] Another factor that disrupted the legacy airline carriers was the arrival of private jets.
[00:09:29] In fact, in the US at least private jets had really been in existence since after the Second World War, as military pilots and large amounts of fighter planes returned back home.
[00:09:43] Former military pilots would offer to fly these planes privately, and it was an alternative to travelling on a commercial flight, especially going to and from less popular destinations.
[00:09:57] In the early days, these weren’t particularly comfortable but in the 1960s private jet companies realised that they could cater for a time-poor and cash-rich traveller.
[00:10:11] If you didn’t want to go through a normal airport, and you wanted to be able to go anywhere at any time of day, well, a private jet was an option. Many large businesses bought their own jets, and companies sprung up that would offer seats on private jets.
[00:10:31] The growth of the private jet industry put a limit on how much a commercial airline could charge for its business and first class tickets. If it was too much then it wouldn’t be competitive against the option of hiring or even buying a private jet.
[00:10:50] Now, moving on to a very different type of passenger, the 1970s and 1980s also saw the arrival of the so-called “low cost airlines”, starting with SouthWest in the United States and followed by companies such as Ryanair and EasyJet in Europe after EU deregulation in 1992, as well as others such as AirAsia in southeast Asia.
[00:11:19] These companies realised that what people really wanted from a flight was to get from one place to another, and the extra cost that came from providing things like free drinks, being able to choose your seat, free bags, and so on, the cost of all of this outweighed the value of it.
[00:11:41] In other words, people would rather pay less for their ticket and have a more basic experience than pay more and have included baggage, check-in, on-board drinks and so on.
[00:11:55] So, these low-cost carriers looked at all of the costs that went into transporting someone from A to B and gradually stopped including them in the cost of the ticket.
[00:12:07] In terms of things that a customer would see, as I’m sure you know, with Ryanair for example you have to pay extra to take luggage, to choose your seat, for any food or drink on board, to print your boarding pass, even to get an SMS confirmation of your flight details.
[00:12:26] The CEO of Ryanair has even publicly joked about charging passengers to use the toilets onboard the aeroplane.
[00:12:36] And in terms of things that we, customers, don’t see, Ryanair’s behind the scenes cost-cutting is extensive.
[00:12:45] It only buys one type of plane, the Boeing 737-800, and it buys this plane in large quantities, which leads to discounts on the price. It means the planes can be customised to be very basic so they rarely need to be repaired, and it means staff don’t need to be trained on how to operate different types of plane.
[00:13:10] Ryanair and all of these other budget air carriers, these low cost air carriers also negotiate hard with airports for favourable prices to land and take-off, essentially telling an airport that they will bring millions of passengers through the doors, all of whom will spend money in the airport and create jobs in the local area.
[00:13:34] Anyone who has taken a Ryanair flight and arrived at “London” Luton or the Paris “Vatry” airport will have found out the hard way that the airline also saves money by using airports that are generally further away from the city. From Paris Vatry airport it takes a similar time to drive to the centre of Paris as it would take you to drive to the Belgian, Luxembourg and even German border!
[00:14:03] There are all sorts of other reasons that low-cost airlines cut costs that we, as consumers, are often unaware of: they often hire staff on short term contracts, meaning their employment costs are lower, they don’t do transit flights, so they don’t need infrastructure on the ground, they turn around their planes more quickly, so they aren’t sitting on the tarmac doing nothing, they have much fewer staff to every passenger, and they are better at selling their tickets directly to consumers, so they don’t have to pay agency fees or commissions.
[00:14:42] Now, that is a very brief summary of how we have got to where we are today, but now let’s delve into the actual numbers of how airlines work.
[00:14:53] The easiest way to think about this is by splitting airlines into two categories: the legacy carriers, which are the older, more established airlines, which normally offer higher levels of service and more expensive tickets.
[00:15:09] By this I mean carriers such as British Airways, Air France, Iberia, KLM, and so on.
[00:15:17] And the low-cost carriers, companies that offer what’s called “no frills”, cheap tickets with nothing extra included in the price.
[00:15:27] Companies like Ryanair, EasyJet, Norwegian Air, and so on.
[00:15:33] So, firstly, the legacy carriers.
[00:15:36] The interesting point to note here is that many of these carriers still offer the luxury options of the 1950s and 60s, and really it is exactly the same type of people who are buying the luxury, premium, tickets as those who travelled in the “normal”, or tourist or business, class tickets of 50 or 60 years ago.
[00:16:00] The only addition is of an “economy” class, of the type of person like me and perhaps like you who is prepared to save money on the cost of their flight by opting for a slightly less comfortable experience.
[00:16:17] So, the legacy carriers, companies such as British Airways, are split into sometimes up to 4 different classes on a plane: Economy, Premium Economy, Business and First.
[00:16:32] Where it gets really interesting is what this actually means in terms of where the airlines make money.
[00:16:40] Despite the majority of passengers on an airline travelling in economy class, on the cheapest ticket, these passengers typically represent a minority of the revenue, less than 50% of the cost of the tickets.
[00:16:58] Airlines don’t often release the breakdowns of where all of their revenue comes from, but some estimates have up to two-thirds of the money a legacy airline makes coming from the premium tickets.
[00:17:13] Tickets for business and first class can be ten times more expensive than economy, and in the case of long-haul flights this can be thousands if not tens of thousands of Euros. The cost to deliver that premium service might be a few hundred Euros more, so it’s with these premium ticket offerings that these legacy carriers can really make their money, make their profits.
[00:17:41] If you’re interested in this, there’s an amazing video on YouTube called “The Economics of Airline Class”.
[00:17:48] Now, let’s move onto the low-cost carriers, because the way they operate is very different.
[00:17:55] And just because their tickets might be cheap, it certainly doesn’t mean that they aren’t able to be incredibly profitable. Ryanair, for example, is one of the most profitable airlines in the world, despite selling tickets that are alarmingly cheap.
[00:18:12] Well, as anyone who has flown Ryanair before, they might look alarmingly cheap before you actually buy them, but if you want to do anything more than travel from A to B, such as sit next to your friend or take a bag, the costs start to rack up.
[00:18:32] Indeed, Ryanair makes an average of just under €15 per passenger on these extra charges, which is around 7 million Euros a day, and makes up around 35% of its total revenue. And a lot of this is pure profit - it costs fractions of a penny to send a text message, for example, and a passenger pays €3 to receive it.
[00:18:59] Combined with cutting costs on planes, training, and staff, this has meant that Ryanair is an incredibly profitable organisation, despite selling cut-price tickets.
[00:19:12] Now, let’s take a minute to reflect on the lie of the land today, and what we might see in the future.
[00:19:20] In the one corner there are the legacy carriers which cater to both the premium traveller and the cost-conscious traveller. For a hefty fee, for a lot of money, you can travel in luxury, and for a more reasonable price you can simply get from A to B.
[00:19:38] The premium travellers might make up the lion’s share of the profits, but there is a cap on how much airlines can charge for this, given that another option for the wealthiest of travellers is to go by private jet.
[00:19:54] In the other corner there are the low-cost carriers, companies that cater for people who simply want to go from A to B and will choose the cheapest option, people for whom flying is simply a commodity.
[00:20:09] These low-cost carriers have opened up flying to the average person, and made international and long-distance travel an option that simply was too expensive 50 years ago.
[00:20:22] We’ll touch on some of the problems that have come with this in a minute, but low-cost flight has been a great equaliser in terms of who is able to travel - it is no longer the preserve of the rich; anyone can fly, at least anyone in the developed world.
[00:20:41] The one thing that unites the legacy carriers and the low cost carriers is that they have become incredibly efficient at making as much money from each flight as possible.
[00:20:53] Their approach to this is, of course, vastly different.
[00:20:56] For low-cost carriers like Ryanair, they simply want to get as many people onto the plane as possible, which is why you can find tickets for even 5 or 10 Euros. It knows exactly how much it can charge on each route at each time, so it has become incredibly efficient at filling its planes.
[00:21:18] That’s why, by the way, it can claim to be “environmentally friendly”, because on a per person basis Ryanair flights typically burn less fuel than most other airline carriers.
[00:21:32] Now, when it comes to the legacy carriers, they aren’t always so concerned about filling every seat, especially the most expensive ones. Historically they would sell very few First class tickets, and instead would upgrade loyal travellers from Business class to First class, thus making them more loyal and likely to book again, especially if their company was paying.
[00:21:59] Most airlines have got better at selling their more expensive tickets, knowing what is the most that they can charge for a ticket before it becomes uncompetitive, but still keeping them priced sufficiently high that they are aspirational, and that people want to continue to fly with that airline to collect loyalty points and hopefully, one day, be upgraded to first class.
[00:22:25] Of course, both legacy and low-cost carriers alike were blindsided, they were hit hard by COVID, as flights were grounded. People simply couldn’t travel, and airlines had to look to the government for bailouts.
[00:22:40] While analysts suggest that the low-cost operators will recover more quickly, given that they have a more healthy cost structure and they are less reliant on business travellers, the future isn’t bright for many of the legacy carriers, and many have already gone bankrupt.
[00:22:59] They rely heavily on business travellers, their most profitable customer segment, and COVID has shown that a lot of business travel was simply unnecessary, or not nearly as necessary as people had believed it to be.
[00:23:15] There are serious question marks about if at all the business travel segment will recover to pre-COVID levels, as people have realised that they can save a lot of time and money by simply having a virtual meeting rather than jumping on an aeroplane.
[00:23:34] Now, it would be negligent to not mention some of the negative consequences that have come from the mass availability of commercial flight, the greatest of which is of course its impact on global warming.
[00:23:47] Approximately 2.4% of all global emissions come from aeroplanes.
[00:23:53] Although this might sound like a small amount, flying frequently is one of the individual largest contributors to someone’s carbon footprint.
[00:24:03] A return flight from London to San Francisco on economy is responsible for 5.5 tonnes of CO2. That's more than twice the emissions produced by driving a petrol-powered car every year, you would save an equivalent amount of CO2 by recycling for 25 years or switching to a meat-free diet for almost 7 years.
[00:24:28] You might be thinking - surely if the emissions are so large, is it really only 2.4%? Well, yes it is, and this is because it’s estimated that less than 20% of the world’s population has ever been on an aeroplane.
[00:24:45] And talking specifically in terms of the cost of flying and the economics of air travel, the worrying factor is that the most profitable customers, those travelling in First and Business class, are the largest emitters of CO2. Because the seats, and often even full beds, in First and Business class can take up to 7 times as much space as those in Economy, the carbon footprint of those tickets is seven times more.
[00:25:17] To help you visualise this, with our example of the return flight from London to San Francisco, the carbon footprint of that one flight in First Class would be the same as what you would save by eating a meat-free diet for almost 50 years!
[00:25:36] So, what’s next for air travel?
[00:25:39] Obviously that is the billion, or probably even trillion dollar question. While there have been significant improvements in fuel efficiency, the reality is that we power aeroplanes in a similar way to how we always have - with large amounts of fossil fuels - and that doesn’t look like it is going to change that much in the near future.
[00:26:02] And the airlines have two main ways of making money.
[00:26:06] Either they offer premium service to high-paying customers, meaning the aeroplanes are relatively empty, or they fill their aeroplanes with as many people as possible, enticing passengers with low ticket prices, so that more and more people decide to take planes as a mode of transportation.
[00:26:28] Neither of which bodes well for the planet.
[00:26:31] There are all sorts of political and economic options that have been proposed, such as increased taxes on tickets that would go towards green initiatives, but if that happens then the cost of flying will go up, meaning a retreat to the days where it was a luxury that only the richest in society could afford.
[00:26:52] Perhaps this is the price that is needed to be paid for a sustainable future, but it would cause huge disruption to the travel and tourism industries that have grown dependent on flying being something available to all.
[00:27:08] For the time being at least, there seems to be little that will stop the growth of air travel, and for as long as tickets are cheap and exotic new destinations are only a short trip away, then there is not much that will stop passengers from travelling, and the airline companies making a lot of money in the process.
[00:27:30] OK then, that is it for today's episode on the cost of flying and how airlines make their money.
[00:27:37] I hope it's been an interesting one, that you've learnt something new, and whether you are a frequent flier, either on one of the legacy carriers or on a low-cost carrier, or you’ve never been on an aeroplane in your life then it’s made you think about air travel in a slightly different way.
[00:27:56] As always, I would love to know what you thought of this episode.
[00:27:59] What do you think the future holds for the airline industry?
[00:28:03] Were you surprised by how much money airline companies make from their first class tickets?
[00:28:09] If you have flown on Ryanair or one of the other low-cost airlines, do you love or loathe them?
[00:28:17] I would love to know, so let’s get the discussion started.
[00:28:20] The place for that is our community forum, which is at community.leonardoenglish.com.
[00:28:26] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:28:32] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
