Airline operating costs and profitability

Abstract

The airlines’ marketing policies are influenced by costs and expenses which could influence their levels of service and their ability to be profitable. Their direct and indirect operating costs are affected by sector length; utilisation of aircraft, fleet size and labour costs, among other issues. Moreover, the aircraft design characteristics, such as aircraft size, aircraft speed, age of the aircraft, crew complement could also affect the airlines’ cost structure. Furthermore, the airlines may have overheads, including; sales costs, administration, accounts, general management and employment costs, among others. Therefore, this chapter provides a detailed overview of airline operating costs and explains how to analyse their profitability. Initially, it introduces its readers to the airlines direct and indirect costs, as well as overheads. Afterwards, it deals with cost comparison parameters and metrics.