Source: Airlines for America.
Labor is the most important operating cost of an airline (32.3%), followed by fuel (17.7%). Labor represents about 75% of all non-fixed costs of airline operations. Layoffs are consequently the first strategy used by the airline industry for rationalization during a downturn.
Since about two-thirds of the operating expenses are fixed, the marginal costs of taking an extra passenger are very small. This leads to overbooking and highly discounted seats if several remain unsold in the days before the flight as a money-losing fare is better than no fare at all. To cover its costs, an airline must have, on average, 65% of its seats occupied (passenger load factor), a share that has increased in since deregulation. The average passenger load factor varied from 66% to 69% through the 1990s, but by 2010 surpassed 80% because of a better available capacity.
Outside fuel and labor, there are a variety of other operational costs. They include the costs of owning and renting aircraft (including depreciation and amortization), renting terminal facilities and gates, professional services (advertising, legal), landing fees, maintenance as well as transport-related (indirect services). Still, airlines do not have to assume much research and development costs since these costs are assumed by the suppliers of the equipment that airline uses, from the planes themselves to seats and onboard entertainment.
A transcontinental flight between New York and Los Angeles costs about 12 cents per seat mile to operate a B-757, which has 188 seats. This 2,500-mile transcontinental flight must thus generate $56,400 to break even or $300 per seat.