The economics of an airline flight
The economics of an airline flight
https://www.mckinsey.com/industries/travel/our-insights/the-economics-of-an-airline-flight?
Steve Saxon/Partner, London, Jaap Bouwer/Senior Knowledge Expert, Amsterdam
Have you ever considered exactly how much money an airline makes from a single flight?
Have you ever taken your airplane seat, looked around, and wondered exactly how much money the airline is making from your flight?
Next time you fly, you’ll have a better understanding of airline economics—and maybe have something interesting to chat about with your seatmate.
Exhibit
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Steve Saxon: Have you ever taken your seat on an airplane, looked around you, and wondered, “Is the airline actually making any money?”
We’ll take one hypothetical flight and look at the revenues and the costs. The next time you’re taxiing toward takeoff, you may have a whole new view on the business of flying.
Jaap Bouwer: We’ll start with the revenue side of the ledger.
Steve Saxon: We’ll be flying from London to New York on a Boeing 787. That’s a typical aircraft for this flight.
Jaap Bouwer: In economy class, we may have 192 seats. If 90 percent of them are filled, that would yield 173 passengers.
Steve Saxon: Based on some checks of available prices, a round-trip fare comes out to be about $800 for such a trip. This is one-way, so we’ll take half of that, or $400 per passenger.
Jaap Bouwer: 173 passengers times $400 equals about $69,000 in revenue.
Steve Saxon: But that’s not the only cabin on board this aircraft. You might have sprung for premium economy class or business class, for example.
Jaap Bouwer: Thirty-five premium economy seats, 75 percent filled, that’s 26 passengers in premium economy.
A premium economy round-trip fare might be $2,000 on average for this type of flight, so that means $1,000 one-way. That comes out to $26,000 in revenue from premium economy.
In business class, there may be 31 seats. If we assume they’re 70 percent full, that means 22 passengers. Average business fares will be higher. Maybe it’s around $6,000 round trip for this kind of flight. So that means $3,000 one way.
Steve Saxon: So let’s add it all up. The airline gets about $160,000 in ticket revenue on this flight.
But what other ways does this flight make money?
Let’s talk about ancillaries, things that the airline sells beyond the ticket. For example, maybe you checked a bag, or maybe you paid for your seat selection, or maybe you bought something [during the flight], or maybe the credit card you used bought some points from the airline.
Jaap Bouwer: Ancillaries will average roughly $30 per passenger. There are 221 passengers on board, so that’s about $6,600 in revenue.
Steve Saxon: There’s another revenue source you might not think of as an airline passenger. Let’s talk about cargo.
Jaap Bouwer: Roughly half the world’s air freight is carried in the bellies of passenger aircraft. An aircraft like this will have roughly ten metric tons of capacity available for air cargo. If we assume that 50 percent is filled, that means five metric tons of cargo.
Steve Saxon: Cargo prices vary. Let’s assume $1.40 per kilo for cargo revenue. That would give us a total of $7,000 in cargo revenue for the flight.
Now let’s total up all the revenue. The airline’s bringing in about $174,000 for this flight.
Sounds like a decent haul, but the story doesn’t end there. Let’s look at the other side of the ledger.
Jaap Bouwer: Let’s think about the cost the airline incurs when it flies you from place to place.
Steve Saxon: An aircraft such as the 787 can be leased or owned. Let’s assume it’s leased. A lease rate for an aircraft like this is around $1.3 million per month. We need to figure out how much that is per hour, and therefore how much for this flight.
Jaap Bouwer: This type of aircraft might fly 14 hours per day, so that means around 5,000 hours per year. If you do the math, that’s $3,150 per hour.
Steve Saxon: This plane will be in operation for about eight hours, which gives us a total of about $25,000 for leasing costs.
Jaap Bouwer: The airline needs to pay the flight attendants.
Steve Saxon: A flight like ours will have around eight flight attendants on board. Typical salary and benefits for a flight attendant could be $70,000 per year.
Jaap Bouwer: Cabin crew may fly about 60 hours per month, meaning 720 hours per year, and therefore, $97 per hour.
This flight takes eight hours. There are eight crew members onboard, so there’s $6,200 in cabin crew cost.
Steve Saxon: But flight attendants aren’t the only crew; someone needs to fly the plane.
Jaap Bouwer: A flight like this will have two pilots in the cockpit. Let’s assume $270,000 in salary, training, and benefits costs.
Steve Saxon: For an eight-hour flight with two pilots onboard, the total pilot cost is around $6,000.
There are some passenger-related costs, such as amenities, catering, and in-flight entertainment.
Jaap Bouwer: These can vary by length of haul and cabin of service, but let’s assume the cost [for this flight] is $4,400.
Steve Saxon: These are [amenities] you can see from your seat, and we’re up to almost $42,000 in costs. What about things that are harder to see?
You know what it’s like to fill up your car at the pump or maybe plug in your EV [electric vehicle], but what does an airline spend on jet fuel?
Jaap Bouwer: An aircraft like this will burn about 2,900 gallons of fuel per hour. There are eight hours in this flight, so that means about 23,000 gallons of jet fuel are burned.
Jet fuel prices vary. If we assume a current jet fuel price of around $2.20 per gallon, that means almost $51,000 in fuel costs—the largest single cost item for the airline.
Steve Saxon: The airline needs to make sure the aircraft is in tip-top shape.
Jaap Bouwer: An aircraft like this may have maintenance costs on average of $1,300 per hour. For an eight-hour flight, that means about $10,000 in maintenance costs.
Steve Saxon: Air traffic control charges depend on the distance flown, the takeoff weight of the aircraft, and which countries are overflown. For this flight, let’s assume an air traffic control charge of $2,000.
So far, we’ve been talking about the costs needed to keep the plane in the air and the passengers happy, but what about the costs on the ground?
Jaap Bouwer: To access airports at either end of the journey, airport charges need to be paid.
Steve Saxon: Yes, airlines need to pay airport costs on each side of the flight. London and New York are particularly expensive, and we might expect $35,000 for this flight.
Jaap Bouwer: Ground handling charges are for checking in passengers and their bags, handling [the boarding and disembarking ramp] for the aircraft, unloading cargo, and so forth. We can expect about $3,000 for this flight.
Steve Saxon: Marketing and sales costs can include advertising, promotion, and commissions paid to travel agents.
Jaap Bouwer: Let’s assume marketing and sales costs are about $15 per passenger. With 221 passengers onboard, that’s about $3,300 in cost.
Then there are overhead costs for things like the airline’s corporate office building, or the staff that works there.
Steve Saxon: We can assume about $30 per passenger for that, which would give us a total of $6,600 overhead.
Jaap Bouwer: Add it all up, and the total costs for operating this single flight are about $153,000.
Let’s put it together. We can subtract the operating cost from the revenue to see how much the airline made from this flight.
Steve Saxon: We have $174,000 in revenue and $153,000 in costs.
Jaap Bouwer: We subtract cost from revenue. So that gives us an operating profit of $21,000, or roughly 12%.
Steve Saxon: That sounds like a good margin. But it’s a bit more complicated than that. The average airline industry margin is only around 3 percent to 6 percent.
Jaap Bouwer: Why was our margin higher?
Steve Saxon: First, we chose a healthy route. Lots of people want to fly between London and New York.
And they’re willing to pay for it. The London to New York route is one of the most premium in terms of business passengers.
If we picked a less healthy route, things might look different.
Jaap Bouwer: Furthermore, some passengers may be connecting passengers. Connecting-passenger yields are typically 20 to 30 percent lower than point-to-point passengers.
Steve Saxon: On the cost side, maybe the airline’s using sustainable aviation fuel, which is more expensive. Or maybe the flight was delayed, which would trigger additional charges.
Jaap Bouwer: This is a rough example, and we left a few things out. But as you look at the revenue and cost drivers, you start to get a better feel of how the airline industry works.
Steve Saxon: Maybe you can see why airlines are at the edge of profitability. They’re on thin margins, and it’s easy for things to change and go wrong quickly.
Jaap Bouwer: Airlines have developed and continue to develop various strategies to improve their profit.
Steve Saxon: On the revenue side, they can enhance pricing and revenue management, or they can build bundles of products.
Jaap Bouwer: On the cost side, the airline might work to enhance its aircraft utilization, optimize its maintenance checks, or lower its distribution charges.
Steve Saxon: You can think about airline revenue the next time you pay for a ticket or pay to check a bag.
Jaap Bouwer: And you can think about the airline’s costs the next time you step off a flight that was perfectly on time, with the cabin crew taking great care of you.
Steve Saxon: Now you’ve got something to talk to the passenger next to you about while you’re waiting for takeoff.
What a hotel owner needs to know—and ask—before choosing a lender
https://hotelsmag.com/news/what-a-hotel-owner-needs-to-know-before-choosing-a-lender/?
This Perspective piece was authored by Brian Horner, VP of originations and underwriting at BridgeInvest, a vertically integrated investment manager focused on structuring and investing in diversified portfolios.
When a hotel loan goes sideways, the question is rarely only what the owner owes: It is who controls the cash.
A hotel is not just a building: It’s an operating business, a brand platform, and a layered partnership among ownership, management, franchisors, and capital providers. That complexity does not disappear when an owner evaluates financing. In many ways, that is where complexity begins. When owners shop for financing, the conversation tends to focus on proceeds, pricing, and timing. Those terms matter, but they are not the whole story. For hotel owners, the more consequential questions are structural.
Hotels occupy an unusual position in the lending world. Most real estate assets are underwritten primarily against the property value, with the mortgage as the lender’s core security. At the same time, most operating businesses are underwritten against cash flows, contracts and enterprise value. The thing is: hotels are both. A lender financing a hotel may hold a recorded first-lien mortgage on the physical asset, but may also seek rights to revenue generated by daily operations. Understanding which of those two levers your lender can pull, and when, is the most important thing a hotel owner can know before signing a loan.
The mechanism that determines cash-flow control is the cash-management agreement. These agreements give the lender a security interest in the dollars the hotel produces, in addition to the real estate itself. In a hard, cash-management structure, revenues are swept into a lender-controlled account from day one. In a springing structure, the owner retains control until a trigger occurs, such as an event of default or failure to meet a debt-service-coverage threshold. The difference between those two structures is not legal fine print: It is the difference between an owner who controls the operating checkbook and one who does not.
Ask Yourself
The core questions every owner should have answered before closing are: Who has first claim to cash flow? What happens if performance softens? Which expenses are paid before debt service reaches the lender? When can the lender redirect funds, and how quickly?
Brand-managed hotels add another layer. Major brands typically require management fees, incentive fees, and operating expenses to be paid before funds are diverted to the lender, even in a default scenario. That can create direct tension between what the lender’s documents require and what the management agreement demands. If those two waterfalls are not reconciled at closing, they will be reconciled under pressure, which is a worse time to have the conversation.
Reserves for replacement deserve attention, too. Lenders frequently require cash to be set aside for capital expenditures, maintenance, and furniture, fixtures, and equipment replacement. Owners should compare those requirements against obligations under any brand or franchise agreement. When both the lender and the brand require reserves for overlapping purposes, the combined drag on distributable cash flow can be material.
Hotel owners should also underwrite their lender the same way their lender underwrites them. If the business plan hits turbulence, who will you be talking to? Will it be the same team that originated the loan, knows the market, and understood your strategy at closing? Or, will the file be transferred to a third-party servicer with no relationship to the asset and a different set of incentives? What is the lender’s track record on loan modifications, extensions, and workouts? Is the lender predisposed to working through a challenged business plan with the borrower in the owner’s seat, or does it move quickly toward enforcement and asset takeover?
Prepare for the Unexpected
Hotel business plans change. Renovations run long. Restaurant concepts get reworked. Brand conversions become necessary. Stabilization takes longer than the model projected. And the lender’s willingness and ability to move with those realities is not a soft consideration: It is part of the loan’s actual cost.
That brings in the final variable: the relationship between pricing and flexibility. Traditional bank financing may offer a lower cost of capital, but that rate is often accompanied by tighter covenants and less room to maneuver if the asset underperforms or the business plan needs to shift. Private lenders and debt funds tend to be more expensive, but they are often better positioned to accommodate management changes, lease modifications, brand conversions, or timeline adjustments without triggering an adversarial process.
Neither structure is categorically better. A lower rate may be the right call for a stabilized asset with predictable cash flows and limited execution risk. A more flexible lender may be the better fit for a transitional hotel, a repositioning play, or an asset with meaningful operational complexity.
The point is not to choose one type of lender reflexively over another. It is to understand what you are actually selecting when you choose a lender, and to make that choice with the downside scenario in mind, not just the upside. In hotel financing, the capital partner whose structure aligns with a particular asset and operating strategy and fits an owner’s tolerance for execution risk is worth more than the one with the lowest spread.
Know who controls the cash. Know when that control can shift. And know how your lender behaves when a plan requires adjustment—before you need to find out.
Lenders leverage alternative hotel financing to fill in the gaps
Developers turn increasingly to EB-5, CPACE debt options
The under-construction Scoundrel, a Tribute Portfolio by Marriott hotel, is one of development projects fully funded through Peachtree Group's EB-5 lending program. (Peachtree Group)
https://www.costar.com/article/521680931/lenders-leverage-alternative-hotel-financing-to-fill-in-the-gaps?
By Bryan Wroten
NEW YORK CITY — For hoteliers looking to make deals, the capital is there, but it’s possible the best options available to them look different than what they’ve used before.
Traditional lending sources for hotel owners and developers are still around, but may be fewer in number or have restrictions on how much exposure they’re allowed to hospitality businesses at any one time. A group of executives at the NYU International Hospitality Investment Forum outlined the alternative sources of capital that have taken up a larger share of the market as a result.
EB-5 capital
The EB-5 Immigrant Investor Program allows foreign investors to put capital toward a fund that lends out money to development projects that create at least 10 jobs in local markets. In return for investing a required amount of money, investors will qualify for lawful permanent resident status.
Jared Schlosser, head of originations and CPACE, credit, at investment management firm Peachtree Group, said in these cases, his company uses EB-5 as tax leverage to make a loan, if the project is in a rural area. That means Peachtree takes on the raise-risk itself.
“That allows us to provide a cheaper loan option to a borrower,” he said.
For example, if a traditional construction loan carried a rate of SOFR 600, the EB-5 option would allow Peachtree to come in with a SOFR 400 option, he said.
If there’s a project in a rural targeted employment area, the foreign investor has a lower investment requirement, said Ryan Bosch, principal at Arriba Capital, a real estate investment banking firm. However, with the program up for renewal in September 2027 and likely with higher investment requirements, investors would only have until September 2026 to come in under the current parameters.
As a result, there’s a big rush in capital trying to deploy to these rural targeted employment area, or TEA, projects.
“It's probably a bigger rush of capital than we've ever seen right now, and people trying to deploy that and seeking projects that qualify,” he said.
Until about two years ago, EB-5 capital was deployed almost exclusively as mezzanine debt or preferred equity, said Rachael Sery, managing director and national head of operations at George Smith Partners, a commercial real estate finance advisory firm.
The pivot to EB-5 capital in the senior lending space has only been possible because of the cost of capital, and it’s still more attractive to do EB-5 as a senior loan than competing seniors would have been, she said.
Her company has been working directly with EB-5 regional centers, which are essentially hub entities designated by the U.S. government that administer EB-5 investment projects, taking care of organization, management and fund-pooling. This direct approach has its own pros and cons, but it usually provides a savings of about 250 basis points, she said.
However, because of the grandfathering period expiring later this year, she said she’s seen a slowing at rural EB-5 regional centers.
“The majority of the regional employers, meaning regional centers, on the rural side, they’re not really seeking new projects anymore,” she said. “It’s just too abbreviated a timeline to be starting those processes overseas.”
CPACE debt
Commercial property assessed clean energy loans are a source of financing that provide upfront capital to address qualified energy, water, resilience and public benefit projects through a voluntary assessment on the property tax bill.
Peachtree has grown its CPACE lending business over the years, and it’s seeing more volume on complicated deals, where it can do more CPACE amounts in terms of the overall loan-to-cost, Schlosser said.
The company has done certain deals where it’s effectively writing a senior mortgage as CPACE. Other times, a bank wants to lend on a property, but it has a $20 million limit while the request is for $50 million, so CPACE can make up the difference.
The misnomer that CPACE was a replacement for equity has been solved now, and George Smith Partners has been able to use it effectively on more complicated projects, Sery said. For example, if a developer has a 700-over senior product, they may go up to 70% loan-to-value. CPACE won’t necessarily give them incremental value on that, but if it’s running at 7% or 8%, it would lower the overall cost of that product at the same last dollar.
“We use it to reduce the cost when it’s paired with a lot of the debt funds that are more accepting of that,” she said.
There’s still some pushback on the senior side, and some of the distress on the market now that has CPACE attached to it is a new development, she said. The hyper-acceleration of the losses of the senior lenders is making people look more reticent, but she’s not against CPACE.
“I think that it has a lot of really new value propositions,” she said. “The retroactive capabilities of it are particularly interesting as they stand out those back deadlines, and certainly for kind of non-typical real estate uses, it's been really, really helpful.”
CPACE is also an option when working on mixed-use development projects, Schlosser said. Each component can benefit from it, and by playing the allocation game, it can sometimes solve leverage issues.
Peachtree recently used a U.S. Department of Agriculture Loan paired with CPACE debt for two branded hotels that were adjacent to one another but on separate tax parcels, he said. The company was able to get separate maximum USDA loans and CPACE loans for each individual hotel.
Travel Insurance Usually Excludes War. These Airlines Are Changing That
Predrag-Milosevic/Shutterstock
https://www.fodors.com/world/africa-and-middle-east/experiences/news/emirates-and-etihad-launch-new-insurance-plans-to-reassure-gulf-travelers
Emirates and Etihad are offering new travel insurance products covering conflict-related disruptions and medical expenses as they work to lure travelers back to the Gulf region.
The peace framework between the U.S. and Iran is officially signed, but still shaky, and at least two airlines based in the Gulf Region have rolled out new insurance policies designed to allay the fears of travelers who might steer clear.
While travel insurance policies have been around for decades, when the war broke out, many travelers to the region found their insurance didn’t cover them. Most policies have exclusions for acts of war or terrorism. Now, two airlines based in the United Arab Emirates are offering insurance plans for travelers who might have concerns about conflict-related flight disruptions while traveling in the region.
Emirates, based in Dubai, is offering a new travel insurance policy from TravelGuard that offers the same types of coverage as many travel insurance policies, such as trip cancellation protection, compensation for baggage loss or damage, and emergency evacuation assistance. But Emirates enriches the policy with reimbursement of medical expenses up to $25,000 for injuries sustained during a conflict (which most travel insurance policies exclude), and a free trip extension of up to 30 days.
Emirates is selling the policies at what they call an “accessible premium” to passengers making new bookings or for already booked passengers who want to add it to their existing reservation. Emirates says the coverage will also be offered regardless of government warnings about travel to the region, but there’s one exception on coverage—it’s available in a number of countries around the world, but not the United States, where insurance is typically administered by state, rather than federal law.
Abu Dhabi-based Etihad is also offering a new insurance product for its passengers, but is including it free of charge on all tickets sold outside the UAE. Etihad and Abu Dhabi’s Department of Culture and Tourism will automatically add medical travel insurance underwritten by The National Insurance Company to international visitors arriving in Abu Dhabi on Etihad-operated flights from July through December 2026.
Travelers are covered for up to 15 days as part of the program, whether they’re transiting Abu Dhabi, stopping over en route to another destination, or have chosen Abu Dhabi as their destination. No application is required—the coverage is simply included as part of the ticket.
The move comes as the UAE—a popular tourist destination for visitors from around the world—struggles to reboot its visitor industry, promoting the country as safe to visit in spite of the uncertainty surrounding continued peace between the United States, Israel, and Iran. The UAE’s booking tourism industry was for decades underpinned by promises of political stability in the region—notions that were shattered on February 28. Residents are also spending less, unsure of what sort of recovery path the region’s tourism industry will take.
While airspace in the region has reopened, many European airlines are taking a conservative approach in returning service—many are waiting until autumn to resume flights to their previously served Gulf destinations. Even the region’s global carriers like Emirates, Etihad, and Doha-based Qatar Airways are operating fewer flights than they were before the war—simply because the amount of demand for their countries as a destination has slowed, with many governments still advising their citizens to avoid travel to the region.
The airlines hope that offering insurance will give those travelers some peace of mind.
“Listening to customer feedback, we realised that travel demand remains strong but there was a gap in the market with regard to travel insurance cover. Therefore, we acted to address our customers’ needs,” said Tim Clark, CEO of Emirates, in a statement. “Together with Travel Guard, a leader in the global insurance industry, Emirates is pleased to offer an enhanced travel insurance product that is as comprehensive as it is reassuring for a wider range of situations. With strong demand for travel in summer, we are proud to offer our customers added confidence in planning their journeys to and through Dubai when they book with Emirates.”
Outside of the insurance benefit, Emirates also pledges to offer airline-managed hotel accommodations during flight disruptions, including airspace closures—regardless of whether passengers have purchased the offered insurance.
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