Scribd Logo
Upload

Welcome to Scribd!

  • 73 views

    08 Airline Operating Costs

    Uploaded by

    ABDELRHMAN ALI
    This document discusses airline operating costs and productivity. It outlines the major cost categories airlines face, including aircraft and fuel costs, pilot salaries, maintenance expenses, and airport fees. It provides examples of typical operating costs per hour for different aircraft types, such as $2,550 per block hour for a Boeing 757-200. The document also compares the functional cost breakdown and per-unit costs of major airlines like United and Southwest.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    08 Airline Operating Costs

    Uploaded by

    ABDELRHMAN ALI
    73 views11 pages
    This document discusses airline operating costs and productivity. It outlines the major cost categories airlines face, including aircraft and fuel costs, pilot salaries, maintenance expenses, and airport fees. It provides examples of typical operating costs per hour for different aircraft types, such as $2,550 per block hour for a Boeing 757-200. The document also compares the functional cost breakdown and per-unit costs of major airlines like United and Southwest.

    Original Title

    08 airline operating costs

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses airline operating costs and productivity. It outlines the major cost categories airlines face, including aircraft and fuel costs, pilot salaries, maintenance expenses, and airport fees. It provides examples of typical operating costs per hour for different aircraft types, such as $2,550 per block hour for a Boeing 757-200. The document also compares the functional cost breakdown and per-unit costs of major airlines like United and Southwest.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    73 views11 pages

    08 Airline Operating Costs

    Uploaded by

    ABDELRHMAN ALI
    This document discusses airline operating costs and productivity. It outlines the major cost categories airlines face, including aircraft and fuel costs, pilot salaries, maintenance expenses, and airport fees. It provides examples of typical operating costs per hour for different aircraft types, such as $2,550 per block hour for a Boeing 757-200. The document also compares the functional cost breakdown and per-unit costs of major airlines like United and Southwest.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 11

    11/28/2019

    Airline
    Operating
    Costs and
    Productivity

    Dr. Ayman H. Kassem, Aerospace Engineering Department

    Running an airline is expensive


    • One of the most basic costs is the price of buying the airplanes
    themselves.
    For instance, a Boeing 737, a relatively small passenger jet, costs
    around $50 million or more. Larger jets can approach $300 million in
    price.
    • Hiring qualified pilots to fly the planes is another major cost.
    A pilot with 10 years of experience will earn upwards of $100,000 in
    annual salary. First officers (co-pilot) and other crew members make
    less, but still represent a major cost.
    • Fuel costs
    not only take a huge chunk out of an airline's revenue, they are
    notoriously volatile. From month to month, airlines never know exactly
    how much fuel is going to cost. Domestic airlines in the U.S. spend a
    combined $2 to $5 billion on jet fuel every month.
    • Countless other expenses
    maintenance costs, fees paid to airports and the government, etc.
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    1
    11/28/2019

    Objective Cost Categories


    • Salaries
    – General management, flight personnel, maintenance labor,
    aircraft & traffic handling personnel, other personnel
    • Materials purchased
    – Aircraft fuel & oil, maintenance materials, passenger food, other
    materials
    • Services purchased
    – Advertising & promotions, insurance, outside maintenance,
    commissions to travel agents, other services
    • Separate categories for: 3

    – Landing fees, rentals (including aircraft), depreciation (including


    aircraft), other expenses
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    Functional Cost Categories


    • Aircraft operating costs
    – Expenses associated with flying aircraft, also referred to as “Direct
    Operating Costs” (DOC) (crew, fuel and oil, rental of flight equipment, etc.)
    • Aircraft servicing costs
    – Handling aircraft on the ground, includes landing fees
    • Traffic servicing costs
    – Processing passengers, baggage and cargo at airports
    • Passenger servicing costs
    – Meals, flight attendants, in-flight services (In-flight entertainment (IFE))
    • Reservation and Sales costs
    – Airline reservations and ticket offices, travel agency commissions
    • Other costs, including:
    – Advertising and publicity expense -General and administrative expense
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    2
    11/28/2019

    Total Airline Operating Cost Breakdown


    • Major airline total operating costs :
    – 44% is aircraft operating expense, which includes fuel, direct
    maintenance, depreciation, and crew
    – 29% is servicing expense
    • Aircraft servicing (7%)
    • Traffic servicing (11%)
    • Passenger servicing (11%)
    – 14% is reservations and sales expense
    – 13% is overhead expense
    • Advertising and Publicity (3%)
    • General and Administrative (6%)
    • Irregular Operations IRROPS costs equal approximately (4%)
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    Functional Cost Comparison


    • Adapted from Form 41, used by Boeing, MIT (and Aviation Daily) for more
    detailed comparisons
    FLIGHT (DIRECT) OPERATING COSTS (DOC) = 50%
    • All costs related to aircraft flying operations
    • Include pilots, fuel, maintenance, and aircraft ownership
    GROUND OPERATING COSTS = 30%
    • Servicing of passengers and aircraft at airport stations
    • Includes aircraft landing fees and reservations/sales charges
    SYSTEM OPERATING COSTS = 20%
    • Marketing, administrative and general overhead items
    • Includes in-flight services and ground equipment ownership
    • Percentages shown reflect historical “rules of thumb”.
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    3
    11/28/2019

    Activity Drivers per Functional Category


    • Aircraft Operating Costs
    – Per Block Hour (for example, $2550 for 185-seat B757-200)
    • Aircraft Servicing Costs
    – Per Aircraft Departure (average $800)
    • Traffic Servicing Costs
    – Per Enplaned Passenger (average $15)
    • Passenger Servicing Costs
    – Per revenue passenger mile(RPM) (average $0.015)
    • Reservations and Sales Costs
    – % of Total Revenue (average 14%)
    • Other Indirect and System Overhead Costs
    – % of Total Operating Expense (average 13%)
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    Example: B757-200 FOC


    • Costs per block-hour of operations (avg. 185 seats):
    CREW $ 489

    FUEL $ 548
    MAINTENANCE $ 590
    OWNERSHIP $ 923
    TOTAL FOC $ 2550 per block-hr
    • Based on 1252 mile average stage length and 11.3 block-hr daily
    utilization (average for US Major):
    – Different stage lengths and utilization by different airlines result in
    substantial variations in block- hour costs for same aircraft type
    – Also, differences in crew costs (union contracts, seniority),
    maintenance costs (wage rates), and ownership costs (age of a/c)
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    4
    11/28/2019

    Boeing 757‐200 Flight Operating Costs

    Stage-Length. The average distance flown, measure in miles, per aircraft departure. The measure is
    calculated by dividing total aircraft miles flown by the number of total aircraft departures performed

    Dr. Ayman H. Kassem, Aerospace Engineering Department

    Example: United Airlines' Flight Operating Costs 2017

    • Total cost per available seat mile for pilots, flight attendants and
    other employees stood at 75 cents, 66 cents and $3.16
    respectively.
    • Maintenance & repair cost per seat-flight hour ~ $3.16
    • Rent/purchase cost per seat flown ~ $21.13
    • Other rent & airport landing fee per seat flown ~ $17.09
    • Marketing cost, and other costs such as 'cargo, food, passenger,
    airport security & other’ Marketing cost per available seat mile
    ~ 58 cents
    • Other cost per flight ~ $7,898
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    10

    5
    11/28/2019

    Example: Southwest Airlines' Flight Operating Costs 2017


    • Total cost per available seat mile for pilots, flight attendants and
    other employees stood at 67 cents, 51 cents and $3.75
    respectively.
    • Maintenance & repair cost per seat-flight hour ~ $2.44
    • Rent/purchase cost per seat flown ~ $7.05
    • Other rent & airport landing fee per seat flown ~ $6.43
    • Marketing cost, and other costs such as 'cargo, food, passenger,
    airport security & other’ Marketing cost per available seat mile
    ~ 56 cents
    • Other cost per flight ~ $1,353

    Dr. Ayman H. Kassem, Aerospace Engineering Department

    11

    Comparison of FOC Across Aircraft Types

    • All else being equal, larger aircraft should have highest flight
    operating cost per hour, lowest unit cost per ASM:
    – There exist some clear economies of aircraft size (e.g., two pilots for
    100 and 400 seat aircraft, although paid at different rates)
    – Also economies of stage length, as fixed costs of taxi, take-off
    and landing are spread over longer flight distance

    • But, many other factors distort cost comparisons:


    – Pilots paid more for larger aircraft that fly international routes
    – Newer technology engines are more efficient, even on small planes
    – Aircraft utilization rates affect allocation of costs per block-hour
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    12

    6
    11/28/2019

    FOC Comparison: Selected Aircraft


    A/C Type Seats FOC / FOC / Average Daily
    block-hr seat-hr stage(mi) block-hrs

    DC9-30 100 $1973 $19.73 472 8.1

    A320 148 $2270 $15.33 1191 11.7

    B727-200 150 $2555 $17.03 704 8.4

    B757-200 186 $2550 $13.71 1252 11.3

    B747-400 375 $6455 $17.21 4065 12.4

    Dr. Ayman H. Kassem, Aerospace Engineering Department

    13

    Example: Boeing 737‐500 Productivity

    Flights Block Stage


    Airline Seats ASMs
    per Day Hours Length

    Continental 3.9 8.3 719 104 291,246

    United 4.3 7.5 564 109 264,284

    Southwest 8.2 10.2 400 122 399,746

    Dr. Ayman H. Kassem, Aerospace Engineering Department

    14

    7
    11/28/2019

    Example: Boeing 737‐500 FOC per block hour

    Airline Crew Fuel Maintenance Ownership Total

    Continental $510 $430 $651 $698 $2,291

    United $927 $487 $1048 $510 $2,974

    Southwest $388 $537 $251 $350 $1,526

    Dr. Ayman H. Kassem, Aerospace Engineering Department

    15

    Aircraft Productivity
    • Measured in ASMs generated per aircraft per day:
    = # departures X average stage length X # seats

    • Aircraft “utilization” measured in block-hours/day:


    – Block hours begin at door close (blocks away from wheels) to door
    open (blocks under wheels)
    – Gate-to-gate time, including ground taxi times

    • Increased aircraft productivity achieved with:


    – More flight departures per day, either through shorter turnaround
    (ground) times or off-peak departure times
    – Longer stage lengths (average stage length is positively correlated
    with increased aircraft utilization = block hours per day)
    – More seats in same aircraft type (no first class seating and/or
    tighter “seat pitch”)

    Dr. Ayman H. Kassem, Aerospace Engineering Department

    16

    8
    11/28/2019

    Employee Productivity
    • Measured in ASMs per employee, ASMs per Labor Dollar,
    Revenue per Employee, Revenue per Labor Dollar

    • As with aircraft, employee productivity should be higher


    with:
    – Longer stage lengths (amount of aircraft and traffic servicing for each
    flight departure not proportional to stage length)
    – Larger aircraft sizes (economies of scale in labor required per seat for
    each flight departure)
    – Increased aircraft productivity due to shorter turnaround times (more
    ASMs generated by aircraft contribute to positive employee productivity
    measures)

    • Yet, network airlines with long stage lengths and large


    aircraft have lower employee productivity rates
    • (mainly sleep over) Dr. Ayman H. Kassem, Aerospace Engineering Department

    17

    Summary: Airline Productivity Measures


    • Aircraft Productivity
    –Aircraft Utilization (block-hours per day)
    –ASMs per Aircraft per Day
    • Average Stage Length
    • Number of Departures per Day
    • Aircraft Capacity (seats per aircraft)
    • Employee Productivity
    –ASMs per Employee
    –ASMs per Labor Dollar
    –Revenue per Employee,
    –Revenue per Labor Dollar
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    18

    9
    11/28/2019

    Costs and Productivity Challenges


    Unit Cost (Total System Operating Expense/ASM)
    • Network carriers are exploring alternatives for increasing
    aircraft productivity to reduce unit costs:
    – Continuous connecting banks (clustered flights) to reduce ground times at
    hubs
    – Higher density seating options (e.g. removal of First Class)
    – More “point-to-point” flying rather than continuous hubbing to increase
    aircraft utilization

    • Successful new “business models” will depend on


    reducing both aircraft and labor unit costs
    – In addition to fine-tuning fare structures to maximize unit revenues
    Dr. Ayman H. Kassem, Aerospace Engineering Department

    19

    Source: IATA, ICAO


    Dr. Ayman H. Kassem, Aerospace Engineering Department

    20

    10
    11/28/2019

    Dr. Ayman H. Kassem, Aerospace Engineering Department

    21

    11

    You might also like