cfc

Ok, there are several airline industry mavens here, and I'm thinking about the probable impact on fares of having the price of oil go into the stratosphere (grim pun) in the next weeks and months.

There must be, somewhere, a break-down of how much of ticketing revenue goes to fuel, how much to payroll, how much to upkeep, how much to advertising, etc. etc. I'm sure it's not consistent from airline to airline or even flight to flight, but there must be a pie-chart of industry averages somewhere. Anyone ever seen one, or have a rough idea of the percentages?

rkkwan

Check the financial statements that airlines file to the SEC every quarter. They are often available as press releases on the airline's website. It will have a breakdown of the airline's expenses.

cfc

I was hoping for industry averages -- and just one adventure into a corporate report yields way more detail and footnotes and subdivisions and cross-referencing than is really helpful for this. (If I were that good an accountant, I wouldn't have had to ask.)

otto

checking several airlines web pages for press releases is a good idea. you can do an average of the top 3 for instnace to give you an idea...or go on any aviation sites or even business trade magazines, and do a sub search for airlines. that's the only place i find airline articles and info. good one on emirates in "business 2.0" this month...

rkkwan

I agree with otto. You may find much more meaningful information by looking at a few airlines rather than the industry at a whole. That's because the "industry" is not uniform at all!

If you look at a healthy airline like Southwest, which also has huge oil hedge; a desperate bankrupt airline like DL; and an okay legacy airline like AA or CO; you'll find three very distinct cost structures.

cfc

Unless someone else wants to actually try to answer the spirit of this question with at least some ballpark figures -- is fuel traditionally 2%, 10%, 50% of the price of passage? -- I just give up.

I'm not writing an in-depth economic feature piece here, though if I were, it might be worth going airline by airline and crunching the numbers, etc. figuring in debt-load, bonuses, penalties, the cost of staplers, etc. etc. ETC.

Maybe I should have asked whether the price of a ticket is likely to go up $10 or $20 or, in fact, double with the price of oil going up, and then I wouldn't have had such professorial "grasshopper, you can do this yourself" answers!

rkkwan

What we are doing is to tell you where to look. But if you want some numbers, here's from CO, for the three months ending June 30, 2005:

Wages: 649m
Fuel: 575m
etc...
Total: 2,738m

So, fuel expenses is about 21%.

For Southwest:
Wages: 667m
Fuel: 330m
etc...
Total: 1,667m

So fuel expenses is about 20%.

Delta:
Wages: 1,298m
Fuel: 1,064m
etc...
Total: 4,314m

Fuel expenses is 25%.

Apparently, DL has much other very serious problems...

cfc

Thank you so much, rkk. I assume your "total" is total expenses, so what are you referring to re: Delta? Not wages? - SW's are proportionately higher.

rkkwan

cfc - Airline expenses is quite a complicated matter, and I am really no expert to explain it.

I only looked up those 2Q reports after your previous reply to this post, and I'm myself kind of surprised with some facts.

Anyways, first, I'm surprised that Southwest paid more on wages on Continental, which is a slightly larger airline. And that DL's wages is SO incredibly large. That's what I'm implying. Even if fuel prices is low, DL will still be losing big amount of money.

Southwest can hedge fuel prices because it has cash reserve and its good financial standings. Bankrupt or near-bankrupt doesn't have the means to hedge against fuel prices. Not that they don't want to, they just can't.

AAFrequentFlyer

I don't feel like looking for confirmation right now, but AA just recently announced that for the first time ever the fuel cost superseded their labor costs, usually the highest cost in aviation industry.

BTW, and I do realize it's a little OT, but AA and CO will have to take a VERY hard look at BK now that NW and DL went into chapter 11. Although both airline's stocks are still rated as "neutral" buy by market analysts (almost a great rating in the airline industry these days), and they do have a comfortable cash and short term investments reserves (AA=$3.5B and CO=$2B), the reality is that they may not be able to compete against the heavy cost cutting available to the BK airlines.
I truly believe that the bankruptcy laws need to be changed, especially chapter 11. It's great to give a company a <b>one and short term</b> chance to straigthen out it's act, so people have jobs and security, but when the protection goes on for way too long and gives the company an unfair advantage over it's competitors, I'm not so sure that in a long term it doesn't do more damage than good to everybody that works in the industry.
Chapter 11 looks great for the politicians and that's why they did write these very liberal bankruptcy laws but in a competative business world it's becoming a sham.
Just my opinion and you don't have to agree!

AAFrequentFlyer

BTW, BA CEO also feels that US BK laws are causing more damage than good in the long term:

<b>http://in.news.yahoo.com/050922/137/609r3.html</b>

SamH

I too was really surprised to see that SW paid a higher percentage of its costs in wages than DL. However, what we don't know is what all labor costs are included and what labor costs are outsourced. If SW uses its own employees where others outsourse, then their labor cost would be higher.

flanneruk

Rod Eddington (the ex-BA CEO) was quoted on some McNews sites as concentrating on US bankruptcy laws. Actually he was making a much wider attack on the protectionist pork-barrel that the US airline industry has become. The $15-20 <b> billion </b> government subsidies it's been swallowing up, and the infinite number of anti-competitive restrictions America's discomfort with free trade allows them, are just as significant influences on the industry's operating costs as Chapter 11 or oil prices.

And just as unstable, and therefore just as unpredictable. There's only one reliable rule about future air fares: plan for the worst and hope for the best.

For what Eddington really said, the best web summary is at this address. I've put line breaks so it doesn't make the page unreadable, but you need to delete them to use the URL

www.telegraph.co.uk/money/main.jhtml?
xml=/money/2005/09/23/cnrod23.xml
&amp;menuId=242&amp;sSheet=
/money/2005/09/23/ixcitytop.html

Gardyloo

<i>However, what we don't know is what all labor costs are included and what labor costs are outsourced. If SW uses its own employees where others outsourse, then their labor cost would be higher.</i>

Correct, and the gross figures are always misleading. Accountants do accountant things. Note too that individual airlines' fuel prices may reflect payments made in Quarter Y for fuel purchased in Quarter X, or even W, or pre-payments for fuel to be consumed in Quarter Z.

The real measure is cost per available seat-mile, same as revenue per available seat-mile is the standard for income analysis.

cfc

So maybe amend my query to ask what percentage fuel cost is of the per-available-seat cost? That's the kind of information that is either out there somewhere in pretty much that form, or it would take days of slogging through a lot of disparate information, spreadsheets, and balance sheets, with an accountant's eye and a lot of free time.

But going back to rkkwan's quick check and results -- if fuel is 20% of costs, and the price doubles in 2 years .... well, wow....

Gardyloo

http://www.edgar-online.com

All will be revealed.

Gardyloo

Sorry, that link is for EDGAR subscribers.

Use http://www.sec.gov instead.

cfc

And what are we supposed to be seeing at the SEC site? (Or are you just suggesting that as the beginning of the research, do-it-yourself-grasshopper, process? ;-) )

Gardyloo

Look at the quarterly filings - the airlines' ones typically not only show P &amp; L but also have RASM and CASM numbers, along with more detail on cost line items, like fuel etc.

...Grasshopper.