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Half of Airline Operating Costs Made Up From Labour and Fuel

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Air Transport Association Of America (ATA)
: 14 January, 2010  (Technical Article)
The quarterly Airline Cost Index from the ATA shows continuing decline in costs with largest factors being fuel and labour charges
The Air Transport Association of America (ATA), the industry trade organisation for US airlines, has released its quarterly Airline Cost Index, incorporating data through the third quarter of 2009.

The composite cost index fell 36 percent to 185.3 in the third quarter of 2009, versus 289.7 in the same period of 2008, easily outpacing the 1.6 percent decline in the US Consumer Price Index (CPI). The three largest components of the index – which includes all operating expenses as well as interest expense – were labour, fuel and transport-related expense, respectively. Other highlights include:

* Combined labour and fuel costs accounted for nearly one-half of airline operating expenses.
* The average price paid for fuel, while still disproportionately high, fell from $3.51 to $1.94 per gallon.
* The average cost (wages, benefits and payroll taxes) of a full-time equivalent worker rose 7.6 percent to a high of $81,235.
* Other rising cost categories included aircraft insurance (up 53 percent), interest (up 18 percent), maintenance material (cost of maintaining and purchasing materials for airframes, aircraft engines, ground property and equipment, up 17 percent), advertising and promotion (up 5 percent), and landing fees (up 3 percent).
* Other categories seeing year-over-year declines in input costs included transport-related expenses (down 18 percent), professional services (down 16 percent), communication (down 9 percent), non-aircraft insurance (down 9 percent), utilities and office supplies (down 7 percent), property rents and ownership (down 5 percent), travel agency commissions (down 4 percent), and food and beverage (down 1 percent).
* The drop in the cost index helped reduce – but not eliminate – the unfavorable gap between average break-even and actual load factors (reduced from 6.2 percentage points to 0.8 percentage points).

“With heightened security measures in place, security costs looming, a fragile economic recovery and continued job losses reported by the Bureau of Labour Statistics within the past week, airlines remain intensely focused on reducing expenses and pursuing additional sources of revenue,” said ATA Chief Economist John Heimlich. “Cost discipline remains paramount amid historically weak demand for air travel and the return to $80-plus crude oil.”

Heimlich added that recent unwarranted increases in the price of crude oil reinforce the need for Congress to pass financial market reforms to curb energy price volatility while regulatory authorities also take appropriate action.

The ATA Airline Cost Index is the only industry analysis of its kind, tracking quarterly and annual trends in the cost of inputs to airline production for U.S. passenger carriers that report quarterly financial information to the Department of Transportation. The index facilitates comparisons between the components themselves, as well as with macroeconomic indicators.

Annually, commercial aviation helps drive more than $1 trillion in US economic activity and nearly 11 million US jobs. ATA airline members and their affiliates transport more than 90 percent of all US airline passenger and cargo traffic.

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