Not surprisingly, fuel and oil represented the largest chunk of airline cost by far.

CASM is a commonly used measure of unit cost in the airline industry. CASM is expressed in cents to operate each seat mile offered, and is determined by dividing operating costs by ASMs. This number is frequently used to allow a cost comparison between different airlines or for the same airline across different time periods (say for one year vs the preceding year). A lower CASM means that it is easier for the airline to make a profit.

As demonstrated by Chart 1, in 2006 the average unit cost (excluding impairment charges) of legacy carriers was 3.6 US cents/ASK higher than low cost carriers (‘LCC’s’). By 2011, as a result of aggressive streamlining and restructuring the difference was just 2.5 US cents/ ASK, a reduction of over 30%. The majority of this convergence happened in 2008 and 2009 (see Chart 2), which we attribute to aggressive streamlining by legacy carriers in response to the financial crisis. The lack of further convergence after 2009 indicates that the impact of significant restructurings in 2008 (see below) has become business as usual, and also that the “easy-wins” have been taken. We believe that the remaining cost gap is more structural in nature.

Ryan Air KLM Royal Dutch

€ Million% from

revenues€ Million

% from revenues

Revenues 4,884.00 100.00% 9,688.00 100.00%

Operating expenses

Staff costs 435.60 8.92% 2,404.00 24.81%

External expenses (fuel, maintenance, airport charge, etc)

3,202.70 65.58% 6,337.00 65.41%

Depreciation 329.60 6.75% 507.00 5.23%

Marketing, distribution & other

197.90 4.05% 139.00 1.43%

Total operating expense 4,165.8

0 85.29% 9,387.00 96.89%

Operating profit 718.2

0 14.71% 301.00 3.11%

Other expense 67.3

0 1.38% 110.00 1.14%

Profit before tax 650.90 13.33% 191.00 1.97%

Tax 81.6

0 1.67% 48.00 0.50%

Net profit 569.3

0 11.66% 143.00 1.48%

LEGACY AIRLINES are increasingly indistinguishable from their low-cost rivals in terms of the fares they charge and the service they offer, according to research published last week by KPMG, a consultancy. The Airline Disclosures Handbook reveals that the cost gap between traditional and budget airlines has fallen by an average of 30% in six years, partly because legacy airlines have abandoned old differentiators like free baggage and in-flight catering on short-haul flights. “The service being offered by low-cost and legacy carriers is now more or less the same,” says one analyst.

Cabin attendants represent the largest staff group (30%), followed by administrative employees (20%). Nevertheless, the largest chunk of salaries is paid to flight deck crew (29%), followed by cabin attendants (24%) and administrative employees (20%).