Airlines receive about 60 percent of their revenue from consumers directly and the other 40 percent from selling frequent-flier miles to credit card companies, repairing aircraft and offering other services. Of consumer revenue, business travelers contribute more than leisure travelers. Business travelers account for 12 percent of passengers but are typically twice as profitable for airlines. On some flights, business passengers represent 75 percent of an airline’s profits. 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 bring substantial revenue to airlines by purchasing additional services and using frequent-flier programs and other incentive programs. Frequent-flier miles 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 marketing strategy and product research and development. The data airlines gather on high-end consumers using frequent-flier miles programs is extensive and tremendously valuable. Some frequent-flier programs are now worth many times the value of the airlines that own them. 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.
With gradual increases in the number of passengers, many airlines modestly expanded service capacity in 2014. Revenue growth continues to be driven by offering improved first-class and business service on popular routes. Leisure travel, while accounting for about 70 percent of the entire travel industry’s revenue in 2014, remains less of a focus for the airlines. High-end passengers are primarily driving revenue in the airline industry, and airlines continue to compete strongly for these passengers. Several major airlines plan to add lie-flat seats and mini-suites to domestic routes and offer more legroom to passengers. Incentive programs are being redesigned to cater to business needs and reward dollars spent rather than miles flown. Routes that are popular with business travelers are receiving additional service with more flights and seating added to attract high-revenue passengers.