Tough airline business? An Austrian Airlines example.

Ongoing savings and headcount cut at my favorite Austrian Airlines (AA) let me dig into airlines route profitability from my outsider perspective. According to Austrian, short-haul flights are less profitable ("brutal" competition) than long haul ones. So I briefly researched, what might be the gross margin (GM) per rotation (flying to the destination and back) of AA flying to the East coast of the United States. According to CFO Wolfgang Jani it costs the organization 150 000 Euro (exclusive overheads), where 50 000 Euro is fuel, the ground handling is 14k Euro, catering 10k Euro and the rest other fees, staff-, plane related-, leasing- and other costs (source Aero International).

So calculate the GM let′s pick the average plane in their fleet flying the US East Coast, the Boeing 767. Its capacity is 211 seats (according to AA website) and the cheapest return ticket costs 400 Euro (2 months before flight according to Skyscanner) while the most expensive about 2500 Euro. Thus with the largest class - Economy seating (80% of the plane capacity) I would estimate the average price per seat at somewhere between 750-1000 Euro (including the price growth getting closer to departure date). So with simple calculation, we can get to 142 000 - 190 000 Euro revenue per rotation with estimated 90% plane occupancy. In the summer season, it is probably easier to achieve this 30-50 000 Euro gross margin (GM) on a rotation, while in winter more difficult, with a significant risk of slipping even into a loss.

With that, it is also easy to calculate, that 710 Euro per seat is the break-even point to sell, which, in the current competition is a challenging point to achieve especially in less traveling suitable winter season. GM might be better by using the larger 777, obviously with expected same 90% occupancy, but it can bring additional challenges to fill the cabin. That is why the preference for the larger plane is depending on the destination attractiveness, marketing spends, market size and also, on the competition.

So even if stated in the article that long haul is a better business for Austrian its GM can get as low at to 10% (still excl. Overheads) and might be very volatile in time with quite significant risks, since there is no subscription business included (except Miles and more points earning) and you can forecast the future only based on past performance and the way how the plane is being filled over time towards departure date.

Anyway, I wish good luck to Austrian Airlines board members in your fight for the customer and please don′t forget, that adding Customer Experience Value in long-haul improves the perceived value and thus willingness to pay more.

Comment: should there be someone in my network to conirm, adjust or comment the validity of my calculations, feel free to add to comments or drop a note through direct message.