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The Only Way is Up

Annual Oliver Wyman analysis sheds light on airline costs.

US airlines are on the verge of mounting cost pressures, including for maintenance, predicts an industry profit analysis by consultancy Oliver Wyman.

“After more than three years of profitability, the industry faces the prospect of its most expensive line items – fuel, labor, and maintenance – becoming more dear in the foreseeable future, which would augur higher operating costs for carriers,” writes the consultancy in the introduction to its Airline Economic Analysis for 2016.

The analysis is based on results for the five biggest network carriers and five biggest low-cost carriers in the United States.

Unit costs for both groups fell again in 2016 – to 11.4 cents per available seat mile for network airlines and 9.8 cents for LCCs – but this multi-year trend may now have finished.

Maintenance costs, for instance, edged up slightly for LCCs in 2016, and an approaching wave of life-limited part retirements could see that rise continue.

Both network and value carriers assign about 10% of their total costs to maintenance, although all of the Oliver Wyman figures should be treated with caution as they are based on a comparison between Q2 2015 and Q2 2016 – not the full year.

Fuel costs, meanwhile, dropped by more than fifth for all carriers, though a recent decision by OPEC to cut production could herald the end of sub-$50-per-barrel oil.

This will worry all US carriers, which have experienced a steady decline in yields since early 2014. Domestic LCCs saw revenue per available seat mile fall 8.3% in 2016, while domestic network carriers suffered a 4.5% decline.

The familiar culprit has been a sustained increase in capacity by LCCs, which have added a third more available seat miles within the US since 2009.


TAGS: Airlines
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