Aircraft Costing

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Airline Operating Costs

By Peter Horder, Senior Vice President SH&E Ltd
Prepared for:

MANAGING AIRCRAFT MAINTENANCE COSTS Conference

Brussels, 22 January 2003

Agenda

Introduction Current Airline Environment Airline Cost Elements Indirect and Direct Operating Costs Overhead Cost Control Balance Sheet Effects Reference Sources Conclusions

1

Introduction

Current airline environment Safety considerations and costs
– Security restrictions – Insurance implications

Cost reduction versus revenue increases

2

Airline Economic Affects from 11 September

SCHEDULED CARRIERS ! Frequency ! Routes ! Traffic ! Revenues " Fares ? ! Profitability

Low Cost Carriers ! Fares " Traffic " Revenues " Profitability

Low Cost Carriers have been clear winners since 2001
3

Airline Safety and Security
Safety is paramount
– – – Flight procedures Maintenance procedures Ground Operations

Security Impacts
– – – Cockpit security On board security Ground delays – Increased searches – Baggage X-ray

Security costs
– Airport charges – Increased passenger charges
4

Operating Cost Comparisons Per ASK
Britannia Air 2000 Monarch
BY DP ZB TG QF BA EK FD LX OK EW LG LO VB NI

(EUR)

Operating Cost Per ASK

0.200 0.175 0.150 0.125
COE FD LX VB NI EW U2 OK TV FR LO GO TG QF BA

Thai Airways Qantas British Airways Emirates CityFlyer Express Crossair Czech Eurowings Luxair LOT Maersk Air Portugalia

0.100 0.075 0.050 0.025 0.000 0

EasyJet Go Ryanair EK BY DP ZB

U2 GO FR

500

1,000

1,500

2,000

2,500

3,000

Source SH&E, AEA, IATA, Form 41
5

Average Stage Length (Km)

Total Operating Costs

Admin & Other 12% Ticketing, Sales & Promotion 14% Flight Ops 28%

Passenger services 11% Depreciation 6% En-Route/Airport 18%
Source (ICAO 2001 World Average)
6

Maintenance 11%

Some ICAO and F41 Cost Breakdown Percentages

100 80 60 40 20 0

In di a

en ta l

B ra at he ns

ea s

on tin

Ai r

General & Admin Sales & Promotion Passenger Service User Charges Depreciation & Amortisation Maintenance 7

Flight Operations

C

D el ta

(F 41 )

yJ et

JA L

Labour Productivity has an Impact on Costs
485
400

350

300 Revenue per Employee (US$ 000)

250

200

150

100

50

FR

SQ

LH

CX AC

BA

SK GO

KL

U2

QF

EK

AA

CO

AF

GF

IB

TG

TP

SV

MH

IR

UL

8

Source: Annual Accounts, Form 41, AAPA 2001

Fuel Cost per ASK

1.6 LA 1.5 AC

1.4 Fuel Cost per ASK (US cents)

1.3 SK 1.2 U2 MH AF KL CX

1.1

LH GF CO

SQ

1.0 FR 0.9

IB

BA

AA

AI UL QF

IR 0.8

GO

TP

EK

0.7 500

1,000

1,500

2,000 2,500 Average Stage Length (KM)

3,000

3,500

4,000

Source SH&E 2001
9

Maintenance and Overhaul Costs as a Percentage of Total Operating Costs Percentage of Total

18 16 13.88 14 12 10.10 10 8 6.06 6 4 2 0 5.04 8.0 11.03 11.06 13.9 15.71 14.42 14.55

ya na ir M ae rs k ea Air sy B Jet ra at B he rit ns is h Eu ro B pe ry m an on Ai C rw ity ay fl y s er Ex pr es s G O Fl y

10

Source: SH&E, ICAO 2000 Financial Data

Li th

R

ua ni an

Lu xa ir

Si lk ai r

Maintenance Cost per Flight hour

1600

1400

Maintenance Cost per Flight Hour (US$)

1200

1000

800

600

400

200

0 NH 11 JL CX TP BA TG KL GF GO SQ IB AI AC U2 SK AF CO AA FR EK

Source: Annual Accounts, Form 41, AAPA 2001

Cost of Sales per Passenger
Cost of Sales = commissions, ticketing, sales and promotion costs 45

40

35 Cost of Sales per Passenger (US$)

30

25

20

15

10

5

0 BA NH EK SQ QF SV KL TP AF LH IB CO GF AC TG AA SK GO CX U2 FR

Source: Annual Accounts, Form 41, AAPA 2001
12

Marketing Expense as a Percentage of Sales

18%

16%

14% Marketing Expense as % of Revenue

12%

10%

8%

6%

4%

2%

0% IR 13 TP SV EK BA JL QF TG AF KL GO U2 SK CO FR IB GF SQ

Source:...
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