Why investors should track labor costs in the airline industry

Teresa Cederholm - Author

Sep. 18 2014, Updated 5:00 p.m. ET

Salaries, wages, and benefits

The second largest cost component for airlines is salaries, wages, and benefits. Employment in the U.S. airline industry has increased in the last couple of years when the U.S. economy recovered from the recession and demand for air travel picked up.

Labor is highly unionized in the U.S. airline industry, so wage rates are comparatively higher. All major U.S. airlines—including United (UAL), American (AAL), and Southwest (LUV)—except Delta (DAL) and JetBlue (JBLU), have unions representing the majority of workers.

Growth in employment

According to the Bureau of Transportation Statistics (or BTS), June 2014 was the seventh consecutive month that recorded a year-over-year growth in employment by the U.S. scheduled passenger airlines. The number of workers increased by 1% year-over-year to 385,475 workers.

The five network carriers—Delta, Alaska (ALK), U.S. Airways, American, and United—employed 66.8% of the total employees. The six low-cost carriers—Southwest, JetBlue, Allegiant (ALGT), Spirit (SAVE), Virgin America, and Frontier Airlines—employed 18.4%.

The number of employees decreased from 520,600 in 2000 to 378,066 in 2010 but has increased in the last three years. Average employee compensation has risen from $85,372 in 2010 to around $93,856, according to Airlines for America.

Recently, there’s been a substantial increase in profit-sharing expenses related to employees, as the profitability of major U.S. airlines has increased and airlines use this as an incentive to align employee interests with the company objective.

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