A4A produces the U.S. Passenger Airline Cost Index (PACI) to monitor trends in the cost of inputs (e.g., labor, fuel, food, aircraft ownership, airport landing fees, insurance, utilities, interest) to the provision of air service over time.
The various indices also facilitate comparisons among the components themselves and between airline costs and broader economic indicators. Long-term cost trends are important determinants of airfares. While the PACI includes cost per available seat mile (CASM), the traditional measure of airline unit operating costs, the index values themselves are the superior bellwethers of the price of inputs to production. CASM can mask the true cost of an input because it also reflects changes in productivity over time. The vast majority of the Cost Index is derived from quarterly financial and operational information collected by DOT (principally Form 41 reports), and historical data may be restated as warranted. Neither the Cost Index nor its components are seasonally adjusted because 1) users may find seasonal fluctuations of great interest and 2) leaving the data unfettered allows users to impose adjustments of their own choosing. Consequently, quarter-to-quarter movements in certain indices may be driven in part by the seasonality of the variables used to compute them.
A4A publishes the Cost Index and restates prior quarters as data becomes available from DOT. It reflects all U.S. passenger airlines filing complete reports for the corresponding quarter. In addition to the summary below, you can purchase and download the latest detailed Cost Index Tables (Excel) and Charts. For a sample table, please click here.
[Note: To be included in the cost index, carriers must have met the following criteria on an annual basis: 1) must report both passenger revenue and RPMs and 2) passenger revenue must be greater than or equal to 25% of total operating revenue. Data prior to 1977 excludes airlines with annual revenues less than $100 million. Results for a given quarter are typically available within 120 days of its completion. A detailed methodology can be obtained here.]
*Although interest is a non-operating expense, it is factored into the composite cost index to capture the role of debt in the provision of air service. It is not included in the composite cost per ASM or share of operating expenses.
Wages, employee benefits (e.g., annuity payments, educational, medical, recreational and retirement programs) and payroll taxes (e.g., FICA, state and federal unemployment insurance). General management, flight personnel, maintenance labor, and aircraft and traffic handling personnel are all included in the calculation of labor costs.
Cost of aviation fuel used in flight operations, excluding taxes, transportation, storage and into-plane expenses.
Aircraft Rents & Ownership
The cost of aircraft rentals, depreciation and amortization of flight equipment, including airframes and parts, aircraft engine and parts, capital leases and other flight equipment.
Non-Aircraft Rents & Ownership
Principally, the total cost of airport terminal rents. Non-aircraft rents and ownership also includes the cost of hangars, ground service/support equipment (GSE), storage and distribution equipment, and communication and meteorological equipment.
The cost of legal fees and expenses (e.g., attorney fees, retainer fees, witness expenses, legal forms, litigation costs), professional and technical fees and expenses (e.g., engineering and appraisal fees, consultants, market and traffic surveys, laboratory costs), as well as general services purchased outside (e.g., aircraft and general interchange service charges).
Food and Beverage
The cost of purchasing beverages and food, commissary supplies and outside catering charges.
The cost of fees paid by the airlines to airports for runway and airport maintenance.
The cost of maintaining and purchasing materials for airframes, aircraft engines, ground property and equipment (excluding labor costs). Also includes the costs of maintaining a shop and servicing supplies (e.g., automotive, electrical, plumbing, sheet metal, small tools, glass and glass products, cleaning compounds).
The cost of flight equipment insurance, sometimes referred to as hull insurance.
The cost of insurance unrelated to the hull itself. This category is broken down by two categories: general insurance (i.e., buildings and contents, materials and supplies, third party liability, passenger baggage and personal property) and traffic liability insurance (i.e., passenger baggage and personal property, cargo liability and provisions for self-insurance).
The costs paid to passenger travel agencies for services.
The total cost of equipment and intercommunication rental and installation charges, telephone and teletype equipment, telegraph and cable message charges and navigation facility charges.
Advertising and Promotion
Includes the cost of producing tariffs, schedules, timetables and other promotional and publicity expenses (e.g., television, radio, entertainment, photography, graphics).
Utilities and Office Supplies
The cost of light, heat, power and water, stationary, printing (e.g., labels, small signs, ticket stock, paper products, company manuals), shipping and mailing supplies and other office supplies as well as cleaning compounds, safety, electrical, engineering, drafting, blue prints and photographic supplies.
As defined by DOT, transport-related expenses are expenses incurred for providing air transportation facilities associated with the performance of service which emanate from and are incidental to air transportation services performed by the carrier.
Following are some specific examples:
1ABC Airlines issues tickets for flights operated by regional partner ABC Express. It pays ABC Express a fee to fly the code-share routes on its behalf. ABC Express reports the fee income as passenger revenue, to match the associated traffic, capacity and operating expenses. ABC Airlines reports the fare collected as transport-related revenue and reports the fee it paid to ABC Express as transport-related expense.
2ABC Airlines performs maintenance for XYZ airlines. ABC Airlines reports the cost of labor, parts and materials for this in-sourced maintenance as transport-related expense.
3ABC Airlines sells liquor and food on its flights. The amount that ABC Airlines paid for the liquor and food is reported as transport-related expense.
4ABC Airlines operates a gift shop. The cost of running that gift shop is considered transport-related expense.
Employee Business Expenses
Includes expenses incurred for travel, lodging, meals, entertainment, membership fees/dues in professional or social clubs and associations. These expenses are incurred by officers, executives, directors, and other personnel.
Other Operating Expenses
Includes the cost of miscellaneous expenses such as outside flight equipment, excess of losses over insurance recoveries, interrupted trips expense, corporate and fiscal expenses, uncollectible accounts, clearance customs and duties.
The total interest paid on long term debt, capital and other interest expenses. Included in this worksheet is the cost associated with average book debt outstanding and estimated off-balance sheet debt.
A weighted average of all components, including interest expense.