uploads/2016/06/Fuel.png

A Look at American Airlines’ Major Costs

By

Updated

Fuel costs

Fuel represents one of the most basic costs for an airline. At the peak crude oil prices of $100 per barrel, fuel costs accounted for almost 35% of airlines’ operating costs. When crude oil prices fell drastically from mid-2014, fuel costs for airlines declined.

American Airlines (AAL) benefited more than other airlines from the decline in fuel costs due to its no-fuel-hedging strategy. AAL’s fuel costs declined from $2.91 per gallon in 2014 to $1.72 per gallon in 2015. That’s lower than peers Delta Air Lines (DAL) and United Continental (UAL).

AAL’s fuel costs as a percentage of operating expenses have declined from 33% in 2014 to 21% in 2015.

Article continues below advertisement

Labor costs

Before the decline in fuel costs, labor was the second highest cost for airlines. Now it’s the highest cost component. AAL’s labor costs have increased to 27% of total operating expenses in 2015 compared to 22% in 2014.

High costs

As a result of falling crude oil prices, AAL’s cost per available seat mile (or CASM) for 2015 declined to 12.9 cents from 14.5 cents in 2014. However, given high labor costs, this is still one of the highest in the industry. United Continental’s (UAL) labor cost of 13.3 cents is the only one lower.

As you might expect, ultra-low-cost carriers Spirit Airlines (SAVE) and Allegiant Travel (ALGT) have the lowest CASM of 7.7 cents and 8.5 cents, respectively.

American Airlines forms 2.8% of the iShares Transportation Average (IYT).

In the next part, let’s take a look at American Airlines’ debt.

Advertisement

More From Market Realist