5.

2 Operating Expense
Comparisons
Distribution of airline operating costs by
functional cost category, comparing the changes
in this distribution in recent years.
5.2.1 Percentage Breakdown of
Operating Expenses

Flight Operating Costs (FOC)

-comprise 53.1% of total expenses, if we sum the flying operations,

maintenance, and depreciation and amortization categories.
5.2.1 Percentage Breakdown of
Operating Expenses

Ground Operating Costs

-represent another 20.5% of total operating expenses, divided into

the major functional components:
-aircraft and traffic servicing (14.2%)
-promotion and sales (6.3%).
5.2.1 Percentage Breakdown of
Operating Expenses
System Operating Costs

-account for the remaining 26.4%, including passenger service

(6.7%), general and administrative (5.9%) and transport-related
expenses (13.7%).
5.2.2 Legacy vs. Low-Cost Airlines
LCC Business Model

Use of a single aircraft type or interchangeable family of aircraft

Operation of point-to-point instead of connecting hub networks

No labor unions and lower wage rates for employees

Single cabin service, with no premium classes offered

5.2.2 Legacy vs. Low-Cost Airlines

No seat assignments

Reduced frills and seating space on board

No frequent-flyer loyalty programs

Avoid use of traditional distribution channels

Flying Operations
Flying operations expenses per block hour for Legacy airlines
have remained approximately 50% higher than for the LCCs.

a large part of the higher flying operations expense per block

hour for the NLC group is the result of a much simpler
explanation legacy airlines typically operate substantially
larger aircraft that consume more fuel per block hour, cost
more to acquire and maintain, and have more senior pilots in
the cockpit.
Maintenance
Legacy airlines that operate international networks tend to have
aircraft that are not only older, but also larger, wide-body types that
are commonly used for longer-haul international routes.

One reason why LCCs have lower maintenance costs per block hour is
that their fleet is usually younger than that of the legacy airlines.
Passenger Service
reported per revenue passenger kilometer (RPK), reflecting the fact
that on-board services for a particular passenger trip will cost more
for longer distances.