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

The lack of further convergence after 2009 indicates that the impact of significant restructurings in 2008 (see below) has become business as usual.CASM is a commonly used measure of unit cost in the airline industry.6 US cents/ASK higher than low cost carriers (‘LCC’s’). a reduction of over 30%. as a result of aggressive streamlining and restructuring the difference was just 2. in 2006 the average unit cost (excluding impairment charges) of legacy carriers was 3. CASM is expressed in cents to operate each seat mile offered. As demonstrated by Chart 1. A lower CASM means that it is easier for the airline to make a profit. which we attribute to aggressive streamlining by legacy carriers in response to the financial crisis. 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). and also that the “easy-wins” have been taken. The majority of this convergence happened in 2008 and 2009 (see Chart 2). By 2011.5 US cents/ ASK. We believe that the remaining cost gap is more structural in nature. and is determined by dividing operating costs by ASMs. Ryan Air KLM Royal Dutch .

00 0 % Operating expenses Staff costs External expenses (fuel.75% 507. 1. . 0.97% 0 81 1. partly because legacy airlines have abandoned old differentiators like free baggage and in-flight catering on short-haul flights. maintenance.6 0 3. “The service being offered by low-cost and legacy carriers is now more or less the same.89% 0 71 14.0 96.41% Depreciation 329.0 0 24. 13.38% .81% 65.165. a consultancy.05% 139.0 100.0 0 1. The Airline Disclosures Handbook reveals that the cost gap between traditional and budget airlines has fallen by an average of 30% in six years.337.71% 8.29% 80 9.884.0 0 5.23% Marketing.92% 2.0 1.33% 90 191.30 110.688.14% 0 650.0 1.€ Million % from revenu es € Million 4.66% 9.60 56 11.48% 00 LEGACY AIRLINES are increasingly indistinguishable from their low-cost rivals in terms of the fares they charge and the service they offer. 100.30 48. airport charge. according to research published last week by KPMG. etc) 435.7 0 8. distribution & other 197.387.404.9 0 4. 85.” says one analyst.11% 00 67 1.0 0 65.58% 6.67% .6 0 6. 3.50% 00 143.43% Total operating expense Operating profit Other expense Profit before tax Tax Net profit 4.00 00 % Revenues % from revenu es 9.20 301.202.

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