Editing Airline (section)

===Costs===
[[File:virgin atlantic a340-600 g-vyou arp.jpg|thumb|An [[Airbus A340]]-600 of [[Virgin Atlantic]]. In October 2008, Virgin Atlantic offered to combine its operations with [[British Midland International|BMI]] in an effort to reduce operating costs.<ref>{{cite news|last=Robertson|first=David|date=29 October 2008|title=Virgin proposes tieup with BMI and Lufthansa|work=The Times|location=London|url=https://business.timesonline.co.uk/tol/business/industry_sectors/transport/article5037731.ece|url-status=live|access-date=23 April 2010|archive-url=https://web.archive.org/web/20090107164938/http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article5037731.ece|archive-date=7 January 2009}}</ref>]]

Airlines have substantial fixed and operating costs to establish and maintain air services: labor, fuel, airplanes, engines, spares and parts, IT services and networks, airport equipment, airport handling services, booking commissions, advertising, catering, training, [[aviation insurance]] and other costs. Thus all but a small percentage of the income from ticket sales is paid out to a wide variety of external providers or internal cost centers.

Moreover, the industry is structured so that airlines often act as tax collectors. Airline fuel is untaxed because of a series of treaties existing between countries. Ticket prices include a number of fees, taxes and surcharges beyond the control of airlines. Airlines are also responsible for enforcing government regulations. If airlines carry passengers without proper documentation on an international flight, they are responsible for returning them back to the original country.

Analysis of the 1992–1996 period shows that every player in the air transport chain is far more profitable than the airlines, who collect and pass through fees and revenues to them from ticket sales. While airlines as a whole earned 6% return on capital employed (2–3.5% less than the cost of capital), airports earned 10%, catering companies 10–13%, handling companies 11–14%, aircraft lessors 15%, aircraft manufacturers 16%, and global distribution companies more than 30%.<ref>{{citation |author= [[Jean-Cyril Spinetta]] |date= November 2000 |title= The New Economics |work= Air Transport: Global Economics require Global Regulatory Perspectives round table |publisher= IATA-AEA |location= Brussels}}, unpublished, quoted in {{cite book |author= Doganis, R. |date= 2002 |title= Flying off course : the economics of international airlines |edition= 3rd |location= London |publisher= Routledge |url= https://books.google.com/books?id=eR5unZWjOEUC&pg=PA6|page=6|isbn= 9780415213240 }}</ref>

There has been continuing cost competition from [[low cost airline]]s. Many companies emulate [[Southwest Airlines]] in various respects.<ref>{{Cite news|url=https://www.dallasnews.com/business/airlines/2015/10/08/the-southwest-effect-is-alive-and-well-airline-executives-say|title=The Southwest effect is|date=8 October 2015|work=Dallas News|access-date=14 October 2017|language=en}}</ref> The lines between full-service and low-cost airlines have become blurred – e.g., with most "full service" airlines introducing baggage check fees despite Southwest not doing so.

Many airlines in the U.S. and elsewhere have experienced business difficulty. U.S. airlines that have declared [[Chapter 11]] bankruptcy since 1990 have included [[American Airlines]], [[Continental Airlines]] (twice), [[Delta Air Lines]], [[Northwest Airlines]], [[Pan Am]], [[United Airlines]] and [[US Airways]] (twice).

Where an airline has established an engineering base at an airport, then there may be considerable economic advantages in using that same airport as a preferred focus (or "hub") for its scheduled flights.

[[Fuel hedging]] is a [[contractual]] tool used by transportation companies like airlines to reduce their exposure to volatile and potentially rising fuel costs. Several low-cost carriers such as Southwest Airlines adopt this practice.<!--ref name = economist19jan2015/--> Southwest is credited with maintaining strong business profits between 1999 and the early 2000s due to its fuel hedging policy. Many other airlines are replicating Southwest's hedging policy to control their fuel costs.<ref name = economist19jan2015>{{Cite news|url=https://www.economist.com/gulliver/2015/01/19/gambles-that-havent-paid-off|title=Gambles that haven't paid off|newspaper=The Economist|issn=0013-0613|date=19 January 2015}}</ref>

Operating costs for US [[major airline]]s are primarily aircraft [[operating expense]] including [[jet fuel]], [[aircraft maintenance]], [[depreciation]] and [[aircrew]] for 44%, servicing expense for 29% (traffic 11%, passenger 11% and aircraft 7%), 14% for reservations and sales and 13% for [[overheads]] (administration 6% and advertising 2%).<!--<ref name=ICAO20feb2017/>--> An average US major [[Boeing 757]]-200 flies {{cvt|1252|mile|km}} stages 11.3 block hours per day and costs $2,550 per block hour: $923 of ownership, $590 of maintenance, $548 of fuel and $489 of crew; or $13.34 per 186 seats per block hour.<!--<ref name=ICAO20feb2017/>--> For a [[Boeing 737-500]], a low-cost carrier like Southwest have lower operating costs at $1,526 than a full service one like United at $2,974, and higher [[productivity]] with 399,746 [[available seat miles|ASM]] per day against 264,284, resulting in a unit cost of {{#expr:152600/399746round2}} $cts/ASM against {{#expr:297400/264284round2}} $cts/ASM.<ref name=ICAO20feb2017>{{cite web |url= https://www.icao.int/MID/Documents/2017/Aviation%20Data%20and%20Analysis%20Seminar/PPT3%20-%20Airlines%20Operating%20costs%20and%20productivity.pdf |archive-url=https://ghostarchive.org/archive/20221009/https://www.icao.int/MID/Documents/2017/Aviation%20Data%20and%20Analysis%20Seminar/PPT3%20-%20Airlines%20Operating%20costs%20and%20productivity.pdf |archive-date=2022-10-09 |url-status=live |title= Airline Operating Costs and Productivity |date= 20 February 2017 |publisher= ICAO}}</ref>

[[McKinsey]] observes that "newer technology, larger aircraft, and increasingly efficient operations continually drive down the cost of running an airline", from nearly 40 US cents per [[available seat kilometer|ASK]] at the beginning of the jet age, to just above 10 cents since 2000. Those improvements were passed onto the customer due to high competition: fares have been falling throughout the history of airlines.<ref>{{cite web |url= https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/a-better-approach-to-airline-costs# |title= A better approach to airline costs |date= July 2017 |author= Steve Saxon and Mathieu Weber |publisher= [[McKinsey]]}}</ref>