NAFA member, Jason Zilberbrand, President and CTO of VREF Aircraft Value Reference, answers your questions about what makes airline tickets so pricey.
On occasion, even short-distance trips can amount to a total that’s higher than what you might expect. But aside from the time of year and location, what factors are the most costly for a commercial airline?
Learn more about the 5 top commercial airline costs.
Top 5 Airline Costs
Due to COVID-19, airlines are seeing historic lows in-flight sales both domestically and internationally. Unfortunately, expenses don’t decrease with the decrease in in-flight sales. Even while grounded, planes must remain maintained, and leases must remain paid. However, these main expenses stay the same for airlines globally.
There are 5 major airline costs that these companies need to cover.
1. Fluctuating Prices Of Jet Fuel
Of the most costly expenses incurred by airlines, fuel is number one. According to the HowStuffWorks, “Domestic airlines in the U.S. spend a combined $2 to $5 billion on jet fuel every month.”
Fuel can cost an airline anywhere between 15 and 20 percent of its total budget. On top of that, fuel costs tend to vary based on the economy. Airlines are subject to paying for those fluctuations in price.
Ideally, airlines prefer to buy cheap fuel and pass some of those savings over to their customers. However, in recent months, jet fuel prices have hit a high of $1.67 a gallon. For comparison, jet fuel cost $1.45 per gallon in 2016 when travel was popular, and the current pandemic did not yet exist.
It may not be easy to justify the price tag on a plane ticket if you look at the cost of jet fuel per gallon alongside the cost of gasoline per gallon. While fuel may be the highest cost incurred by airlines, an airline ticket's cost depends on much more than jet fuel alone.
2. Labor Expenses
Up next in highest airline costs lies in labor expenses. Hiring, training, and maintaining airline employees can take a massive chunk out of an airline’s budget. In 2018, U.S. airlines raked in a revenue of $187 billion and spent a little over $50 billion in labor. This contrast reflects a total of 28% revenue loss due to labor costs.
When the going gets tough, it’s not difficult to see where budget cuts lie. Because of the pandemic, many airlines put plans in motion to furlough early retirees in anticipation of bringing in younger professionals set at a lower hourly or salary rate. This helps them cut higher-paid income costs and save by hiring more affordable professionals.
3. Aircraft Rent And Ownership
It may surprise you to learn that airlines rarely own the aircraft they operate and typically have an active debt from leasing them out. Airlines continue to have to make aircraft payments regardless of how many seats are booked.
Airlines everywhere are doing what they can to ensure a more profitable future. Among those big decisions lies within those airlines who canceled or did not plan to repurchase Boeing and Airbus aircraft. With several jets grounded along with plane incidents that caused a negative backlash, both Boeing and Airbus reported huge losses in 2020.
Among the top 5 airlines in the U.S., including the following:
Delta Air Lines
Each has taken extraordinary measures to cut back on spending while many aircraft are grounded, eating into their rental costs.
4. The Cost Of Equipment And Maintenance
Equipment and maintenance are among the other most costly expenses airlines must keep up with. Based on a 2019 International Air Transport Association (IATA) report created using findings from 2018 spending, airlines spent about 9% of their overall operating expenses on equipment and maintenance.
Airlines need to maintain meticulous records and information regarding maintenance and repairs as the Federal Aviation Administration (FAA) has specific requirements for the benefit of the people who use, trust, and rely on aircraft travel.
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5. Professional Services And Contract Obligations
Finally, professional services cost airlines within the U.S. about 8.6% of their budget. Marketing services may seem unnecessary, but especially in today’s climate, an airline is nothing if not relevant. Amenities must remain accessible as promised. And the risk of faltering to legal dealings has every airline maintaining their legal defense. Although some services may seem arbitrary, they must keep the airlines running safely and legally.
These types of services include the following:
Advertising and marketing
Clubs and lounges
Special needs travel accommodations
In-flight Wi-Fi and more
While some more luxurious services are understandably costly, amenities considered everyday or regular amenities can take up a good portion of an airline’s budget.
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This article was originally published by VREF on March 5, 2021.