What affects the cost of flying?
An inside view of the costs and obstacles airlines have in operating aircraft around the world every day.
What affects the cost of flying?
We will answer this one in 2 sections, firstly company wide costs, secondly specific aircraft costs:
Firstly, most airlines now assess their cost base by using CASK – Cost per available seat kilometre. As most airlines calculate their costs this way it is easy to see how an airline is doing on costs compared to their competitors, provided that information is available.
Even the large flag / legacy carriers such as Lufthansa, British Airways and KLM have been trying to reduce their costs in recent years to boost profitability and a return to their share holders which therefore attracts further investors enabling the airline to raise capital and invest in new aircraft to compete with the cash rich Middle Eastern carriers.
Airline costs are massive, just think of the insurance that is required alone, then add on the back office staff which would include – HR, IT, Call Centre staff, Marketing, Legal, Commercial, Staff at airports around the world and engineering just to name a few.
The trend in the last 10 years has been to sub-contract out as much work as possible as this way an airline is not burdened with staff issues and costs. The airline can then be more flexible and adaptable. Most airlines now employ third party companies to staff their front of house at airports including check in and boarding gate staff and their ramp operations including baggage handlers and pushback crews.
In terms of actual operating costs the biggest variable is the fuel price. This is directly related to the price of crude oil. To attempt to smooth out fluctuations in the price of fuel most large airlines fuel hedge. This involves buying fuel in advance and is a little bit like playing the stock market. Airlines will have specific staff to do this or will sub-contract the work to an organisation that specialises. Currently fuel is the cheapest it is has been for some time due to crude oil over supply.
While the fuel price is low airlines are much more likely to hold onto older, less efficient aircraft as they will be cheap to operate. The airline would either own these older aircraft or the leasing costs would be low due to lack of demand for the aircraft as it is more mature. The most efficient long haul aircraft will be the B787 and the A350, these aircraft are made of lighter materials and have huge bypass efficient turbofan engines and therefore burn less fuel than comparable aircraft.
The global economy can have a significant impact on costs, whilst global recessions and fears of terrorism can reduce revenue as passengers may fly less we are only discussing costs in this article.
Most airlines buy their fuel in US dollars so they are also dependent on exchange rates. For example the recent Brexit vote in the U.K. Saw a sharp fall in the U.K. Pound against the US dollar. Overnight this increased the cost of fuel for U.K. airlines and is something they have no control over.
After fuel the next biggest cost that an airline has little control over is disruption. More recently this has been due to air traffic control strikes in Europe. If an airline cancels or significantly delays a service then the airline must still look after the welfare of their customers including hotel accommodation where required.
Sometimes an airline may divert to a different airport for a number of reasons including technical, weather or medical. If the crew do not have enough available flying hours remaining then the passengers and crew will need to stay over.
These costs are massive as not only will you have the hotel costs and on a long haul service you could have over 350 passengers and crew, the bookings will be at short notice and could be up to £100 per person. Meals and drinks would also need to be provided. There would be handling fees incurred at the diversion airport to provide steps, baggage onload and offload, fuel, boarding and checkin, cleaning and catering.
However, on top of all these costs you have the knock on effect, the return flight would be delayed meaning those passengers would more than likely require hotel accommodation, food and drink. On top of all of this EU regulations now stipulate compensation must be paid to passengers if flights are cancelled or heavily delayed.
Airlines also have to pay landing and parking fees. These not only cover the cost of airports providing runways and ATC but also cover the costs of airport services such as immigration and customs facilities. Airlines have little control over these fees as the only control they have is threatening to pull out of the airport if the airport tries to increase charges, Ryanair and others employ this tactic.
Pilots can save airlines a lot of money. They can save fuel by not loading extra fuel when it is not required and flying the aircraft as efficiently as possible which takes planning, airmanship and skill. They can also taxi in and out with reduced engines operating.
Pilots can also save their airline a lot of money by making sound commercial decisions. Naturally a Captain’s role is to make every decision based on the safest course of action, however there may be different options that are just as safe but can have varying impacts on the airline in terms of cost. For example it could be a decision to divert to two different airports, one may have much higher operating costs or more expensive fuel and hotels. Yet it may be just as safe to divert to another airport that has lower costs and more infrastructure.
In summary unlike most businesses airlines cannot control many of their costs so the costs they do have control over they will try to be extremely proactive in controlling!