AIR INDUSTRIES EXPENDITURES
Expenses and Costs Facing Today′s Air Industry
The aviation industries specialize in transporting people and goods via air. This transportation is attributed to a higher convenience level as compared to other means. It is swift, comfortable, and safe, though in the moment of accidents, results in total fatality and destruction. This makes the way most preferred mean for corporate business people and transportation of perishable and urgent goods. One of the primary considerations of the air industry is to provide quality services. The initiative leads the airline to incur considerable operating expenses. They, however, make adjustments to ensure that their profits margins are not compromised to a greater extent. The article aims to explain expenses and cost with a particular focus on jet fuel costs and how they influence ticket prices and patron flying occurrences.
Firstly, the highest initial cost that airline industry experience is in acquiring aircraft themselves. The two major manufacturers of airplanes include the Boeing and the Airbus companies (“Boeing – All Aircraft & Prices, Specs, Photos, Interior, Seating – Aircraft Compare,” 2018). From their insight, it is estimated that a single Boeing can range from 89.1 million dollars to the most expensive Boeing 777-9 that costs 442.2 million dollars. According to the airbus website, the lowest prices for A220-100 cost 81 million dollars while the most expensive A380 costs 445.6 US million dollars (“Airbus – All Aircraft & Prices, Specs, Photos, Interior, Seating – Aircraft Compare,” 2018). The cost of switching them is abnormally high. These costs are very high, and this explains why the industry is not flooded.
The workforce required for the smooth operation of the airline business is high. The human resources in this industry cost more than a quarter of the total income. Massive hiring of pilots, co-pilots, cabin crew members, the management team of the industries is known to consume enormous costs. The cost of hiring pilots, according to Epic flight academy, is capped to range between 42,000 to 270,000 dollars annually. Further research by the Bureau of Labor Statistics report recorded the average annual income for the pilot as 113,709 dollars, from the 235 pilots who disclosed their salaries (Editors, 2020). Their income, however, depends on one’s experience. Other labor costs incurred include baggage handlers, customer service, flight attendants, dispatchers that accounts for a substantial financial cost the airline. Owing to all these costs, the airline maintains its flight tickets relatively high to cover up these costs.
Additional costs are required for the smooth operation of the industry. They include debts servicing, insurances, taxes, other legal fees to governments, cost of food to passengers, fees to airports, and maintenance costs dramatically impacts on the expenditure. The research by the Statista indicates that average per seat per mile among domestic airline operations ranges from 1.2 dollars for Frontier to 5.2 dollars for the United airline (Mazareanu, 2019). Other notable cost includes system managements costs, pilot training, incidental costs, website maintenance, and percentages paid to travel agencies chunk of money.
The significant avenues that account for the highest airline operation expenditures are fuel consumption. Fuel consumption is a mandatory requirement daily. They account for more than 25% of the total company’s costs annually. The instability on fuel prices significantly impacts on the ticketing criteria and rates. They also put the airline industry in a dilemma or possibility of financial losses. This is because fluctuations in prices hinder the projection of profits. Consumptions in short distances are quire very high as compared to those airlines that cover long flights. The facts are due to higher fuel consumption during takes offs and landing. The number of landings and takeoffs are more in short-haul freights (GRABIANOWSKI, 2017). The Air Transport Association estimates that domestic airline jet fuel consumption in the aviation industry costs about 2 to 4.8 billion every month.
Owing to the risks that are associated with instability of fuel prices, aviation companies obtain hedging contracts on jet fuels. The absence of a permanent position or any regular trend may result in a sudden rise in jet fuel prices hence the benefits of hedging contracts. The uncertainty in fuel prices leads to the setting of freight tickets at relatively higher rates. For instance, when the fuel prices are high, massive losses are incurred, or lower profit margins realized since ticket prices are high and carrying capacity is not attained. This leads to many seats unoccupied, consequently resulting in higher instances of patron flying occurrences (GRABIANOWSKI, 2017). These are freight granted by the aviation companies to their employees.
During seasons for lower fuel prices, the prices are relatively small, sometimes insignificant, or at a standard rate resulting in the higher booking of freights. The aircraft seats are, in turn, filled, leading to higher profit turnovers. Patron frying occurrences are minimal by then. When the projection of the fuel prices shows a constant and impressive trend, the airlines revise their fuel-hedging contracts. This creates a double income, agreement to givebacks, and massive profits (GRABIANOWSKI, 2017). The amount is used to enhance other expenditures, boost bonuses to the shareholders, or shares enhancement with purposes possible reduction of freight costs.
In conclusion, the airlines have numerous expenditures that are mandatory in their operation. Fuel costs being the primary focus on which trend of profitability the airline company falls. If the fuel prices are high, prices are comparatively high, and ticketing is low. Unoccupied seats increase, and patrons flying increases so is the reverse when rates are low.
References
GRABIANOWSKI, E. (2017). How Budget Airlines Work. HowStuffWorks. Retrieved 6 April 2020, from https://money.howstuffworks.com/personal-finance/budgeting/budget-airline1.htm.
Boeing – All Aircraft & Prices, Specs, Photos, Interior, Seating – Aircraft Compare. Aircraft Compare. (2018). Retrieved 6 April 2020, from https://www.aircraftcompare.com/manufacturers/boeing/.
Airbus – All Aircraft & Prices, Specs, Photos, Interior, Seating – Aircraft Compare. Aircraft Compare. (2018). Retrieved 6 April 2020, from https://www.aircraftcompare.com/manufacturers/airbus/. (“Airbus – All Aircraft & Prices, Specs, Photos, Interior, Seating – Aircraft Compare,” 2018)
Editors, E. (2020). How much do pilots make?. Epicflightacademy.com. Retrieved 6 April 2020, from https://epicflightacademy.com/airline-pilot-salary/.
Mazareanu, E. (2019). Domestic labor costs of U.S. airlines 2018 | Statista. Statista. Retrieved 6 April 2020, from https://www.statista.com/statistics/796399/us-airlines-by-domestic-labor-costs/.