Airline Cost Decline Trend

The Air Transport Association’s quarterly Airline Cost Index, which incorporates data through the second quarter of 2009, registered the second consecutive period of air carrier cost declines.
 
The composite cost index fell 29 percent to 183.9 in the second quarter of 2009, versus 259.4 in the same period of 2008, easily outpacing the 0.9 percent decline in the U.S. Consumer Price Index (CPI). The three largest components of the index – which includes all operating expenses as well as interest expense – were labor, fuel and transport-related expense, respectively.

Other highlights include:
 
    •    Combined, labor and fuel costs accounted for nearly half of airline operating expenses. The average price paid for fuel, which is still disproportionately high, fell 36 percent from record levels one year ago, while the average cost of employing a full-time equivalent worker (wages, benefits and payroll taxes) rose six percent to $79,657.
    •    Other rising cost categories included aircraft insurance (up 24 percent), interest (up 22 percent), landing fees (up seven percent) and professional services (up six percent).
    •    Other categories seeing year-over-year declines in input costs included aircraft rent and ownership, food and beverage, maintenance material (cost of maintaining and purchasing materials for airframes, aircraft engines, ground property and equipment), non-aircraft insurance, travel agency commissions, communication, utilities and office supplies, and transport-related expense.
    •    The drop in the cost index helped reduce – but not eliminate – the unfavorable gap between average break-even and actual load factors from 6.3 percentage points to 1.8 percentage points.
 
“Airlines remain intensely focused on reducing expenses and identifying additional sources of revenue, but this is a challenging environment,” said ATA Chief Economist John Heimlich. “Carriers are demonstrating tremendous cost discipline in the face of a weak demand environment and continuing fuel-price volatility.”
 
ATA says its 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.