In the airline industry, nature of costs relate to expenses that are expended in respect to internal airline factors and costs related to an airline’s external factors.
Internal factors encompass expenditures such as skilled and professional labor, airport gate bidding, and purchase costs. According to Tsoukalas, Belobaba and Swelbar (2008), additional costs under the internal factors include airport gate bidding, fuel costs and airplane technology expenses.
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The airline industry also incurs costs whose nature is classified as external factors. Expenditures under external factor classification include fluctuation in passenger demand costs, competitor pricing and increases or shrinkage of the airline industry. Additional external factor costs include airplane accident and terrorist attacks costs, environmental regulation compliance costs, costs related to changes in consumer demographics, preference spending patterns, natural disaster interruptions and expenses pertaining safety and security.
Managing or reducing their costs
Airlines manage costs by adopting a lean approach to airline operations. The lean techniques trim costs and enhance perfomance. Leaner operations are implemented on for example check-in procedures, maintenance and when contracting parts from suppliers. Some airlines adopt leaner approaches by laying thinner carpets and using light cardboard boxes in serving foods ( The Economist, n.d) . Additional approaches that cut costs include having jettisoned safety equipment, designing lighter seats, undertaking design tweaks, installing winglets and eliminating microscopic bumps to burn less fuel.
Evaluating non routine maintenance items helps airlines cut and manage costs. For example some airlines give directions that airplane gaskets be replaced only when the gap seal is out of tolerance limits.
Airlines consider pre-servicing aircrafts as a strategy to cut costs. Servicing of airlines amount to significant costs. To cut pertinent costs, airlines influence servicing by undertaking servicing only at departure gates.
Airlines also advice their pilots not to take off at full throttle to trim on fuel costs and hasten the process of getting the airplanes to cruising attitudes. When landing and as a strategy to cut costs, pilots are persuaded to let the aircraft slow down on its own. Airlines such as the Airbus has acquired a portable cabin that emulates the aircraft seating arrangement ( The Economist, n.d) . The design is futuristic in enabling airlines cut costs related to boarding delays.
References
The Economist (n.d). How airlines cut costs, https://www.economist.com/the-economist-explains/2015/12/17/how-airlines-cut-costs
Tsoukalas, G., Belobaba, P., & Swelbar, W. (2008). Cost convergence in the US airline industry: An analysis of unit costs 1995–2006. Journal of Air Transport Management , 14 (4), 179-187.
