Airline Industry Analysis

Air transportation is essential for business and leisure traveling. People travel by air for many reasons such as various destinations to choose from, shorter traveling times, and safety. No matter the reason, air traveling carries direct and indirect expense and cost to the industry and customers. Some direct cost to the air industry is labor and fuel. Both variables can cause ticket prices to increase or decrease depending on how each airline company decides to allocate their profits. Many people may think if fuel premiums are down, ticket charges should drop as well. However, there is more to consider besides the cost of fuel. Labor and maintenance is not cheap. Such as any other industry, there are rules and regulations that must be followed. In order to comply, employees have to be properly trained which is an additional cost to employers. The bottom line is revenue; how should it be spent? One mistake could cause a company many months of economic heartache. The air industry must consider the effects of variable and fixed expenses, when deciding to increase or decrease consumer ticket prices. …show more content…
Investopedia (2015) states, the two key expenditures of the airline industry are labor and fuel. Most labor rates account for nearly 35 percent of airline total operating cost. The operating cost covers approximately 75 percent of all non-fixed totals (p. 1). FAA (2013) documented cost are either direct or indirect, variable or fixed. Some of the expenditures fall into more than one category. Aircraft operating cost is a direct expense (p 4-3). Indirect operating expense encompass a variety of expense such as advertising, aircraft servicing, administrative fees, passenger services, traffic servicing, reservations, and sales (FAA, 2013, p. 4-3). Variable cost include fuel, oil, maintenance, and crew