Aircraft fuel and oil the largest cost component for airlines, but regional variation is ‘considerable’

Against a backdrop of rising industry input costs, especially fuel and labour, the International Air Transport Association (IATA) has released some data looking at the variation across regions in a number of key airline operational cost components in 2017 as a share of total costs. It highlights how aircraft fuel and oil was the largest cost component for the airline industry last year, representing 22.4% of industry wide total costs.


Summary:

  • IATA has released some data looking at the variation across regions in a number of key airline operational cost components in 2017 as a share of total cost;
  • It highlights how aircraft fuel and oil was the largest cost component for the airline industry last year, representing 22.4% of industry wide total costs;
  • But, this doesn’t show the full story with regional variation in this cost category described as “considerable” by the airline group;
  • While Europe sits nicely on the average line, in North America, the fuel share is 4.3ppts below the average and Africa and the Middle East is 3.3ppts above.

But, this doesn’t show the full story with regional variation in this cost category described as “considerable” by the airline group. While Europe sits nicely on the average line, in North America, the fuel share of total costs is 18.3%, 4.3 percentage points below the industry average, while for airlines in Africa and the Middle East the share is +25.7%, 3.3 percentage points above the industry average.

The industry average figures highlight the danger of making global assumptions as they hide important disparities across the regions. This spreads throughout the cost categories, including flight equipment, flight crew expenses, passenger services, station expenses, depreciation and amortisation and user charges. In fact, the only are where there is little variance across the regions is in ticketing and sales, one of the smaller cost areas at 6.3% of industry wide total costs.

CHART – The importance of key airline cost elements varies across regions of the worldSource: International Air Transport Association (IATA)

IATA says the differences in the relative importance of the various cost components across regions “have a number of implications”. For example, it highlights the challenges for global or inter-regional operations (and the value that alliances can potentially provide), where the operating environment can vary considerably. It also notes that the disparity helps to explain, in part, the different evolution of business models between regions as they seek to innovate and respond to different challenges.

As we continue to observe fluctuating fuel prices as we increasingly focus our thoughts towards 2019, this data helps provide important insights into the potential profitability performance and outlook of the industry across the various regions.