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American Military University *
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Feb 20, 2024
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1
True Costs of an Airline
TLMT311: Introduction to Transportation Management
2
True Costs of an Airline
Operating costs are at the heart of every airline, encompassing many different areas from
upfront aircraft costs, maintenance, fuel, and labor. As with any industry an airline’s profitability
and longevity, understanding and managing these expenses is vital for an airline to thrive in such
a competitive environment. In this paper we will investigate the complex world of different
operating costs, and how airlines manage these complex costs to run efficiently. Labor Costs
There are fluctuating numbers depending on the source about the percentage of labor
costs for an airline, but one thing that is agreed upon is that labor costs are the largest part of an
airline’s expenses. Airline payrolls account for around 35% of an airline's operating expenses
(Finlay, 2023). There are some major drawbacks to the labor costs being most of an airline’s
expenses. Because of the large percentage that labor costs takes up airlines are often quick to cut
those costs in downturns and slow periods in aviation. This leads to workers being laid off as the
first act by many airlines to lower expenses. Fuel Costs
Fuel prices affect all Americans and by many is one of the most important prices that
they look at. Airlines are also significantly affected by rising fuel prices, which is their second
largest expense behind labor costs. Carriers typically pass on to consumers as much as 60 percent
of a volatile rise in the price of fuel, experts said, a process that usually takes months (Chokshi &
Krauss, 2022). Passing these rising prices on to consumers is essential for airlines to remain
profitable and prevent significant losses. The average airline spends anywhere from 10 to 20
percent of their costs on fuel. Many airlines buy futures on fuel prices to try and hedge against
rising prices. This works well and is a good move when jet fuel prices rise during this period, but
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