Preoccupation with ticket prices has blinded the public to the actual costs and expenses that air transportation companies face today. Airlines are responsible for all aspects of flying, from the initial investment to ongoing maintenance to pilot and crew training and employment. The cost of an aircraft can range from several million to more than 300 million dollars, depending on their experience and qualifications. It can be expensive for pilots and first officers. Their yearly salaries could be in the tens of thousands of dollars or even more than that. Jet fuel is the most expensive, and its price fluctuates with the season and the price of a barrel of oil. Even though fuel prices are at an all-time low, ticket prices are not reflecting this. There has been no change in ticket prices since 2014. According to Grabianowski (2017), an airline’s bottom line is affected by a variety of expenses, including maintenance, airport fees, government fees, food costs for passengers, computer system costs for tracking reservations, fees paid to travel agencies and websites, and training costs for pilots, among others.
One may be interested in how the price of oil affects the aviation industry. As previously mentioned, fuel and fuel-related fees are the airline industry’s most expensive expenses. As a global issue, this one is difficult to solve. There is a good chance that other commodities’ prices will rise and fall along with oil. Some oil-exporting and oil-producing countries significantly impact oil supply and costs. Unlike their competitors, private and non-governmental airlines face severe economic difficulties because the government does not sponsor them. Typically, government-supported airlines are subsidized to achieve social benefit objectives, resulting in significant reductions in operating costs for all.
There are several non-fuel items that Blokhin says are among the most expensive for the airline industry, including airport taxes, flight crew costs, and aircraft maintenance. Refineries that turn crude oil into jet fuel enter long-term contracts with airlines. Jet fuel prices are closely tied to crude oil, which is a necessary component in jet fuel production. As the price of oil decreases, jet fuel prices decrease as well. How much lower fuel costs affect airline profitability depends on the percentage of total airline revenues spent on fuel. The airline industry’s costs are constantly fluctuating. As the price of fuel rises, more and more people are looking for alternatives to flying. Fuel and other costs are taxed in the airline industry and then passed on to the customer. The price of airline tickets rises in lockstep with the cost of gasoline. As fuel prices fall, it does not mean that passengers will always get lower fares.
According to Dilger (2003), the Airport Development Program replaced Federal Aid to Airports under the Federal Airport Act of 1970. It increased yearly funding for new airport construction and renovations from $75 million to $250 million across the United States under this program. The Airport and Airway Trust Fund was also established to help the FAA with other projects, such as automating its air traffic control system. Taxes on passenger tickets increased from 2% to 8%. Most international flights departing from the United States were subject to a $3 per person tax. A 5% tax on airfreight waybills was imposed to raise the trust fund’s revenue
Many experts believe airlines will put the money they save from lower fuel prices to use in other areas. The costs and expenditures of our airlines will remain the same in the future. Consumers believe that the most significant influence on ticket prices is the cost of gasoline. Airlines still rely on it as their primary source of revenue. Fuel will always be the primary source of airline profit, regardless of how much money is spent on planes, crews, or other services.
References
Blokhin, A. (2015). Investopedia. To what extent will changing fuel costs affect the profitability of the airline industry? http://www.investopedia.com/ask/answers/052515/what-extent-will-changing-fuel-costs-affect-profitability-airline-industry.asp
Dilger, R.J. (2003). American transportation policy. Online Library: Praeger.
Grabianowski, E (2017). How Stuff works. How Budget Airlines Work. http://money.howstuffworks.com/personal-finance/budgeting/budget-airline1.htm
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