Airline profit margins have never been easy to protect. Carriers continue to operate on some of the thinnest margins in global business. Rising costs, shifting traveler expectations, and intensifying competition are eroding profitability, leaving airlines under pressure to find new levers for growth. The opportunity hiding in plain sight? Dynamic packaging, an underutilized driver of both conversion and margin expansion.
The Airline Profitability Puzzle
In theory, airlines should be thriving. Passenger volumes are at record highs, and projections for 2025 show U.S. airline revenue continuing to tick upward. Yet, despite this growth, the International Air Transport Association (IATA) forecasts only 1% year-over-year revenue growth for U.S. carriers. That translates to operating margins in the 4–6% range, leaving carriers with little cushion against rising fuel costs, labor disputes, or macroeconomic volatility.
The challenge lies in the core business model. Traditional fare revenue remains under pressure from a volatile mix of economic headwinds, tariffs, rising operating costs, and consumer pullback on discretionary travel. Even as planes fill up, airline profit margins continue to hover at levels that would be unsustainable in almost any other industry.
The reality is clear: airline profitability cannot rely on ticket sales alone. To unlock stronger and more stable margins, carriers must rethink what they’re selling. Packaging and ancillary revenue growth represent the most overlooked and undervalued margin opportunity in today’s aviation economy.
Why Airline Profit Margins Are Under Pressure
Fare revenue has become increasingly volatile, challenged by tariffs, inflation, and a pullback in discretionary travel spending—all of which erode base-fare profitability.
Low-cost carriers, once positioned as disruptors, are now under strain and often forced to adopt legacy-carrier strategies just to maintain relevance.
At the same time, traveler expectations are rising. Customers no longer see value in a seat alone; they expect bundled, experience-rich options that make their booking feel more complete. Incremental fare increases can’t close this gap, leaving airlines in urgent need of scalable, higher-margin revenue streams.
What Airlines Are Used to Seeing: Traditional Ancillary Revenue Margins
Airlines are no strangers to ancillary revenue. Checked baggage fees, seat upgrades, onboard food and beverage, and Wi-Fi have long helped balance thin margins on core fares. In 2023, these non-ticket services collectively generated $117.9 billion worldwide, accounting for nearly 15% of total airline revenue. Baggage fees alone delivered an estimated $33.3 billion, or 4.1% of global airline revenue, underscoring their role as a reliable but limited profit driver.
Among individual ancillary products, seat selection and legroom upgrades offer strong profit margins with almost no incremental cost, while food, drink, and connectivity options provide modest but reliable contributions. Low-cost carriers have leaned heavily on these streams, often generating $50 or more in ancillary revenue per passenger—but even these gains are capped by passenger tolerance, flight capacity, or brand perception.
While all of these ancillary products play a role in keeping planes profitable, they remain inherently limited. They are incremental, not transformational. They are almost always treated as add-ons rather than as strategic levers of customer loyalty and airline profitability. This model ensures that short-term balance sheets appear healthier, but it does not significantly improve long-term airline margins. To truly impact profitability, airlines must go beyond seats, bags, and Wi-Fi.
Packaging offers margins in the 15–50% range and the ability to multiply cart values in a way traditional ancillaries cannot.
Where Airlines Leave Profit Margins on the Table
The contrast between core airfares and non-air travel components is striking. Yet many airlines continue to rely heavily on flight-only bookings, leaving these more lucrative revenue streams untapped:
| Product | Typical Margin |
|---|---|
| Flights | Low, single digits |
| Hotels | ~20% |
| Car Rentals | 15–25% |
| Activities/Experiences | Up to 50% |
| Insurance | High conversion & margin |
The impact of this gap is measurable. Switchfly data shows that packaged trips generate 3-5x more revenue than flight-only bookings. By failing to incorporate hotels, cars, experiences, and insurance into their distribution strategies, airlines are leaving billions of dollars in potential airline revenue on the table.
The Dynamic Packaging Advantage for Airline Profits
Dynamic packaging is not a theoretical idea—it is already reshaping airline profitability for the carriers who embrace it. Bundling flights with hotels, cars, and experiences consistently increases both conversion rates and average order values. In fact, packaged bookings deliver 4x the average cart value of flight-only sales, while loyalty programs that offer non-air products see redemption activity rise by 37% and return rates improve by 42% for members who redeem on hotels, cars, or experiences.
On the consumer side, packaging also aligns with changing expectations. Modern travelers want more than fragmented bookings across multiple providers. They expect personalized, end-to-end journeys that simplify planning while delivering more value for money.
When airlines make that possible within their own channels, they not only strengthen conversion rates but also prevent wallet share from migrating to other providers. In this way, dynamic packaging supports both immediate revenue growth and long-term customer loyalty.
Turning Airline Packaging Into Profitability
The opportunity to unlock higher-margin revenue streams is closer than most carriers think. Airlines do not need to reinvent their technology stacks or make massive capital investments to capture these gains. Instead, targeted strategies can be layered onto existing systems with relatively low risk.
AI-driven packaging solutions, for example, can curate bundles tailored to traveler behavior and preferences, driving higher take rates while improving satisfaction. Expanding loyalty redemption options beyond flights helps reduce liability—McKinsey estimates that 30 trillion points remain unredeemed globally—and deepens engagement among the nearly one in four cardholders sitting on idle balances. Distribution is also a critical factor. With 80 percent of online bookings now made through supplier websites and apps, direct channels have become the dominant path to purchase, making it essential that packaging options be embedded seamlessly at the point of sale.
Finally, packaged revenue brings resilience. Unlike fares, which fluctuate with oil prices or economic shocks, hotels, cars, and experiences provide steadier contributions to the bottom line. Airlines that adopt bolt-on, white-label solutions can extend their booking engines to include these offerings quickly and without the expense or risk of building from scratch. The result is higher revenue, stronger margins, and a more predictable business model.
Packaging That Converts = Stronger Airline Margins
The airline industry has long struggled with wafer-thin profitability, and the growth outlook for 2025 offers little relief. In this environment, carriers cannot afford to leave packaging and ancillary opportunities untapped. Packaging is not simply a side opportunity—it is an essential pathway to healthier airline profit margins.
By moving beyond traditional ancillaries and embracing dynamic packaging, airlines can multiply cart values, reduce loyalty liabilities, and stabilize their business models against the volatility of ticket sales. The margins are there for the taking. The only question is whether airlines are ready to seize them.
