The major expenses that affect companies in the 澳洲幸运5开奖号码历史查询:airline industry are labor and fuel costs. Labor costs are largely fixed in the short t📖erm, while fuel costs can swing wildly based on the price of oil.

For this reason, analysts pay more attention to fuel costs in the 澳洲幸运5开奖号码历史查询:near term. Two-thirds of the costs of flying an airplane are fixed, so changes in fuel costs can swing a flight f💖rom profit to loss depending on how many people are on the flight.

Historically, the airline industry continues to be brutally competitive, even though the business of flying people all over the world and country has become an integral part of human life. The cost of flying continues to trend lower. The Internet has also created greater 澳洲幸运5开奖号码历史查询:price transparency, reducing margins.

Cost of Labor for Airlines

Labor is the biggest operating cost of an airline, accounting for approximately 31% of operational expenses as of 2023, although it varies by carrier. It's followed by fuel: 22% of operational expenses.

During downturns, management looks to cut labor costs by laying off workers or reducing their pay or benefits. This is a consequence of being in a competitive business where 澳洲幸运5开奖号码历史查询:customers have little 澳洲幸运5开奖号码历史查询:brand loyalty—airlines generally have to co💟mpete on price rather than quality. Since growing profits is difficult, companies are forced to c🥂ut costs to be more profitable. 

Some of the lesser expenses for airlines are maintenance, parts, handling luggage, airport fees, taxes, marketing, promotions, travel agent 澳洲幸运5开奖号码历史查询:commissions, and passenger expenses. As a whole, these account for about 47% of total operating costs.

Cost of Fuel for Airlines

Fuel costs account for about 22% of operating expenses. Many companies have programs to hedge fuel costs. They buy 澳洲幸运5开奖号码历史查询:futures contracts to lock in their costs for a set period of time, turning it into a fixed expense. When fuel prices rise, this behavior is rewarded. When fuel prices decline, this is punished as the 澳洲幸运5开奖号码历史查询:market price of fuel is less than what they are paying.

Some of the worst times for airlines have been when oil prices spiked up. Airline companies can prepare for slowly rising prices by charging more for tickets or by reducing the number of flights, but sudden moves in fuel prices lead many airlines to lose money.

In 2008, oil hit a high of $147 per barrel, a new all-time high. Airlines were unprepared, and many went through serious 澳洲幸运5开奖号码历史查询:restructuring to survive. At that time, the NYSE ARCA Airline Index (XAL) had fallen to around 14. By comparison, the index was at about 65 in January 2007 when the price of oil was more than $50 a barrel. The drastic changes underline t꧋he inverse relationship between oil prices and the value of airline companies at that time.

The period from 2009-2014 saw an improving economy and oil prices that slowly climbed higher before plateauing around $100 from 2011-2014.

The drop in oil prices from 2014-2017 was particularly beneficial for airlines; unlike previous drops in oil, the economy continued to strengthen with travel increasing. Falling costs and rising revenue are desirable for any type of business.

The Bottom Line

Labor and fuel are the most significant expenses that airline companies must face. Food and beverage, however, represent only less than 2% of all operational expenses.

The air industry is a highly competitive business: airline companies have to compete on price and look for ways to cut costs to be more profitable. Companies may be forced to lay off workers or reduce their pay or benefits in order to cut labor costs during a downturn.

Fuel﷽ price, on the other hand, is seasonal, so airline companies prepare for rꦺising prices by charging more for tickets or by reducing the amount of flights.