What Effects the Cost of Flying?
An inside view of the costs and obstacles airlines have operating aircraft around the world every day
What effects the cost of flying?
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 compares with cost control to their competitors, provided that information is available.
Over the last fifteen years significant emphasis has been placed on airline cost control as low-cost carrier have emerged as some of the world’s largest airlines.
Even the large flag / legacy carriers such as Lufthansa and KLM have been trying to reduce their costs in recent years to boost profitability and a return to their shareholders which therefore attracts further investors. This supports the airline to raise further capital and invest in new aircraft to compete with the cash rich Middle Eastern carriers.
One of the largest costs for an airline is its staff. The largest employee groups include pilots and Cabin Crew. Other departments include HR, IT, call centre, marketing, legal, commercial, management, operations, cargo, handling, admin and engineering just to name a few.
Over the last 15 years, it has become common practice to sub-contract out a significant amount of work to reduce staffing costs. As a result, the airline might be more flexible and adaptable although quality might be compromised. Many airlines now employ third party companies to staff their front of house 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 in that the price could go up or down after you’ve agreed the initial purchase price. Airlines will have specific staff to do this or will sub-contract the work to an organisation that specialises in fuel hedging.
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, which an airline has little control over, is operational disruption. This can be due to bad weather, industrial action or technical failures. If an airline cancels or significantly delays a service then the airline must still look after the welfare of their customers including providing 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 on load and offload, fuel, boarding and check-in, 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.
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.
Aircraft & Engineering
The purchase and upkeep costs of multi-million pound aircraft are very significant. Many airlines lease their aircraft rather than own them.
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!