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Why airlines are always going bankrupt

72 points by bko

by bko

8 subcomments

> From its deregulation in 1978 to the end of 2025, the airline industry has cumulatively lost money: its net profit over those 47 years sits at negative $37 billion.
That was surprising. Goes against the idea that deregulation allows companies to squeeze consumers and earn excess profits. My understanding is that before regulation, routes were allotted by the government. So an airline might own New York to Boston, so they didn't have to compete. Obviously de-regulation changed that.
The article doesn't go into it, but unions are also a challenge. Much of the airline industry is unionized. So you have situations where pilots that have been there a while get a lot more money. You have people doing essentially the same job but some are getting paid 3x as much just because they've been there a long time. In most industries, there is higher pay for senior talent, but that's because they're more effective at their job, and produce higher output. In this case it's just a legacy cost that makes some airlines incredibly uncompetitive through structural features.
https://www.thrustflight.com/united-airlines-pilot-salary/

by fulafel

1 subcomments

These losses are peanuts compared to the externalities.
article:
> its net profit over those 47 years sits at negative $37 billion
EPA social cost of carbon: $190/ton [1]
US aviation annual emissions: 200 million tons/year
Global warming impact of aviation emissions is leveraged[3] 1.7x because burning it in upper atmosphere is worse.
cost: 190 x 200M * 1.7 = 64600M = or ~65 B / year.
And the articles calcualted loss was over the whole 47 years.
(The 190 per ton cost is for today, it's projected to go up as things get worse.)
[1] https://www.epa.gov/system/files/documents/2023-12/epa_scghg...
[2] https://www.eesi.org/articles/view/u.s-and-international-com...
[3] https://ourworldindata.org/global-aviation-emissions#non-co2...

by dwd

3 subcomments

Simply because flying passengers is a losing business.
The ones that make money operate as financial services from selling points to their partners via their frequent flyer programs.

by rayiner

1 subcomments

Fascinating article. One sentence jumped out to me:
> So Chapter 11 is a relief valve for airlines struggling under the weight of their fixed costs; but it doesn’t really do much to help the system as a whole
The American founders writing a uniform federal system of bankruptcy was a stroke of genius that's been paying dividends for 250 years now.

by nunez

2 subcomments

The more interesting question is why airlines go bankrupt in such spectacular fashion.
Every airline that goes belly up always does it with a bang. All flights cancelled, effective immediately. Stranded customers. Tens of thousands of jobs instantly lost. Every time.
It's not like startups or even established companies wherein the time of death takes forever to get to, despite EVERYONE knowing that the body is a corpse.
It's as hilarious as it is depressing.

by waswaswas

1 subcomments

It's a tough business. Capital intensive, operationally complex, commodity product, unionized workforce, highly regulated...

by aworks

2 subcomments

This argues airlines are undifferentiated. In the aggregate, maybe that's true. Personally, I have a long list of airlines I try to avoid flying.

by tyingq

0 subcomment

One thing it leaves out. For bankruptcies that result in reorganization rather than liquidation, it offers the airline an "out" on its many labor contracts. And freedom to renegotiate that contract with a lot of leverage. Labor is the highest cost they have, other than fuel.

by brightbed

0 subcomment

High fixed costs, lack of product differentiation, low marginal costs, and sharp economies of scale sound similar to AI companies.
I wonder if empty core will apply to the AI business.

by aanet

0 subcomment

Great post. Thanks for sharing.
I always wondered why airlines were always running bankrupt… Now I know.

by dartharva

1 subcomments

It might not be that significant of a cost all things considered, but I have always felt the peculiar existence of "professionally happy" cabin crew, in-flight meals, screens and other pointless "comforts" glaringly unnecessary in what's generally meant to be just 2-3 hours of sitting on an average for the passengers. You could just operate a plane like a dumb bus and save up on a lot of costs and turn it into competitive advantage.

by fragmede

0 subcomment

I submitted https://www.thebignewsletter.com/p/who-killed-spirit-airline... but it failed to get traction. tl,dr: Jetblue pulled some illegal moves, Trump's trip to Iran caused gas prices to go up, the big four legacy airlines did a thing, and regulators.

by fourthark

1 subcomments

Capitalism doesn't work for big infrastructure projects? Who knew?

by Mathnerd314

1 subcomments

Maybe we need Uber for airlines. Pilots don't lose their skills, passengers always have demand, the issue is that pricing is too predictable. You could see this with skiplagged, there really is room for fare pricing innovation. Start by capturing the private luxury market, work down to commodity.

by jmpman

2 subcomments

How much of this is related to the pilots union? It seems like they capture all excess profit in the system during the good times, and fight vigorously to keep their inflated earnings even during the bad times.