American Air Cost Essay

As a continuation of the discussions in Assignment 1, the cost structure and evolution of American Airline is analyzed here. It is worth noting forehand that American Airline bankrupted in 2011; nevertheless, the bankruptcy did not disturb the airline’s operation significantly, that continuous curves in cost could still be observed. American Airlines also merged with US Airways in 2015, therefore, the costs of US Airways and American Airlines are summed before the year of 2015 to avoid confusion.

One part of the total cost is the operating cost. The operating cost includes fuel, crew (pilots only), maintenance, and ownership cost. The operating cost for American Airlines and US Airways are plotted in Figure 1 and Figure 2 below. It could be

In general, the fuel expense follows the fuel price, since the increase in ASM, as was demonstrated in Assignment 1, is not as significant as the change in the fuel price. Another trend could be observed in the fuel expense per ASM that the unit fuel cost for US Airways is lower than that of the American. This excellence in expense cutting could be marginally related to the relatively younger fleet of US Airways (12.1 years (Statista, 2017)) than American Airlines (13.6 year (Statista, 2017)) as of April 2014. From Figure 3, it could be seen that from the year of 2010, the cost deviates from the trends, with the volatility of cost increase being smaller than that of the fuel cost. This deviation could be explained as a result of fuel hedging that helped American Airline reduce its cost against the increase in fuel cost. American Airline relatively performed well in fuel hedging before the merger, and in the year of 2014, American Airline adopted US Airways’ “No-Hedging” policy and sold off all its hedging contract. This shift of policy actually helped American Airline when the fuel price plunged by half at the end of the year, saving more than $600 million for the airline in that year (Martin, 2015). With the fuel price stays low and relatively stable in the recent years, how will American’s “No-Hedging” policy perform is remain to be