In the times some of us call “the good ‘ol days”, fuel was the highest cost to an airline.

Whether or not those days were actually all that great is likely a matter of selective memory, but one thing has certainly changed: fuel is no longer the highest cost at an airline. That honor has been replaced by people.

Salaries and benefits now almost double the cost of fuel for large legacy airlines in the United States. The split is also widening.

But while wages typically move up and to the right, fuel does no such thing. The price of fuel ebbs and flows. Right now, it’s ebbing.

Why is this a problem that fuel costs are low? It’s not, per se.

But, Q1 results are out for many of the U.S. airlines, and the numbers are passable - Satisfactory - Meh.

Attention is all on future guidance as tariffs threaten to dampen demand, and rightly so. But, our attention quickly moved down the priority list to costs, and we’re not liking what we’re seeing.

Fuel costs are down. Huzzah!

But they are masking the rise in labor costs. And those increases are substantial.

American Airlines saw a $355 million increase in labor costs versus Q1 2024. Up over 9%. Revenue? Down 0.6%.

But fuel costs were down more than 13% - $393 million.

Delta and United saw much of the same. At Delta revenues were up 2%, but labor costs were up 8%. Fuel saved the day down 7%.

United was closer to what we’d expect to see: labor costs up 5.7% with revenue up 5.4%. Fuel? Down almost 9%.

Let us be clear: low fuel costs aren’t a bad thing. It’s just that they seem to be masking a growing problem that would otherwise be degrading earnings much faster. Labor costs are moving in a concerning direction. Unlike fuel, they don’t reverse direction - at least not outside of… you know… the “B” word.

But, for now, those higher costs are being offset by lower fuel. Which begs the question, how much lower can fuel go?

Not much is the answer. At least not much lower without an exogenous demand event, which also lowers fuel costs. That may happen (see 2025 guidance for any U.S. airline). Demand may fall, and the price of fuel may fall. You know what wouldn’t fall nearly as much? Salaries and wages.

However, the price of Jet A is already very close to the price of production. When adjusting for inflation, you have to go back more than 20 years to see sustained fuel prices below this level. We can reasonably deduce that fuel can’t go much lower for much longer without it also being tied to a sizeable economic downturn.

For a country currently in an identity crisis largely stemming from wages, it may sound odd to talk about a problem of too-high wages in the service industry.

Yet here we are.

Remember the race to pay as much as possible in a sharp labor shortage just two short years ago? In a very predictable business cycle, the impacts are playing out entirely as expected, still masked by fuel.

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