How Airlines Make Money? | How to get Cheapest Tickets? | Case Study | Dhruv Rathee

Hello, friends! An average flight ticket in economy class costs around ₹5,000 to go from Delhi to Mumbai. But can you guess how expensive is the most expensive flight ticket in the world? You might think it's ₹500,000, ₹1 million or ₹2 million. But you'll still be far from the answer. Look at Etihad Airways' first class seat, the Residence. This seat is more like a hotel room in an airplane. You get a queen-sized double bed to sleep in. Along with that, you get a private bathroom. And a separ

ate sitting area. This seat isn't available on every Etihad Airways flight. It is available only on a few flight routes. Like the flight from New York to Abu Dhabi. In this 12.5-hour flight, you get your own butler. While serving food, it is garnished and served in a way that you forget that you are sitting in an aeroplane. The total area of 125 sq. ft. will be available only for your private use. It is almost as big as a hotel room. That's why they have named it The Residence. And it costs ₹5.

5 million for one flight. You can buy more than 50 iPhone 15 with this amount, or a very luxurious car, or even a house at this price in many places. If you're shocked, you should know about the opposite example. It'll be equally shocking. Can you guess how cheap is the cheapest flight ticket? This is a European airline called Ryanair, they are known for their cheap flight tickets. On average, Ryanair's tickets are priced between ₹800-₹1,500. And this price is unbelievably cheap because we shou

ld also take into account that the per capita income of European countries is higher. So the buying power of the people is higher there. If it were to be equivalent in India, then divide it by 5. Imagine buying a flight ticket for ₹100-₹200. Ryanair and Etihad Airways are the extreme examples when compared to each other. But now I want you to guess one last thing. Think about it. Which of these two airlines is making more profit? The right answer is Ryanair. In the year 2022, Etihad recorded its

highest-ever profit of $296 million. In the same year, Ryanair's profit was $1.5 billion. How is this possible? How do airlines make money? What is the secret behind their business model? And what tricks should you use to get the cheapest flight tickets? Let's find out the answer to these in this video. In general, there are two types of airlines. First, Full-Service airlines and the second, the Low-Cost airlines. Full-Service airlines are the traditional airlines where you get in-flight food,

and in-flight entertainment, the price of the ticket includes baggage check-in. And there is good enough seat space. Etihad Airways, Emirates, and Singapore Airlines are some examples of Full-Service airlines. In India, Air India and Vistara fall in this category. On the other hand, there are Low-Cost airlines where you are offered cheap tickets but in return, you lose out on a lot of facilities. In India, there used to be an airline called Air Deccan it was India's first Low-Cost airline. Today

, SpiceJet and IndiGo are good examples of this. And internationally, of course, Ryanair is a good example of this. Often the cost-cutting measures adopted by these low-cost airlines draw a lot of hate. You might remember this video from IndiGo which went viral a few months ago. A passenger was so fed up with the flight delay that he started hitting the pilot. Another case was where cockroaches were found inside the flight. Mismanagement is a different issue, but often these low-cost airlines d

o a lot of crazy things to keep themselves profitable. Take Ryanair as an example. The original ticket price is very cheap. But once you buy the ticket, if you need any extra service, you will be charged extra for every little thing. If you have baggage with you you need to pay extra. If you want to select your seat on the plane, you need to pay extra. If you want food or drinks on the flight, pay extra. If you want to use your credit card while booking the ticket online, you would have to pay

extra. If you don't check in online before reaching the airport, you would have to pay extra. Ryanair's CEO Michael O'Leary famously said, that they want to have passengers pay extra for even using the toilet. Although this plan wasn't implemented (yet) because in 2010, when he made this statement, he had to face a lot of backlash. But this gives you a glimpse into the mindset. Another time he talked about a plan where instead of having the passengers sit in the seats, they wanted to have "stan

ding" seats. People would stand throughout the flight. "Did you want to make some passengers stand on planes to fit more people?" "Yes." "We'd have a standing cabin and a seating cabin." "The seats will be €25, the standing cabin will be €1. I guarantee you, we will fill the standing cabin first." These miscellaneous fees have become a treasure trove for these low-cost airlines. The money earned this way is called Ancillary Revenue. And for most airlines, Ancillary Revenue has been increasing

for the past few years. In 2019, the 28% revenue of Ryanair was only Ancillary Revenue. This company does not hide its strategy rather, openly and proudly shows it off on social media. Often when people complain about their airline on Twitter, their airline's account replies sarcastically. The next strategy is Dynamic Pricing. This strategy is used by both Full-Service and Low-Cost airlines. It basically means that the price of your ticket is not a static price. Tickets are not sold at a fixed

price these days. When you book a ticket for any flight online, the price keeps fluctuating and changing. This change is caused due to many factors. Based on the time, whether you are travelling on weekdays or weekends, at what time will you be travelling. How many people want to travel with you on your flight? The price changes depending on demand and supply. The price set by other competitive airlines for the same route. The tickets need to be similarly priced. Whether there are any special p

romotions or not? Complex algorithms have been designed for this. Today, even for the seating of the same class, airlines charge different prices. Suppose 100 economy class seats are free on a flight. And this flight will take off after 10 days. This is just an example. These airlines will divide these 100 seats into 4 categories of 25 seats. The first 25 seats will be sold at the lowest price. The next 25 seats will be sold at a higher price. The next 25 seats will be sold at an even higher pr

ice. As the demand for people to board this flight keeps increasing, the price of the ticket keeps increasing. But if one day before the flight, more than half of the flight is still empty, then they will reduce the price of the 25 seats. With low demand, the price will be reduced so that more people choose the flight. A complex algorithm has been developed using data science. It aims to earn maximum profit but at the same time, to fill up as many seats as possible. If the seats on the flight a

re not filled, it means that people aren't choosing them and they will incur losses. Many people don't understand this system, so outdated advice is still given to people. So let's debunk some myths related to this. Some people say that if you book the tickets 2-3 months in advance, you will get a cheaper price. On the other hand, some people say that last minute booking will give you the cheapest price. Both these statements are partially correct and partially incorrect. Because airlines use

dynamic pricing these days. The price keeps changing. So for some people, depending upon demand, it will be cheaper to book the flight in advance. For some people, last-minute booking will be cheaper. Everything depends on the demand. What strategy should you adopt to get the cheapest price? We will talk about this later in the video. But the second myth here is related to Midnight Booking. Some people think that booking tickets at midnight, will mean that it's a Discount Hour. That they will ge

t a discount on booking at that hour. It doesn't work like that. Their dynamic pricing algorithm works 24x7. Airlines don't have an employee sitting in the office deciding the prices for each of the flights. Increasing some and decreasing others. It doesn't happen. The third myth that people believe is that they think that using incognito mode, or browsing through search results using the private browser option, will get them the cheapest price. They claim that the airline tracks your demand an

d if they think that you need it direly, then they will increase the price. Though this is true they don't look at the demand of individual users. Their algorithm looks at the overall demand for any flight. The people who design these algorithms are known as Data Scientists. Today, data science is becoming one of the most lucrative careers in the world. Because it is used across many industries. In addition to the airline industry algorithms are used in deep-sea exploration, finance, healthcar

e as well as travel. If you are thinking about upskilling yourself in the field of data science, then today's video's sponsor, Scaler.com, will be very helpful for you. Scaler is an online tech learning platform that provides programs in software development, data science, and machine learning. Industry experts from major tech companies guide and mentor learners. As learners, you get access to more than 80 real-world case studies. It is also interesting to note that most learners on Scaler g

ot placements in top tech companies like Google, Facebook, Flipkart, Myntra, Amazon, and Zomato. They offer an easy EMI option for 2 years at 0% interest. So if you think that Scaler can help boost your career, then check out their website, the link is in the description. You can sign up for a free live class through that link and judge for yourself how much value it can provide you. Now let's get back to our video. There are 4 types of seats on airlines. Economy, Premium Economy, Business, and

First. The low-cost airlines don't have any Business or First class seats. There are only economy seats. But in full-service airlines, the higher the class, the more expensive will be the ticket. Business class and first-class tickets can cost hundreds of thousands of rupees. And as I told you at the beginning of the video, it can go up to ₹5 million. You may now think that it is obvious that most of the profits of a full-service airline is from business class and first-class passengers. But,

shockingly, this isn't true. Look at this chart. The Michigan Journal of Economics carried out an interesting analysis. You can see the average price of different airlines. across the Economy, Premium Economy, Business, and First Class. And the average price of all the airlines is mentioned at the bottom, $1,443 for the Economy class. Obviously, we are talking about long-distance flights. That's why the price of economy tickets is so high. Business class on average goes for $5,000. And First C

lass goes for more than $9,000. From the airline's perspective, we need to calculate how much space is occupied by a seat. An economy class seat occupies only about 5.5 square feet on average. A business class seat occupies 20 square feet. A first-class seat occupies more than 30 square feet. The ratio of price and space is almost similar. When you sit in a first-class seat, you occupy the same space as 6 economy-class seats. And in terms of the price, on average, you pay around 6 times more.

In fact, the first-class passengers pay a bit more. Because if you see this chart the average revenue per square foot across different cabins. So, the first class and business class generate a revenue of $302 per square for the airline and the economy generates only $270 per square foot. But we have to look at the expenses too. The quality of food served to the first class passengers is much better. Its price will be higher. The amenity kit that is provided, often night suits are given to bus

iness class and first class passengers. As well as the cabin crew members attending on them, per passenger, there are more air hostesses for first class and business class. That costs more. In this table, the expenses have been calculated. And it can be seen that the expenses incurred by the airline on first class is around $1,000. Whereas the economy class costs the airline only $31. This means that if we look at the profit earned per square feet for the different classes, the profitability of

a first-class seat and an economy-class seat is almost the same. In fact, the profitability of the first-class seat is a smidge less than that of the economy-class. The business class trumps both with $280 per square feet. But the Premium Economy is the highest, where the airline gets a profit of $322 per square feet. This led to a new trend in airlines all over the world. Airlines are eliminating their first-class seating. When airline companies see that they get the least profit from first-

class seats, they do not see the point in having these seats on flights. Airlines want to replace them with business-class seating. So that they can earn more profit. American Airlines, Air New Zealand, South African Airways, Malaysian Airlines, Turkish Airlines, United Airlines, these are all examples of those airlines which have removed first class from their planes. Airlines like Singapore Airlines which do offer first class seating, have reduced the number of first-class seats to half. And

along with this, there's another new trend. The rise of Premium Economy seats. As you can see in this chart, the premium economy seats are the best in terms of profitability per square foot. More and more airlines are now considering having more premium economy seats on their flights. Why is Premium Economy so profitable for airlines? It's quite obvious. The reason is very obvious because in a Premium Economy, airlines aren't required to give a lot of space to passengers. They just improve the

food service, provide amenity kits, and make seats marginally better. The price you pay for Premium Economy is comparatively more than the value you get. But back to the Low-Cost airlines, a question remains unanswered. How do low-cost airlines earn more profit than full-service airlines? There are many factors at play here. One way to save money is to use the same type of plane. Ryanair and SpiceJet are famous for doing this. SpiceJet has only Boeing 737 aircraft. They have a fleet of more than

90 aircraft. But they only use this specific type of airplane. This saves operating and maintenance costs. Pilots don't need to be trained to fly multiple planes. Since they will be flying the same type of plane. They need to keep spare parts for only this type of plane. On top of that, this specific plane type is fuel efficient. So the airlines save a lot on fuel expenses. Even Ryanair's fleet comprises only Boeing 737 planes. And no other planes. There are many ways to reduce in-flight costs

too. Minimising the unnecessary weight carried on the plane. Instead of carrying unnecessary beverages, snacks, etc. Only one type of drink is offered. Like in IndiGo, you can get only water in shorter flights. The electronic mechanisms of moving the seat back and forth, the seats of low-cost airlines do not have such controls. Because installing those electrical equipment would mean carrying extra weight. The third way is, instead of having TVs behind each seat, printing ads would become a new

revenue source. These low-cost airlines do this. Even the magazines on the plane, advertisers pay to have ads printed in those magazines. According to industry experts, each ad in these magazines can cost between ₹70,000 to ₹600,000. And some airlines print ads on the boarding passes as well. That's another revenue source. But if we talk about Ryanair specifically, the secret behind their billions of dollars of profit, are two more innovative strategies. First, their airport trick. Instead of l

anding their planes on popular airports, they choose smaller, secondary airports. If you book a ticket from London to Frankfurt on Ryanair's website, it will be written that this flight will take you from London to Frankfurt. But the main airports of these two cities will not be used. This flight will take off from Stansted Airport in London, which is actually 70 km away from London and will land in a small town called Han which is about 125 km away from Frankfurt. The cost of using these smal

ler airports nearby is much lower than using popular airports. Ryanair saves a lot of money with this. The second strategy is the more flights a plane takes in a day, the more profit it will make. So Ryanair keeps the duration of its flights shorter, as well as the time between flights. And in a day, it can make a plane fly 5-6 times. The average route length of a Ryanair plane is only 1,200 km. And on average, it stays in the air for only 1.8 hours. This is why Ryanair is one of the Top 3 airl

ines in the world in terms of passengers served. In a year, more than 160 million passengers fly through it. Sometimes these cost-cutting measures can be categorised as controversial. Like, using flap 3 landings. Flap 3 and Flap 4 are two types of landings. Flap 3 saves fuel. Around 6 kg of fuel is saved in each landing. But going for Flap 3 landing is not suitable in every situation. So in some situations, it can be unsafe. In Flap 4, more fuel is used, but it is safer. That's why experts warn

airlines against forcing pilots to go for only Flap 3 landing. According to Mint's report, a recent survey showed that 88% of air passengers believe that Indian airlines have compromised on passenger comfort to take cost-cutting measures. This has led to many issues. Delays in flights, luggage loss or problems while boarding. But these were the strategies from the perspective of airlines. But now, let's see things from the perspective of the consumer. Which strategies should you adopt to buy

your tickets at the cheapest price? Weekends are always more expensive than weekdays. Statistically, flights on Tuesdays and Wednesdays are the cheapest. Because most people who go on holidays travel on weekends and most of the business travellers travel at the beginning or end of the week, on Mondays and Fridays. But remember one thing, there is no hard and fast rule for Tuesdays and Wednesdays because algorithms ultimately run on demand and supply. So in some exceptional cases, it may happen

that those two days may not be the cheapest. So the second suggestion here is to find the cheapest dates for your flights, go to Google Flights and check their grid mode. For example, if you want to go from Delhi to Bangkok, choose your dates. Google Flights will show you the cheapest flights for those specific dates. But to find the cheapest flight on other dates, you get the option of date grid. You can go through it to find the dates that offer the cheapest prices. To get an even better over

view, you can enable the option of Any Dates. Google will notify you via email when you can get the cheapest price for this route. And there is the price graph option on the side which gives you an overview across different dates and months, of price fluctuations for this route. The third strategy is to consider nearby airports. As I explained in Ryanair's example, if airlines have to pay more to land at popular airports, it means that taking flights to and from popular airports will be expensi

ve for you. So do consider smaller airports. A flight from Mumbai to Delhi may cost you ₹10,000. But if you travel from Mumbai to Jaipur, it may cost ₹8,000. In such cases, you have to consider the expenses for travelling the remaining distance. As well as the time it will take. Will it be worth it for you or not? Fourth, there is a related strategy to this get stopover flights. If you take a direct flight from London to Delhi with Air India, as you can see on the screen, it will cost you £543.

But if you take the same flight and choose Bangalore as the end destination instead of Delhi, the flight becomes cheaper. Only £522 instead of £543. Many airlines do this. This means that travelling to an extra destination can be cheaper sometimes. And there's an interesting reason for this. Demand and Supply. People travelling from Delhi to London have a certain buying power. But those travelling from Bhubaneswar to London have a lower buying power. There isn't a lot of demand to go from Bh

ubaneswar to London. That's why Air India makes the route from Bhubaneswar to Delhi to London cheaper as compared to the direct route from Delhi to London. I use this trick a lot. When I want to go to Delhi, I don't get tickets to Delhi. I choose another destination beyond Delhi, and basically, it's like a free ticket to visit that destination. The fifth strategy is to try different websites. Sometimes, some routes are cheaper on some websites. So, not only Google Flights, but use Kayak, Skysca

nner, Kiwi and Azair too. These websites give you an overview. It is a good option to check all these websites. If you want to maximise your effectiveness when planning your travel, you can use ChatGPT. In my course on ChatGPT, I have dedicated a lesson on travel planning. The course's link and Scaler's link are in the description below. If you liked this video, you will like this video too, it is a detailed case study on Air India. Click here to watch it. Thank you very much!