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European airline labour productivity: CAPA rankings

9-Apr-2013

This analysis updates CAPA's previous study of European airlines’ labour productivity ("European airlines’ labour productivity. Oxymoron for some, Vueling and Ryanair excel on costs") to reflect the most recent financial results and adds four carriers not included in the original article (Wizz Air, Aegean Airlines and the two IAG subsidiaries British Airways and Iberia).

The contrasting performance of LCCs and legacy carriers is clear, although there are some notable exceptions to the pattern. BA and Iberia’s different labour cost productivity is significant, while Air France-KLM and SAS are weak performers.

We introduce an overall CAPA European airline labour productivity ranking, revealing the carrier with Europe’s most productive workforce, based on six measures.

See related article: European airlines labour productivity. Oxymoron for some, Vueling and Ryanair excel on costs

Labour as a percentage of revenues: weighted average 21.8%

In our previous analysis, Vueling and Ryanair were the only airlines for which labour cost was less than 10% of revenues. On this measure, Wizz Air is now the leader, with a remarkable figure of 6.5% of revenues eaten up by labour costs. Aegean comes in at just over the 10% threshold, while newly-included Iberia saw 30% of its 2012 revenue go to labour costs, fractionally worse than Air France-KLM. SAS is the weakest on this measure, at 32%.

British Airways, with just below 22%, is the best performer among the bigger legacy flag carriers, although, if Lufthansa’s two flying-based business segments (the Passenger Airline Group and the Logistics segment) were a separate company, their labour costs would account for only 16.7% of revenues, rather than 23.4% for the Lufthansa Group overall.

European airlines labour cost as a percentage of revenues: 2012*

Employee cost per employee: weighted average EUR68,871

The average employee cost per employee among the principal European airlines is just short of EUR69,000, but the range is very wide – from Wizz Air at EUR37,000 in low wage Central/Eastern Europe to SAS at EUR104,000 in high wage Scandinavia. How much it costs to keep an employee at work is not just a function of wages, but is also affected by the level of social charges, the seniority mix of employees and the level of pension contributions, all areas in which unionisation and history can play a major part.

After Wizz Air, TAP Portugal and Flybe have the lowest employee cost per employee, at EUR48,000, with Ryanair just a little ahead on EUR49,000. SAS and fellow Scandinavian carrier Norwegian Air Shuttle have the highest employee costs per employee. 

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After the two Scandinavian carriers, Iberia has the third most costly employees on average (costing one third more than the average employee at IAG sister carrier BA). Of course, the mix of employee activities can also affect average employee cost per employee. Groups with a relatively high proportion of staff in ground-based activities such as maintenance and catering, which are less well-paid than flight crew jobs, have lower overall employee costs per employee than those that are more pure flight-based companies.

easyJet demonstrates that it is not always true that LCCs pay low rates – the average easyJet employee costs less than the average British Airways employee – while TAP Portugal shows that not all legacy flag carriers pay high wages.

European airlines employee cost per employee: 2012*

ATK per employee: weighted average 507

Labour productivity is all about trying to generate as much traffic as possible from each employee. To measure this we look at total available tonne kilometres per employee. This combines both passenger and cargo traffic, although available seat kilometres per employee is sometimes also used. Wizz Air and Ryanair are way out in the lead on this measure, ahead of a cluster of other LCCs Vueling, Norwegian and easyJet (in spite of a lack of cargo traffic to boost their ATKs). Turkish Airlines is the clear leader among full service carriers, followed by Aegean.

The gap between the LCCs and the legacy carriers on this measure is striking and is a key strategic differentiator, although Flybe is a disturbing exception to this.

The Lufthansa Group appears low on this measure, but this is distorted by its labour intensive maintenance and catering segments, which do not generate traffic but do generate third party revenues. Lufthansa’s flying segments look better on this chart.

European airlines Available Tonne Kilometres (‘000) per employee: 2012*

Employee cost per ATK: weighted average EUR13.58 cents

Combining employee costs per employee with ATK per employee gives employee cost per ATK – how much does one employee have to be paid to produce one unit of traffic? Wizz Air again leads on this measure, which is the most important one in terms of labour productivity from a cost point of view, closely followed by Ryanair.

Vueling also performs well and the addition of Aegean to our analysis shows it to be the fourth best on this measure. In spite of high ATK per employee, Norwegian is in the middle of the pack on employee cost per ATK since its employees are expensive. This will be an area for it to address in pursuing its long-haul expansion.

SAS is the weakest by some distance on employee cost per ATK, while Iberia employees cost almost twice as much as British Airways employees for each ATK produced. Flybe is again worryingly at the high end on this measure.

Among the big three legacy flag carrier groups, Lufthansa performs the best, especially if its ground-based businesses are removed from the calculations. Also of note, here and in the other charts, is the strong performance of Turkish Airlines. As a full service carrier, it is containing its employee costs with productivity levels approaching those of the LCCs and comfortably ahead of other European full service competitors.

European airlines employee cost (EUR cent) per Available Tonne Kilometre: 2012*

Revenue per employee: weighted average EUR315,628

If employee cost per ATK is the key measure for labour cost productivity, then revenue per employee gives an indication of how effective employees are at producing revenues. On this measure, all five top positions are occupied by LCCs, with Vueling, Norwegian and easyJet leading the way. Although Wizz Air and Ryanair generate the highest levels of ATK per employee, their low fares mean that they produce less revenue per employee than the other three LCCs.

See related article: Vueling: a Spanish success story coveted by IAG

At the other end of the scale, TAP Portugal only generates EUR225,000 in revenues per employee, suggesting scope for improvement, either by the current management or any future owner if the privatisation process restarts.

See related article: TAP Portugal privatisation. Will TAP be back in the shop window soon?

The big three flag carrier groups are also at the lower end of the scale on revenues per employee, again highlighting the urgency of their current restructuring programmes. The contrast between IAG companies BA and Iberia is not as great on this measure as on the labour cost productivity measures. Lufthansa looks better when its ground-based businesses are removed (MRO, catering and IT services). Flybe again looks weak on this measure, pointing to a need to reorganise its workforce. 

European airlines revenue (EUR) per employee: 2012*

Operating profit per employee: weighted average EUR4,307

Our final chart sums up all the previous analysis by showing operating profit per employee. Ryanair is the runaway winner among European airlines, generating over EUR81,000 of operating profit per employee in the year to Mar-2012 (it should be even higher in the current year). easyJet is second, with EUR49,000, comfortably ahead of Wizz Air in third. Turkish Airlines (fourth) and Aer Lingus (fifth) split the LCCs in the ranking, pushing Norwegian and Vueling down to number six and seven respectively.

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The contrasting fortunes of Iberia, which lost EUR21,000 per employee in 2012, and BA, which generated operating profit of EUR8,000 per employee, are again apparent. The main difference between them is labour cost productivity, rather than revenue productivity. The poor performance of Aegean Airlines and airberlin on this measure, in spite of a relatively good showing on both labour cost and revenue productivity measures, suggests that their problems lie in other cost categories.

European airlines operating profit (EUR) per employee: 2012*

CAPA's European Airline Labour Productivity Rankings. And the winner is…

Combining the rankings of the nineteen airlines analysed on all six of the above measures into one list, the European airline with the most productive labour force is Wizz Air, with LCCs filling the top four positions.

Unsurprisingly perhaps, the two fundamental LCCs, Wizzair and Ryanair rank highest, but most threatening (or encouraging, depending on perspective) is the fact that Vueling and easyJet, which are significantly intruding into business and corporate markets in European short-haul operations, rank so highly. The other one of the five LCCs in the list, Norwegian, ranks only in seventh place, let down by high employee costs per employee.

See related article: Wizz Air: why Europe’s second lowest cost producer may be looking for fresh capital: IPO time?

Aegean and Turkish Airlines are the highest ranked full service carriers, followed by airberlin and Finnair. Aer Lingus also ranks higher than the Big Three legacy carrier groups, although the Lufthansa flying segments taken separately from the rest of the Lufthansa Group just make the top 10. This arguably distorts the figures too much in favour of Lufthansa's flying segments as all ground-based staff in the group's maintenance and catering segments are removed. It is probably fairer to give IAG’s British Airways the (somewhat dubious) title of most productive labour force among flag carriers of the bigger European nations, while its sister company Iberia is the lowest ranked in that particular group.

Flybe finds itself uncomfortably in the company of the legacy carriers and bottom overall is SAS.

Overall labour productivity ranking: 2012

Overall rank Airline/group Total points*
1 Wizzair 11
2 Ryanair 17
3 Vueling 23
4 easyJet 34
5 Aegean 43
6 Turkish Airlines 44
7 Norwegian 46
8 airberlin 53
9 Finnair 55
10 Lufthansa Flying Segments 58
11 Aer Lingus 67
12 British Airways 68
13 TAP Portugal 76
14 Flybe 80
15 IAG 82
16 Lufthansa Group 84
17 Air France-KLM Group 96
18 Iberia 101
19 SAS Group 102

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