Airlines receive only about 60% of their revenue from passengers directly (the other 40% comes from selling frequent-flier miles to credit card companies). But of that 60% of passenger consumer revenue, the big money comes from business travelers – as opposed to those flying for leisure or personal reasons – in percentages that far outweigh their numbers. Business travelers account for 12% percent of airlines’ passengers, but they are typically twice as profitable. In fact, on some flights, business passengers represent 75% of an airline’s profits.
Corporate travel policies used to emphasize saving money. But now, given the hassle-prone nature of air travel today, managers are now concerned about employee comfort, convenience, and productivity – it’s counter-productive if an employee arrives too tired or stressed-out to do his or her job. So, businesses are willing to pay more to book last-minute flights or non-stops or seats in an elite section of the aircraft.
First-class and business tickets may cost as much as 10 times the price of coach tickets. This premium pricing typically brings passengers better service and higher quality amenities than economy-ticket offerings do. Consumer spending on these goods and services encourages competition among airlines for the most lucrative passengers. Many airlines, to lure new passengers, introduce innovative services or refit aircraft for more first-class legroom.
Business travelers and high-end travelers also bring substantial revenue to airlines by purchasing additional services and using frequent-flier and other incentive programs.
- Business travelers account for 12% percent of airlines’ passengers, but they are typically twice as lucrative – accounting for as much as 75% of profits.
- Businesses are willing to pay more to book last-minute flights, non-stops or premium-section seats.
- Businesses use frequent flyer and other incentive programs, which are increasingly valuable to airlines as a source of revenue and data.
Business Travel Focus
As a result, many airlines are now focusing attention on corporate trade. For example, since 2017, Southwest Airlines – once known for its low frills and low fares – has targeted business travel, with an in-house department that has grown from 30 to 80 people; working with companies’ travel managers, the team can offer discounted fares or match a passenger’s status with other frequent flier programs. Southwest also used input from companies’ travel personnel in its decision to start offering nonstop flights out of the Cincinnati airport in 2017.
Frequent Flier Programs
Frequent-flier mileage programs are increasingly valuable to airlines, as business travelers and other first-class passengers link their credit cards to the programs and allow their consumption and spending behaviors to be tracked. High-income consumers have high amounts of disposable income to spend on a broad range of goods and services. Many businesses gather or purchase consumer spending data for use in developing a marketing strategy and product research and development.
The data airlines gather on high-end consumers using frequent-flier miles programs is extensive and tremendously profitable: Some frequent-flier programs are now worth many times the value of the airlines that own them, in fact. For most airlines, these incentive programs are an essential source of revenue and profitability that allow them to offer better pricing on tickets and more routes. Many companies benefit from this data and are willing to pay for programs that are inexpensive for the airline to operate. Not all miles earned by consumers are actually used, which lowers the cost of the programs even further and contributes to their profitability.