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Aviation History
1974
1974 - 0017.PDF
FLIGHT international, 3 January 1974 17 Comparative figures suggest that the European cost level for sales, advertising and promotional activities is about double that for US domestic operations. To some extent these cost differences are explained by route density, although we ought to be able to reduce these costs. But it is the third area—increasing aircraft size—which holds most hope for a reduction in airline operating costs in the next few years—at least in real terms. The direct operating costs per seat-mile of the 747 are more than 10 per cent lower than those of the 707. Similarly, the direct operating costs per seat-mile of the DC-10-10 and the TriStar—are more than 10 per cent lower than those of the 727-100. Beyond the current generation of wide-bodied aircraft there are even larger aircraft in prospect. The 747 will undoubtedly be stretched to a 600- or 700-seater. From this increasing average size will come a continued reduction in the real cost of aircraft operations. But despite these improvements in efficiency there will be powerful pressures working to increase the average level of airline costs in monetary terms. The struggle against rising costs The improvements in aircraft productivity and airline efficiency have not been large enough to withstand the inflationary pressures of rising input prices in recent years. Looking ahead for the next few years it is clear that this problem will remain with us. Indications are that the major elements of airline costs will continue to rise more rapidly than they can be offset by produc tivity increases. By far the largest element of airline operating cost is the wage bill. It is curious how often the airline industry is inaccurately described as a capital intensive industry. With 41 per cent of its costs in wages and salaries it is, of course, much more accurately described as a labour intensive industry. The two other problem areas in the cost structure are fuel prices and infra-structure charges such as landing fees and the like. Recent increases in the price of avia tion fuel must be a matter of great concern for the whole airline industry. Whatever lies beyond the current fuel supply crisis, one thing is certain: the long-term rise in the price of aviation fuel will be greater than that of other prices. Infra-structure charges have been rising at a faster rate than most other elements of airline operating costs. I do not disagree with the proposition that the airline industry, and its customers, ought eventually to pay the relevant costs of providing airports and air navigation facilities. I do objecl rather strongly, however, to the view being taken by many authorities about the costs and charges which the airlines are being asked to bear. In particular, 1 think it is quite wrong that public bodies with monopoly powers should charge prices which give them rates of return which are much higher than we would normally expect from public utilities. For any particular firm or industry the financial effects of inflation are minimal if prices can be increased in line with the rise in production costs. For the airline industry, in which the real level of costs can be expected to con tinue to fall, it ought, in theory, to be relatively easy to balance the books. The basic problem of the scheduled airline industry springs from the fact that it has been—and looks as though it will continue to be—extremely difficult to in crease fares and rates sufficiently to keep pace with cost increases. There are two reasons for this. The first is a general problem of regulated industries; the governmental agencies which regulate fares and rates throughout the world have historically imposed a brake on price increases and there tends to be a significant time lag between cost increases and price increases. The second reason is the lata NORTH ATLANTIC SCHEDULED PASSENGER DISTRIBUTION BY TICKET TYPE 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972
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