Labour is the key

In recent years, airline executives have increasingly focused their attention on the cost of labour, both because it has become the largest single cost element and also because it is a major factor differentiating one airline’s unit costs from another’s. In the early 1980s, following the second oil crisis of 1978-79, the cost of fuel had risen to around 30 per cent or more of total costs. For most airlines it surpassed labour as an input cost. Those days are long gone. As the price of aviation fuel declined significantly in real terms during the 1980s, labour costs became increasingly critical. Today, while fuel fluctuates between 10 and 15 per cent or so of total costs for most airlines, labour, including social security fund or pension contributions and other labour-related costs, accounts for between 15 per cent and 40 per cent. It is for this reason that controlling labour costs is so crucial for airline managers. In the early years of the 21st century it is the key to cost control because, unlike fuel and other inputs whose prices are externally determined, airlines can and must influence their labour costs.