Fuel helps US low cost airline CASK performance; Southwest's labour costs have grown 17.5% y-o-y

Significantly lower fuel costs were a major driver in the outcome of the four main US low cost airlines – Southwest, jetBlue, Alaska and Virgin America – posting significantly lower unit costs year-on-year in 2015. According to CAPA’s CASK database, most of those airlines posted double-digit decreases as the average decrease in top-line fuel expense among those airlines was 31% year-on-year.

Most of those airlines should continue to record a favourable unit cost performance in 2016 as fuel costs, while rising, will remain below historic highs. Southwest, which has recently forged a new contract agreement in principle with its pilots after years of long and tense negotiations, may need to refine its current cost forecast if the deal is ratified. jetBlue has revised its cost forecast downward slightly during 2016, while Alaska on a stand-alone basis should continue to post a solid cost performance.

Over the course of the next one to two years Southwest is likely to ratify agreements with three of its major labour groups – pilots, flight attendants and mechanics. If the pay raises in the tentative pilot deal are an indication of salary increases for other work groups, Southwest is likely to find itself outside the cost boundaries of a traditional low cost airline.

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