In the last few years, the airline industry has become more competitive as budget airlines attempt to wrestle some market share out of the hands of established airlines. The intense competition has largely augured well for passengers who have more options and pay less. Apart from the intense competition, players in the airline industry are also grappling with increasing operating costs. This has been blamed on the rise of fuel costs. It is predicted that to offset the increase in costs, airlines will be forced to increase the fees that they charge their passengers (Bachman, 2017).
The players in the airline industry incur a number of costs and expenses. Infrastructure costs are among the expenses that airlines incur. In 2011, airlines operating across the globe paid $92.3 billion for the use of such infrastructure as airports (“IATA Economic Briefing”, 2013). Passengers also share in meeting this cost through fares and other fees that they are charged. The infrastructure costs constitute a significant portion of the total expenses that the players in the airline industry incurred. Apart from the infrastructure costs, the players also incur labor costs (“Passenger Airlines Operating”, n.d). Airlines employ thousands of individuals who serve in different capacities. These include pilots, cabin crew, mechanics and many others. The labor costs are some of the highest that the airlines incur. The high cost of labor has forced many airlines across the globe to undertake downsizing campaigns. Others have instituted different measures in their bid to minimize labor costs such as persuading their personnel to accept lower pay.
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In the discussion above, fuel and labor costs have been identified as among the expenses that airlines incur. Apart from these costs, the firms in the airline industry also incur costs related to the leasing and ownership of aircraft. While many airlines strive to operate their own craft, the high cost of acquiring planes forces many to lease. These lease arrangements are usually costly. In addition to leasing aircraft, the airlines also incur costs in leasing gates and terminal facilities. While they offer a unique service, airlines share some similarities with other companies. One of these similarities lies in their use of professional services. Airlines engage the services of marketers and legal practitioners. The services that these professionals offer account for a significant portion of the expenses that airlines incur (“Passenger Airlines Operating”, n.d).
Airplanes are subject to wear and tear. This forces airlines to conduct regular repairs. As they carry out these repairs, the airlines incur huge costs. In addition to carrying out repairs, the airlines also need to conduct routine maintenance (Stalnaker, Usman & Taylor, 2016). The maintenance ensures that the planes are in airworthy condition. All these procedures are costly and account for some of the expenses that the airlines incur. Landing fees, insurance charges, monies for food and commissions are some of the other expenses that the airlines incur (Stalnaker, Usman & Taylor, 2016). While these charges may seem small, they combine to pose a serious challenge to airlines.
In an earlier discussion, it was mentioned that the players in the airline industry have experienced an increase in the cost of fuel. The high fuel cost has affected the industry in a number of ways. A decline in profits is among the impacts of the rising fuel costs (Jacobs, 2012). The increase in fuel costs translates to an overall increase in the total costs that airlines incur. Unless they are able to identify some avenue for reducing costs, the airlines suffer declining profits. The rising cost of operating has even forced some airlines out of the industry. Another impact of the rising fuel cost is loss of market share. Rising fuel costs heightens competition in the airline industry. Airlines that are unable to keep their costs in check lose their passengers to their rivals. A decline in share price is another impact of increasing fuel costs. Such airlines as Malaysian Airlines have seen their share price decline in response to the rise in fuel costs (Sharif, 2011). It is clear that an increase in fuel posts triggers reactions that are mostly negative. It is therefore important for all concerned stakeholders to exhaust all options in keeping fuel costs low.
It is true that the increase in fuel costs has mostly affected airlines. However, it is important to recognize that passengers have also been affected. The airlines have been forced to pass on the higher fuel costs to their passengers in terms of higher fuel prices. Even modest increases in fuel costs can result in significant increases in the prices of tickets. For example, if the price of a barrel of fuel registered a $100 increase, passenger in the United States would be forced to pay $50 more for tickets (Sharif, Ranjbar & Arumugam, 2011). The high fuel prices have also forced patrons to reduce their flying occurrences. Many people are identifying alternative means of traveling. Even those who continue to use air travel are opting for budget airlines that offer cheaper services.
In conclusion, the airline industry is very volatile and sensitive. Slight changes in the industry send huge shockwaves that affect all players. Fluctuations in the costs and expenses that airlines incur are among the forces that shape this industry. Over the last few years, airlines have been incurring huge costs that are unsustainable. Fuel has particularly become costly and many airlines are struggling to remain afloat. The airline industry needs to join forces with other actors to ensure that the operating costs remain within manageable limits. This will shield passengers from high travelling expenses and secure the future of the airline industry.
References
Bachman, J. (2017). Higher Fuel and Labor Costs Mean you’ll Pay more to Fly in 2017.
Retrieved 24 th July 2017 from https://www.bloomberg.com/news/articles/2017-01-05/higher-fuel-and-labor-costs-mean-you-ll-pay-more-to-fly-in-2017
IATA Economic Briefing Infrastructure Costs. (2013). Retrieved 24 th July 2017 from
http://www.iata.org/publications/economic-briefings/Infrastructure-Cost-March-2013.pdf
Jacobs, R. (2012). Fuel Prices Put Pressure on Airline Profits. Retrieved 24 th July 2017 from
https://www.ft.com/content/aa028df6-727e-11e1-9c23-00144feab49a
Passenger Airlines Operating Costs, United States, 2014. (n.d). Retrieved 24 th July 2017 from
https://people.hofstra.edu/geotrans/eng/ch3en/conc3en/airlinecosts.html
Sharif, S. P., Ranjbar, A. & Arumugam, V. C. (2011). The Impact of Higher Oil Prices on
Airlines Share Price: The Case of Malaysian Airlines. Retrieved 24 th July 2017 from https://www.researchgate.net/profile/Saeed_Pahlevan_Sharif/publication/228119298_The_Impact_of_Higher_Oil_Prices_on_Airlines_Share_Price_The_Case_of_Malaysian_Airlines/links/00b7d527e416d11619000000/The-Impact-of-Higher-Oil-Prices-on-Airlines-Share-Price-The-Case-of-Malaysian-Airlines.pdf
Stalnaker, T., Usman, K. & Taylor, A. (2016). Airline Economic Analysis. Retrieved 24 th
July 2017 from http://www.oliverwyman.com/content/dam/oliver-wyman/global/en/2016/jan/oliver-wyman-airline-economic-analysis-2015-2016.pdf
