Introduction

In the Airline industry the most important cost for pricing is the opportunity cost as per the capacity. There is incremental cost which is other than the capacity cost that includes food and ticketing, which are literally trivial as per compared. There are airlines which does look like the historical cost or even the replacement cost which is in the buying planes that does have many opportunities which is for the profitable pricing and in a competitive market, that would be soon go bankrupt, it is because of the most of profitability of an airline that comes in the incremental revenue, which does it generates in selling the seats at the prices, which is below the average cost per seat. There is a key in making the strategy profitable in understanding on the ongoing basis which is the expected opportunity cost of selling a seat upon a particular time on basis of that particular flight.

Cost Structure

In case of the airlines industry, there is no competition of price that is been done without the reduction of cost and overheads. The airline industry does rely upon the airline services and upon the provision of aviation labor, fuel (Williams, 2017). However, there are several airlines that are need for the legacy carriers which are usually depend on the cost distributive networks. Usually, the airline cost is divided into three categories which are direct operating costs, indirect operating costs and overheads.

Direct Operating Cost

When the flight start operating, the direct operating cost come in the process. In the airline industry, there are two types of direct operating cost which are one is related to the aircraft and other is related to traffic. Between the aircraft and traffic, there is a difference which is dependent upon the type of aircraft that is been operated (Goetz & Sutton, 2017)  . The traffic related direct operating cost are usually independent upon the aircraft. Some of the direct operating cost are explained below:

Maintenance Costs: These are the cost which are usually unavoidable, and it is necessary for airline so that they can keep their safety up to the mark. It is important to make necessary tradeoff between the cost level and punctuality performance, in which there is a lot concern for the managers, those who are related to the marketing (Gupta, 2018). Thus, this issue does influence mainly the maintenance cost of airlines. It is important for them to deal with the technical problems that has been arise and to repair them time to time, so that there is no delay in the journey’s. The maintenance cost has been very high as there is requirement of maintain a good performance, in which the expenses are made unavoidable.

Fuel and Oil: The cost of fuel does depend upon consumption of fuel and the aircraft that is been involved (Abdelghany & Abdelghany, 2016). Thus, the fuel hedging is one of the common risk that the airline industry does face in a very bad way, though the management does takes serious steps so that it does not happen.

Landing fees: The airport authorities do take some charges from the airlines for the airport facilities that they are providing. It certainly has common charges which is usually divided into two sections, one is the fixed aircraft and the other is variable load fee (Sinha, 2019). There is a fixed aircraft fee, which is usually based on the aircrafts maximum weight, though there are some expectations which are usually dependent upon the airport.

Crew Expenses: There are several factors that does depend upon the crew expenses which is crew complement. There are certain circumstances which includes the block speed that does have an impact on whether there is a requirement of the crew overnight. Thus, sometimes it is not considered as the indirect operating cost.

Passenger and Commission of Cargo: The commissions do have to related to the sales commission fees that has to be taken for the intermediaries, that also includes the cargo agents for the selling of their services (Shaw, 2016). It does usually represent the percentage of gross revenue and the airline that do have the cut on the agency commission in several countries.

Passenger Related Costs: There are costs that does includes the baggage costs, cancelled flight expenses, in which there are handling of denied boards. The expenses do include the provision of specialized services offered to the business and the first class passengers.

Indirect Operating Costs

The indirect operating costs are the costs, that are usually incurred for the period of time, without the operating season. The cost that are considered as the indirect cost are cannot be avoided and at a certain level of flying that has been decided. There are changes in flight programmer, in which there are certain cost that does include the standing charges, flight crew pay and cabin crew pay and the maintenance labor. Thus, all these cost are directly dependent upon the aircraft type that they are using.

Aircraft Standing Charges: The aircraft sometimes can be brought or acquired through by the bank loans or the leasing agreements. There are several payments that are been categorized as the indirect operating cost, which is with regards to the leasing of the aircraft and there is a lease of charges that does replaces the depreciation and interest charges (Saleem, Zahra & Yaseen, 2017). There are several provisions that does act as a major spare which comes under the head of depreciation. There are several spare cost per aircraft, which is usually higher than it’s for the large fleets. There is a minimum requirement of fleet size which is done regardless if the fleet size. The aircraft does have a depreciation period in which can be certain as per the case. There are higher premiums that are been charged in the airlines at flying in the specific areas which are designated at the war zones.

Cabin Crew Pay: There are several number of personnel in cabin that are been directly related to the seating capacity which is in the aircraft. There are several legal requirements that has been derived from ICAO for the cabin crew safety (Hussain & Phau, 2016). There are number of cabin crew that is been upon the board that is been dependent on the number of seat and the number of exits in the aircraft. There are several requirements that does vary upon the special inflight catering requirements, which does include services that is also provided upon the business and first class passengers.

Overheads

The overhead cost and expenses that are been incurred for the longer periods, there are costs which does includes the sales, accounts, employment, administration, general management and human resources. There are certain costs that are unaffected by both the several types which the aircraft uses and there are several level of flying operations. There are number of passengers which will be possible that can arise for the additional staff in the revenue accounts.

Effects of the Airline Environment on Aircraft Costs

Utilization: There are fixed cost which are usually distributed over the longer flying hour that helps in achieving lower unit costs. There are long term operations which helps in the best opportunities for the maximum utilization of the aircraft. It does uses of the utilization of aircraft, where it does uses the smaller turnover period (Eaton, 2017). There are turnarounds that use the lead of the lower cost for the airline, in which there is modern aircraft that is been capable of the increase utilization of fleet. There are several terms of operational efficiency and economy, in which there are short haul operations, there is fleet utilization which helps in improving and can be as short as possible.

Sector Length: There are short haul operations that does have the higher cost which does have the medium or long haul operations. The short haul operations that has been for higher proportion of landing fees and in handling fees, there are causes that does have periods of the inefficient aircraft operation, that does have particular approach and take off periods. There are more aircraft turnaround periods, in the short haul operations, in which there are medium or long haul ones, that resulted in the lower aircrafts utilization and lower productivity levels.

Fleet size: The cost levels that has been directly related to the number and several type of aircraft which is used in the fleet. In the smaller airlines, there is an adequate provision that is been expected to the adequate provision which is for the standby capacity or the schedule recovery. There are some in-house instructions which is to be conducted to the small airlines. Thus, it will help in purchasing of services from the external agencies, which is usually at a very high costs.

Labor Cost: The labor cost does have an impact which does includes the crews, maintenance and handling costs, there are operation in which it does includes the crews, maintenance and handling costs. In some countries, it has been seen that there are several lower wages, that would help in translating the significant cost reductions (Baumeister & Onkila, 2017). There are several advantages that does help in countering the balances by losses that will arise through the labor efficiencies in several functions, which does include the maintenance and handling.                                 

Profitability Analysis

The aircraft capacity is being considered through the conversion of the passengers and through the cargo capacity in the terms of weight. However, there are craft in which it is been capable of carrying the additional weightage of cargo. The aircraft does vary in their sizes and in capacity also, thus it can only be compared with the performance which can only be expressed with the costs and in terms of the units of production.

In term of the return of capital employed, it can be done by comparing the profitability of organizations, that can be taken into amount in which the capital can be used. There are several implications that can be seen upon the expenditure on the investments that does have an effect on the profit.

Conclusion

There are several policies which the marketing managers do provide, which will help in influencing the level of services. They are also affected through the cost that are relevant and expenses. The airlines do have direct operating costs, indirect operating costs and overheads, the operating cost om sector length, utilization of aircraft, fleet size, labor cost. If there is number of passengers that will increase, that will help in the possibility in which in the operational requirements might increase the necessity of more resources.

References

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Baumeister, S., & Onkila, T. (2017). An eco-label for the airline industry?. Journal of cleaner production, 142, 1368-1376.

Eaton, J. (2017). Globalization and human resource management in the airline industry. Routledge.

Goetz, A. R., & Sutton, C. J. (2017). US Airline Industry. Low Cost Carriers:” Emergence, Expansion and Evolution, 199.

Gupta, H. (2018). Evaluating service quality of airline industry using hybrid best worst method and VIKOR. Journal of Air Transport Management, 68, 35-47.

Hussain, R., & Phau, I. (2016). The mediating role of customer satisfaction: evidence from the airline industry. Asia Pacific Journal of Marketing and Logistics.

Saleem, M. A., Zahra, S., & Yaseen, A. (2017). Impact of service quality and trust on repurchase intentions–the case of Pakistan airline industry. Asia Pacific Journal of Marketing and Logistics.

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Sinha, D. (2019). Deregulation and liberalisation of the airline industry: Asia, Europe, North America and Oceania. Routledge.

Williams, G. (2017). The airline industry and the impact of deregulation. Routledge.