New Delhi, June 19: Fuel replaced labour as the largest single cost item for global airline industry in 2006 for the first time ever, according to a recent IATA (International Air Transport Association) sample of financial reports from 45 major global passenger airlines.
Fuel accounted for 25.5 per cent of total operating costs last year, up from 22.5 per cent in 2005. By contrast, labour (including pension) expenses fell from 24.2 per cent in 2005 to 23.3 per cent in 2006.
The rise in share of fuel costs reflects sharp increase in fuel prices faced by airlines, including a rise in average price of jet fuel per barrel from 34.70 dollars in 2003 to 81.90 dollars in 2006.
But airlines have responded by improving their efficiency of fuel use and by achieving large productivity (labour productivity is up 56 per cent since 2001) and efficiency gains in non-fuel cost items.
Labour's share of total operating costs has fallen from 28.3 per cent in 2001 to 23.3 per cent in 2006.
In Asia Pacific region, fuel overtook labour as the biggest expense item in 2004. On a proportionate basis, Asia Pacific airlines have been more exposed to higher fuel costs than airlines in North America and Europe.
Fuel accounted for 30.4 per cent of operating costs for Asia Pacific airlines in 2006 and was as high as almost 40 per cent for some airlines based in countries such as China, according to the IATA. The good news for global airline industry is that IATA expects fuel prices will soften slightly over the next two years, with an average price per barrel of jet fuel tipped to fall from 80 dollars in 2007 and 75 dollars in 2008.
Fuel's share of total operating costs is expected to increase slightly to 26.1 per cent in 2007 before falling back to 24.7 per cent in 2008.
Meanwhile, the share of labour costs is likely to rise slightly (though remain much lower than in 2001) as more employees are needed to meet growth and as wage pressure increases, especially if labour skill shortages appear in some areas.
China is a key example with a recent study by its Academy of Personnel Science estimating the country will require 240,000 civil aviation personnel over the next 20 years, including 10,000 pilots.