Sorry, how is this different from what I said? The condition x>y, with x the subsidy and y the expense, is exactly what I intended with "subsidy they get [is] higher than its real cost".
Oh, I interpreted your "its real cost" as everything that goes into the service (i.e. everything the airline does to hold up their end of the deal, which goes well beyond fuel) whereas in my version I'm defining y far more narrowly: the fuel needed to haul the weight of the person.
The subsidy could easily exceed the fuel, which means losing the subsidy despite saving on fuel is something the airline legitimately wants to avoid. They won't be in a worse position than if the seat went unsold, but it'll be worse than if they had a flying passenger.
The subsidy could easily exceed the fuel, which means losing the subsidy despite saving on fuel is something the airline legitimately wants to avoid. They won't be in a worse position than if the seat went unsold, but it'll be worse than if they had a flying passenger.