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I want to list the costs airlines have to sustain by distinguishing them between variable and fixed. Variable costs change in proportion to aircraft usage. Fixed costs show little or no change in proportion to changes in activity.

This is an incomplete list I took from the FAA website (here)

Variable costs:

  • Fuel and oil.
  • Maintenance (e.g., maintenance labor, parts airframe/engine/avionics, engine restoration, thrust reverser overhaul, propeller Overhaul).
  • In-ground and in-flight crew salaries (can also be thought as fixed costs).

Fixed costs:

  • Parking and hangar fees.
  • Insurance.
  • Aircraft modernisation.
  • Computerised maintenance management program.
  • Weather service.

Question:

(1) In which category should I put

  • Landing fees (ATC, runways, taxiways, parking at stand or apron for a certain time (e.g. 2 hours), use of gates / fingers / terminal for disembarking).

  • Lounges fees.

  • Scheduling coordination.

  • Surcharges or rebates in addition of landing fees (for noise, peak-hour operations)

  • Passenger charges

  • Administrative cost (managing/issuing tickets, etc.)

  • Overflight fees

(2) I'm fundamentally confused about the distinction between fixed and variable costs. For instance, landing fees increase with the number of flights and, hence, with the demand of tickets for a given route. Should they be classified as variable costs for this reason? Is this the same reason why fuel and oil, maintenance, and crew salaries are classified as variable costs?

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    $\begingroup$ If the cost stays the same with or without flights, it's "fixed". If another flight increases the cost, it's "variable." If landing or overflight fees are per-landing, that's variable. If the lounge fee is $XXX per month for as much or as little as you use it, that's fixed. "Fixed" means, essentially, a fixed amount irrespective of the number of flights. "Variable" means, varies with the number of flights. If you double the number of flights next month, the costs that (roughly) double are variable; the costs that don't change would be the fixed costs. $\endgroup$
    – Ralph J ♦
    Feb 23, 2021 at 16:13
  • $\begingroup$ Thank you. Given your distinction between fixed and variable costs and according to your knowledge of the airline industry, how would you classify the items listed in my first question? I understand that it may change from airport to airport, but perhaps there are some general rules. $\endgroup$
    – TEX
    Feb 23, 2021 at 16:17
  • $\begingroup$ Also, you mention that the distinction is based on the number of flights. Is it also based on the number of airplanes? For example, I may think that, for a given number of airplanes, hangar fees are a fixed costs independent of the number of flights. However, hangar fees increase with the number of airplanes because more space is needed. $\endgroup$
    – TEX
    Feb 23, 2021 at 16:27
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    $\begingroup$ Landing, overflight, & noise seem variable. The rest depend on details... is Lounge fee "per month" or "per hour used"? Likewise ticketing & scheduling... set cost for the infrastructure before the first ticket is sold, or do they scale with the number of tickets/flights? I could see ways to pay for those that are variable (paying for a service on a "by volume" basis) or fixed (staff the office in-house). All depends on the specific details of the given arrangement. $\endgroup$
    – Ralph J ♦
    Feb 23, 2021 at 16:28
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    $\begingroup$ Reference hangers, I'd see that as, "as your fleet grows, the fixed cost of (renting/maintaining) hangers increases." $\endgroup$
    – Ralph J ♦
    Feb 23, 2021 at 16:29

1 Answer 1

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I’ll address your second question first.

I'm fundamentally confused about the distinction between fixed and variable costs.

Simply put, variable costs are ones that go away if you cancel a flight (or, more likely, a pair of out-and-back flights) while fixed costs are ones you still have to pay.

A challenge is that many “fixed” costs are actually step-variable costs. For instance, if you cancel enough flights, you might be able to reduce how many aircraft or gates you need. But with the black and white dichotomy given, we classify those as fixed.

  • Landing fees (ATC, runways, taxiways, parking at stand or apron for a certain time (e.g. 2 hours), use of gates / fingers / terminal for disembarking).
  • Surcharges or rebates in addition of landing fees (for noise, peak-hour operations)
  • Passenger charges
  • Overflight fees

If you don’t land, there is no landing fee, so that’s variable. Ditto for gate fees, noise fees, peak-hour fees, passenger fees and overflight fees.

Space to park an unused plane isn’t usually an issue when it’s just one or two flights canceled; that will be included in some other fixed cost.

  • Lounges fees.
  • Scheduling coordination.
  • Administrative cost (managing/issuing tickets, etc.)

These are fixed (or step-variable), since canceling one or two flights won’t meaningfully change them.

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