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Airlines Report Third Consecutive Quarter of Rising Costs

January 6, 2011 By: George Dooley

The Air Transport Association of America (ATA), the industry trade organization for the leading U.S. airlines, today released its quarterly Airline Cost Index, incorporating data through the third quarter of 2010. Included in the cost increases were travel agency commissions (up 6.1 percent).

Costs faced by U.S. passenger airlines, measured by the “composite cost index,” rose 5 percent to 209.8 in the third quarter of 2010 compared to the same period of 2009, outpacing the 1.2 percent gain in the U.S. Consumer Price Index (CPI). The composite airline cost index remains approximately 110 percent higher than its level of 100 in 2000.

The three largest components of the index – which includes all operating expenses, as well as interest expense – were fuel, labor and transport-related expense respectively. Other third quarter highlights include:

• Improvements in fuel efficiency, labor productivity and revenue generation helped offset the higher composite costs, pushing the break-even load factor down 7.3 percentage points to 73.7 percent – the lowest level since the first quarter of 2001 – and enabling the first consecutive quarters of profitability since the middle of 2007.
• Combined fuel and labor costs accounted for half of airline operating expenses. The average price paid for fuel rose 10.6 percent, from $1.92 to $2.13 per gallon. The average cost (wages, benefits and payroll taxes) of a full-time equivalent worker rose 5.6 percent to a high of $86,603.
• Other rising cost categories included, among others, advertising and promotion (up 12.8 percent), aircraft rents and ownership (up 9.4 percent), travel agency commissions (up 6.1 percent), landing fees (up 3.8 percent) and interest (up 3.6 percent).
• Other categories seeing year-over-year declines in input costs included maintenance material (cost of maintaining and purchasing materials for airframes, aircraft engines, ground property and equipment, down 6.7 percent), property rents and ownership (down 5.1 percent) and non-aircraft insurance (down 3.8 percent).
• Categories with year-over-changes of less than 3 percent were aircraft insurance, communication, food and beverage, professional services, transport-related expenses and utilities and office supplies.

"The third-quarter results highlight the continued importance of offsetting the rising costs of doing business through operational efficiencies, productivity gains, and diversification of revenue streams. Thanks to a strengthening economy and the continuing efforts of airlines to adapt to a volatile environment, the increase in costs did not stand in the way of profitability this quarter,” said ATA Chief Economist John Heimlich. “Nonetheless, with costs likely to continue rising in this period of economic uncertainty, financial discipline remains paramount.”



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By George Dooley | January 6, 2011
Airlines face continued pressure to achieve profitability.
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