Last Updated: March 6th, 2025

The Hidden Economics Behind Those $29 Flights

The perverse incentives for communities under the flight path

The Seattle Times recently reported that Frontier Airlines will begin offering three new routes from Paine Field in Everett, Washington starting June 2. The budget airline will connect Everett to Denver, Las Vegas, and Phoenix with flights operating three times weekly.

What caught many readers’ attention was the headline-grabbing fare: one-way flights for as little as $29 and $39.

For residents near airports, these announcements often come with promises of economic growth, increased tourism, and enhanced convenience. But beneath these seemingly incredible deals lies a complex web of economic incentives, subsidies, and strategies that artificially create demand rather than simply responding to it.

When an airline advertises a $29 flight, the natural question is: how can they possibly make money? The short answer is—they often don’t, at least not on those specific seats. Here’s what’s really happening:

The True Cost of Operating a Flight

A typical Frontier Airlines Airbus A320 flight from Everett to Denver costs approximately $18,000-$22,000 to operate. Here’s the breakdown:

  • Fuel: $5,000-7,000 (2-3 hour flight using 1,800-2,700 gallons)
  • Flight Crew: $1,800-2,500 (pilots and flight attendants)
  • Aircraft Ownership: $3,000-4,000 (lease payments or depreciation)
  • Maintenance: $2,200-3,000 (routine and long-term reserves)
  • Airport Fees: $2,000-2,800 (landing fees, terminal usage, ground handling)
  • Air Traffic Control: $300-500 (navigation services)
  • Passenger Costs: $1,200-1,500 (minimal services for budget carriers)
  • Administrative Overhead: $2,500-3,000 (corporate allocation)

With 150 seats on a typical A320, the cost per passenger at 90% load factor is $133-$163. This means those $29 fares are significantly below the actual cost of transportation.

How Airlines Actually Make Money with $29 Fares

Airlines use several strategies to generate revenue despite those headline-grabbing low fares:

  1. Limited Availability: Only 5-10% of seats actually sell at the rock-bottom price
  2. Price Discrimination: While some passengers pay $29, others on the exact same flight pay $129, $199, or more
  3. Ancillary Fees: A complex system of charges for everything from seat selection ($15-50) to carry-on bags ($35-60) and checked luggage ($30-75)
  4. Loyalty Programs: Frequent flyer programs generate substantial revenue through credit card partnerships and sold miles
  5. Loss Leaders: Some routes intentionally operate at a loss initially to establish market presence

On a 150-seat aircraft, the revenue might actually look like:

  • 15 seats at $29 ($435)
  • 50 seats at $79 ($3,950)
  • 50 seats at $129 ($6,450)
  • 35 seats at $179 ($6,265)
  • Total fare revenue: $17,100 (average $114 per passenger)
  • Plus approximately $45 per passenger in fees: $6,750
  • Total revenue: $23,850 ($159 per passenger)

This revenue structure potentially creates a viable business model—but only if enough passengers pay the higher fares and additional fees.

The Loyalty Program Gold Mine: Selling Miles, Not Just Seats

Before we examine how demand is artificially created, it’s essential to understand one of the airline industry’s most profitable innovations: frequent flyer programs.

For many airlines, especially legacy carriers, loyalty programs aren’t just perks—they’re profit centers that mean the difference between profitability and bankruptcy. Here’s how they work:

The Loyalty Program Business Model

  1. Credit Card Partnerships: Airlines sell miles in bulk to credit card companies at approximately 1.2-1.8 cents per mile. American Express, Chase, and other banks pay billions annually for these miles to offer as credit card rewards.
  2. Direct Mile Sales: Airlines sell miles directly to consumers at premium rates (often 2-3 cents per mile) through promotions and top-ups.
  3. Corporate Partnerships: Hotels, rental car companies, retailers, and other businesses purchase miles to offer to their own customers.
  4. Breakage: Airlines profit from “breakage”—miles that expire or go unused (historically 15-20% of all miles issued).

The Financial Impact

For major airlines, loyalty programs can contribute:

  • 30-50% of total operating profits
  • $15-25 in revenue per passenger segment flown
  • Billions in annual cash flow from pre-sold miles

Delta Air Lines’ SkyMiles program was valued at $26 billion in 2020 when used as collateral for loans—more than Delta’s entire market capitalization at the time. United’s MileagePlus program was valued at $22 billion.

Connection to Ultra-Low-Cost Routes

While ultra-low-cost carriers like Frontier have simpler loyalty programs than legacy carriers, they still factor into route decisions:

  1. Customer Acquisition Tool: New routes with attention-grabbing $29 fares help build loyalty program membership
  2. Data Collection: Loyalty programs provide valuable customer data used for targeted marketing
  3. Future Revenue Stream: Members become targets for credit card offers and upsells
  4. Network Effect: Even unprofitable routes may drive profitable connecting traffic and program engagement

When an airline adds a new route with extremely low fares, they’re not just selling seats—they’re acquiring loyalty program members and data that can be monetized for years to come.

Creating Artificial Demand: It’s Not Just the Airlines

Airport authorities often claim they’re simply responding to existing demand for air travel. The reality is more complex—multiple stakeholders actively work to create and stimulate artificial demand:

1. Airlines and “Route Development”

Airlines don’t simply respond to natural market forces. They strategically create demand through:

  • Artificially low introductory fares that stimulate travel that wouldn’t otherwise occur
  • Capacity dumping (adding more seats than the market naturally demands)
  • Frequency spirals (adding more flights than necessary to capture market share)

2. Airports and Their Incentives

Airports actively create demand through:

  • Waived or reduced landing fees for new routes
  • Marketing subsidies for airlines ($50,000-$500,000 per route)
  • Terminal improvements subsidized by taxpayers
  • Per-passenger payments to airlines for meeting certain volume targets

Port Authorities: The Tourism-Aviation Industrial Complex

Some airport operators, like the Port of Seattle, function as powerful economic development entities with multiple transportation assets and explicit tourism promotion mandates. The Port of Seattle:

This business model creates a self-reinforcing cycle: public funds are used to attract more tourists by air, who then use the publicly-funded cruise terminals, which are marketed internationally to bring in more air passengers. The environmental and quality-of-life impacts on surrounding communities are treated as externalities in this equation.

3. Local Governments and Economic Development Organizations

Communities often provide incentives that artificially reduce the true cost of air service:

  • Revenue guarantees that eliminate airline risk
  • Direct subsidies from tourism boards
  • Tax abatements that shift costs to local residents
  • Infrastructure improvements funded by taxpayers, not users

4. Federal Programs

Federal involvement further distorts the market:

The Perverse Economic Incentives

This system creates several perverse incentives that harm communities near airports:

  1. Externalizing Environmental Costs: The $29 fare completely ignores environmental costs (noise, air pollution, climate impacts) imposed on surrounding communities
  2. Artificial Stimulation: These pricing strategies create travel that wouldn’t otherwise occur, generating additional impacts without corresponding economic benefits
  3. Tax Subsidization: Local residents effectively subsidize leisure travelers through infrastructure investments and incentive programs
  4. Risk Shifting: Airlines shift financial risk to communities while keeping profits when routes succeed
  5. Boom-Bust Cycles: Ultra-low-cost carriers frequently enter markets aggressively only to withdraw when subsidies expire, creating economic instability
  6. “Leakage” of Economic Benefits: While local communities bear the brunt of impacts, economic benefits often flow to distant destinations or airline shareholders
  7. Loyalty Program Distortions: The outsized profitability of loyalty programs incentivizes airlines to add routes and capacity that might not be justified by travel demand alone

Summary: What’s Really Behind Those $29 Fares

The next time you see an announcement about new ultra-low fares from your local airport, remember what’s really happening:

  1. Those fares are available only to a small percentage of passengers
  2. They’re often subsidized directly or indirectly by your community
  3. They’re designed to create artificial demand, not respond to natural market forces
  4. The environmental and quality-of-life impacts on your community are not factored into the price

Airports and airlines aren’t simply responding to existing demand—they’re actively manufacturing it through a complex system of subsidies, incentives, and marketing tactics.

When Frontier Airlines announces $29 flights from Paine Field, they’re not revealing the full economic picture. These artificially low fares are part of a larger system designed to increase air travel beyond what the market would naturally support—and communities under the flight path are the ones who ultimately pay the difference.