How airlines, airports, and lessors make money
The aviation value chain, the main airline business models, revenue streams, and an approximate cost breakdown.
Industry brief, with a one-minute summary: Airlines and aviationFirm processes and online tests change from year to year and differ by office. Use this to prepare, and confirm the exact current steps on the firm's own careers page.
Key takeaways
- An airline sells seats on flights that cost almost the same to operate whether the plane is full or half empty.
- Full-service network carriers: fly a hub-and-spoke network, feeding passengers from many cities through a main airport (the hub) to many others.
- Gulf hub carriers (super-connectors): network carriers whose hubs (Dubai, Doha, Abu Dhabi, Riyadh) sit between Europe, Asia, and Africa.
- Low-cost carriers (LCCs): point-to-point flights, one aircraft type, high seat density, fast turnarounds, direct online sales, and extra fees for bags and seats.
Key idea
An airline sells seats on flights that cost almost the same to operate whether the plane is full or half empty. Profit comes from filling seats at good prices and from flying each aircraft as many hours a day as possible, at a cost per seat lower than competitors.
- From factory to passenger
- Aircraft and engine makersAirbus, Boeing, Embraer, COMAC; engine makers such as CFM, Pratt & Whitney, Rolls-Royce
- LessorsBuy aircraft and rent them to airlines, often for 8 to 12 years
- Key: AirlinesSell seats and cargo space
- AirportsCharge airlines per landing and per passenger; earn from shops, food, parking, and property
- Air navigation, ground handling, fuel, maintenanceService providers paid per flight or per hour
- DistributionAirline website and app, travel agents, OTAs, global distribution systems
Airline business models
- Full-service network carriers: fly a hub-and-spoke network, feeding passengers from many cities through a main airport (the hub) to many others. Several cabins, lounges, loyalty programmes, alliances. Examples: Lufthansa, Delta, Air India.
- Gulf hub carriers (super-connectors): network carriers whose hubs (Dubai, Doha, Abu Dhabi, Riyadh) sit between Europe, Asia, and Africa. Much of their traffic is passengers connecting between two other countries, for example London to Mumbai via Dubai.
- Low-cost carriers (LCCs): point-to-point flights, one aircraft type, high seat density, fast turnarounds, direct online sales, and extra fees for bags and seats. Examples: Ryanair, IndiGo, Air Arabia, AirAsia.
- Cargo airlines and charter airlines, plus regional airlines flying small aircraft for larger partners.
Revenue streams
- Passenger tickets: the largest part. Premium cabins bring a large share of revenue on long-haul flights.
- Ancillary revenue: bags, seat choice, priority boarding, food, and change fees. Very important for LCCs.
- Cargo: freight carried in the lower deck of passenger aircraft (belly cargo) or on freighters.
- Loyalty programmes: airlines sell miles to banks and partners who give them to their own customers, often a very profitable business.
- Airports earn aeronautical revenue (landing and passenger charges, often regulated) and non-aeronautical revenue (duty free, food, car parks, property). Dubai Duty Free, for example, reported record sales of AED 8.68 billion in 2025.
- Lessors earn monthly rent on aircraft and engines, and gains when they sell aircraft.
| Line | Approximate share of costs | Comment |
|---|---|---|
| Fuel | 25 to 35 percent | Higher when oil prices spike, as in 2026 |
| Labour | 20 to 30 percent | Pilots, cabin crew, engineers, ground staff |
| Aircraft ownership | 10 to 15 percent | Lease rent, or depreciation and interest if owned |
| Airport and navigation charges | 10 to 15 percent | Set by airports and air traffic control; high at busy hubs |
| Maintenance | 8 to 12 percent | Rises as aircraft age and after engine problems |
| Sales and distribution | 3 to 6 percent | Lower for LCCs that sell online |
| Other | 5 to 10 percent | Catering, insurance, IT, overheads |
So-what
Most costs are fixed once the schedule is set, so empty seats go almost straight to losses.
Airline margins are thin. IATA, the global airline association, expected the whole industry's net profit margin to be about 2 percent in 2026 after a fuel price shock, down from about 4 percent in 2025 (see lesson three). Airports and lessors often earn steadier returns, because their income is contracted or regulated.
What is the main idea of a hub-and-spoke network?
Sources for this lesson (3)
- Recognized public explanations of case-interview concepts and frameworks
- IATA: Middle East disruptions and high fuel prices halve airline profitability (June 2026)
- Dubai Media Office: Dubai Duty Free record 2025 sales (January 2026)
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