The links between ticket prices and airline profitability are very complex. Airlines have high fixed costs of operating flights, with few of these related to the number of passengers carried. This article takes a look at some of these costs and considers what airlines pay to operate flights. This is a hugely complex area and something that changes a great deal between regions. Consider this a starting point to understand the area, rather than an exhaustive guide to costing.
Table of Contents
Airline fixed costs
Before we look at the costs associated with operating a flight, we should briefly discuss the fixed costs faced by airlines. Of course, these are also factored into flight costs, but it is harder to attribute these to each flight. Major costs include:
Aircraft depreciation and rental costs. The cost of the aircraft is obviously a major part of airline costs. Typical accounting measures (as discussed in this 2018 FAA guide to airline costs) suggest a depreciation cost of 4% per year for jet aircraft. This would roughly assume a 25-year operating life for an aircraft. An airline may not keep an aircraft this long, of course, but the remaining value is then reflected in the secondhand value of the aircraft.
To put this in context, the list price for a new 777-8 aircraft is $410.2 million, so depreciation could be as much as $16.4 million per year. In reality, costs would likely be lower as airlines usually expect a significant discount on the list price.
Maintenance costs. Aircraft undergo regular checks and maintenance as part of daily operations. On top of this, there is a system of heavier A, B, C, and D checks.
This could be considered as either fixed or dependant on flights. Like all fixed costs, there is a cost that needs to be attributed to each flight made. But to maintain an airworthy fleet, maintenance costs are inevitable.
Insurance costs. Insuring aircraft will depend more on the fleet size than the number of flights.
Reservation and booking costs. This is an interesting area for low-cost carriers, as many cut costs here by only selling flights through their own websites. Typically though, airlines pay a percentage fee to booking agents and booking websites.
Staff and management costs. There may be some flexibility to alter crew salary depending on schedules, but other salary costs are more fixed long term.
Flight operating costs
We now look at the costs of operating each flight. These are the costs airlines experience based on flight schedules. Of course, some are directly related to each flight and would not be incurred if the flight did not operate. Others are longer-term, more based on the planned schedule, such as staff costs.
To demonstrate the cost of flight operation, we will consider where practical the example of a Boeing 777-300ER flight from London to New York. Some other relevant and interesting cost areas will be highlighted.
According to Jean-Paul Rodrigue in his book ‘The Geography of Transport Systems,’ staff are fuel costs are by far the largest expenses. Together they account for 50% of all costs (with staff at 32.3% and fuel at 17.7%).
The number of cabin crew follows strict regulations, with a minimum number for each aircraft type (this will be at least equal to the number of exit doors, but can be more).
Salaries, of course, can vary between airlines. According to salary tracking website Glassdoor, the average British Airways pilot salary is £87,000, and for easyJet, it is £50,184. Cabin crew likewise can earn different salaries depending on their contract terms or location base. Just look at the problems British Airways has had in 2020 trying to change its crew contracts to get an idea of this.
Crew bases and rotations are also a significant cost factor, especially with long-haul flights. Many airlines operate multiple crew bases to help with this. This not only affects cost but provides local crew for better passenger service and provides backup in case of staff problems.
Norwegian is a good example of an airline adopting this model. It operates a complex structure, with subsidiaries in several countries. As part of this, it takes advantage of lower labor costs (amongst other things) outside its main base in Norway. Finnair also makes good use of overseas bases, particularly for Asian flights.
For a good idea of what this costs in terms of operating a flight, we will look at the FAA analysis numbers. It calculates the following per-hour (block hour, so the total time from gate to gate rather than just airborne time) operating costs for all crew:
- Widebody over 300 seats: $2,356
- Widebody under 300 seats: $1,857
- Narrowbody over 160 seats: $1,1,52
- Narrowbody under 160 seats: $1,034
So, as a guide, our seven-hour 777 flight from London to New York would have a staff of around $16,500.
Fuel is a major expense for airlines and is why they suffer so much in periods of high oil prices. For example, the fuel price more than doubled over 18 months up to September 2018. Simple Flying took a look at the cost impact on Emirates at the time. Other airlines suffered the same, but of course, it is worse for airlines with larger, more fuel-hungry aircraft.
There are some strategies to deal with this. Many airlines will buy options for fuel ahead of time, locking in prices. This can make forward planning and accounting easier and provide some protection, but ultimately prices will rise when oil prices go up.
The impact of rising prices is helped to some extent by more efficient aircraft. Back in the 1970s, long-haul flying was the domain of heavy, four-engine aircraft. There has been significant improvement in aircraft efficiency in recent years, and of course, twin-engine aircraft are now much more capable. With the demise of the A380, the era of four engines may well be over. And going forward, we are likely to see even smaller (and more efficient) twin-engine aircraft on longer routes. The new Airbus A321XLR promises much in this area and is already popular with airlines.
Blog The Points Guy looked in detail at total fuel costs in late 2019, based on data from Airlines for America. It quotes the average cost for fuel for a London to New York flight of $33,411. With normal winds, though, the return would use less fuel, costing $27,270. For comparison, a transcontinental flight from New York to Los Angeles would use $10,757 of fuel.
The improvement in efficiency is best seen by comparing fuel burn per seat. An interesting study from the International Council on Clean Transportation (ICCT) looked at this in 2019 for transatlantic operators. As well as highlighting which airlines have the best fuel economy (Norwegian was best, British Airways worst), it also compared aircraft types. The industry average was 33 passenger-kilometers per liter of fuel burn. The fuel-efficient Airbus A350 and Boeing 787 were significantly above this, at over 40 passenger-kilometers per liter.
Airlines pay a fee to land at any airport and use the required facilities there. Fees vary a great deal between airports and take into account different factors, including aircraft type and weight, landing time, and sometimes emissions and noise. Some locations split this into a fixed fee and a variable fee (based on the load-factor).
The rates for JFK (and other New York airports) are published by the Port Authority of New York. In 2020, the fee is $6.95 per thousand pounds of maximum gross weight. The maximum take-off weight (MTOW) of a 777-300ER is 775,000 pounds. This would give it a take-off/landing fee of $5,386.
In addition to this, there are usage fees for airport parking areas, usually dependant on aircraft size and time on the ground. At JFK, these are $70 plus an additional $25 for each 25,000 pounds MTOW over 200,000 pounds. This is charged for each period of up to eight hours. For our 777-300ER, this would be $645.
As a comparison, rates for London Heathrow are published by the airport. These are based on aircraft size, as well as noise category. For most heavy widebodies, this would be £5,737 ($7.758) per landing. There is an additional emission charge of £16.84 ($22.80) per kilogram of NOx emission. And a parking charge of £61.13 (82.66) per 15 minutes (after 90 minutes) for widebody aircraft.
Airport and government taxes
As well as landing fees, there are additional government taxes, of course. These likewise vary hugely between countries and airports and change regularly. The UK has some of the highest such taxes, with its Air Passenger Duty (APD) on top of other taxes. There is some discussion that this may be removed, but it is far from certain.
In most cases, these are incorporated into the price paid for the ticket and then passed from the airline to the relevant government bodies. This is not always the case, though. Often, some low-cost airlines offer ticket prices lower than the total taxes (particularly in Europe and the UK, where fares are low and taxes high). This can be worthwhile as part of a wider marketing campaign or when considered alongside additional, ancillary revenues, for example. British Airways does the same with its Reward Flight Saver tickets, charging cash amounts lower than total UK taxes.
Overflight fees en route
Airlines pay overflight fees to the governments of each country they fly over on their routes. This covers the use of air traffic control and other navigation services. For a flight just over the US or within Europe (which is centralized under ‘Eurocontrol’), this will be a single payment based on the aircraft type and length of the flight.
For a complex route, crossing several countries, the payments are much complicated. Some countries impose a fixed fee; others will base it on distance flown.
The Federal Aviation Administration sets rates in the US. There are only two rates; overland, the rate is $61.75 per 100 nautical miles, and over ocean monitored by the FAA, the rate is $26.51 per 100 nautical miles.
Europe’s rates are more complicated. They are based on aircraft weight, flight distance, and a ‘unit rate’ for each country. Billing and control are centralized, but rates vary by country.
Changing routes slightly can have a big effect on these costs. The Wall Street Journal, for example, quoted the case of a British Airways re-route over Europe for a London to Sao Paulo flight that could save the airline around £3000 ($3980). Instead of routing over Portugal, Spain, and France, it switched to an oceanic crossing and entered UK airspace over Cornwall.
Simple Flying looked at a few more examples and coverage of the fees in another article.
Airlines, though, can’t always just pay a fee – they need permission as well. This can often get political as well as financial. We have seen this, for example, with Qatar Airways, blocked from several Gulf countries’ airspace after 2017. And airlines in Taiwan cannot overfly Chinese airspace, requiring routing diversions.
Ground handling fees
As well as the fees to airports and governments for landing and using ground services, there are third parties involved in turning around and serving an aircraft. How much airlines handle themselves and how much is outsourced varies between airlines and locations.
Costs of such services are hard to obtain. Some discussion on blog Airliners.net puts a standard ground turnaround charge for a 737 aircraft at $1,000 to $2,000.
The above details have provided a guide to each of the main costs incurred. To bring them together, we will look at the research into airline costs carried out by the US FAA in 2018.
This study attempted to quantify the total operating cost of various aircraft types. This includes all of the above factors, plus an attempt to bring in other fixed costs that are hard to quantify per flight. For widebody aircraft over 300 seats, it estimated the total variable costs per block hour to be $9,097 and the total operating cost (including a proportion of airlines fixed costs) to be $10,351.
Out of interest, for a larger narrowbody (over 160 seats), this drops to variable costs of $4,096 and total costs of $4,733.
This would put the average large widebody cost for a seven-hour flight across the Atlantic at just over $72,000. There will obviously be variation in this depending on aircraft type and exact routing, but it gives a good guide.
And a short-haul European flight, for comparison, of 2.5 hours would reach almost $12,000. Consider this next time you are looking at very low fares with low-cost airlines. It also helps explains the growing importance of ancillary revenues for low-cost airlines.
Would you like to share any comments on airlines’ costs and fees? Or do you know any more details or examples of actual costs – we would love to update with more accurate estimates! Let us know in the comments.