An Economic Model of U.S. Airline Operating Expenses

SUMMARY A new economic model, built upon operating expenses from 67 airlines as reported to the Department of Transportation (DOT) in 1999, has been developed. The model incorporates several expense-estimating equations that capture direct and indirect expenses of both passenger and cargo airlines. The variables and business factors included in the equations allow expenses to be calculated at the flight equipment (i.e., aircraft) reporting level. Total operating expenses for a given airline are then obtained by summation of all aircraft an entity operates followed by summation for all entities operated by the airline. The model’s accuracy is demonstrated by correlation with the DOT Form 41 data from which it was derived. The specific Form 41 accounts, for which expense equations were derived and correlation shown, are as follows: For Total Aircraft Operating Expenses (direct expenses) Flight Crew Fuel & Oil Insurance Rental Other Flying Operations Airframe Maintenance Engine Maintenance Depreciation & Amortization For All Other Operating Expenses (indirect expenses) Passenger Service Landing Fees Rest of All Other (Includes: Aircraft Servicing, Traffic Servicing, Advertising & Promotions, General & Administration, Maintenance & Depreciation of Ground Equipment) Transport Related In 1999, total operating expenses from the 67 airlines included in this study amounted to slightly over $100.5 billion. The economic model reported herein estimates $109.3 billion. As the following table shows, passenger airlines are more accurately modeled than cargo airlines.