Aircraft Operating Costs and Profitability

Each airline has its own marketing policies that directly affect the costs and expenses that must be spent to provide a distinctive level of service aimed at gaining customer satisfaction and making a good profit.

In this article,the unit employed is normally the tonne-kilometer which covers all categories of load: passenger s, cargo and mail.

I will not go into the details of the costs to make sure that I can explain the idea simply and in the shortest possible time. To achieve this, I will assume the hourly operating cost of the aircraft, taking into account that the hourly cost includes all the costs mentioned below.

The Airlines’ Cost Structure

Airlines cannot compete on price without reducing their costs and overheads. The airline industry relies on airport services, the provision of aviation fuel, labour, etc. Generally, the airlines’ costs are divided into three categories; direct operating costs, indirect operating costs and overheads.

Direct operating costs

Are those associated directly with the characteristics of the aircraft is covers:

(1)?Fuel and Oil

(2)?maintenance and overhaul.

(3)?Landing Fees

(4)?En-route (including navigation) fees

(5)?Handling Fees

(6)?Crew Expenses

(7)?Passenger and Cargo Commission

(8)?Airport Load Fees

(9)?Inflight Catering

(10)????General Passenger Related Costs

Indirect operating costs

Indirect operating costs are incurred for a whole period of time such as an operating season. These costs cannot be avoided once a certain level of flying has been chosen. In other words, if the flight program changes (for example; due to ?flight cancellation), the costs in aircraft standing charges, flight crew pay, cabin crew pay, maintenance labour (in-house) and the handling cost at base stations will still be incurred. All of these costs are directly affected by aircraft type.

(1)?Flight Crew Pay

(2)?Cabin Crew Pay

(3)?Maintenance Labour (In-house labour)

(4)?Handling Costs at Base Stations

Overheads

The overhead costs and expenses are incurred for even longer periods. These costs may include:

(1)?sales

(2)?administration

(3)?accounts

(4)??general management

(5)?employment and HR departments, and

(6)?property costs, among others.

?Many of these costs are relatively unaffected by both the type of aircraft used and the level of flying operations.

Cost Comparison Parameters - Cost per Tonne-Kilometer

It is necessary to compare the operating cost characteristics of different types of aircraft. However, since the aircraft can vary so much in size and capacity, the only way to compare their performance is to express their costs in terms of units of production. This is known as unit cost comparisons.

Unit cost can be defined as the average operating costs incurred per Capacity Tonne Kilometer (ATK).

Available Tonne Kilometer (ATK).

The full capacity of the aircraft is taken into consideration by converting the passenger and cargo capacity in terms of weight (i.e. each passenger plus their baggage). Moreover, the aircraft may be capable of carrying an additional tonne of cargo.

How can we calculate the Available Tonne-Kilometer (ATK)?

Example :

?Passenger Tonne Kilometer (PTK) & Freight Tonne‐Kilometer

Weight Load Factor (WLF):

Total revenue tonne‐kilometer as a percentage of the available tonne‐kilometer:

WLF = Passenger/ Friehgt Tonne Kilometer / Available ?Tonne-Kilometer

WLF = 48,840 RTK / 58,608 ATK = 0.83 (83%)

Costs Tonne Kilometer (CTK)

Let us assume that the cost of operating a flight with a 164-seat A320 aircraft is $9,200 per block hour, the round-trip flight time is 5 hours * 9200$ = 46,000 $.

By divided flight operations costs which is 46,000$ by the available tonne-kilometer (58,608 ATK), which is 78c;

Revenue Tonne Kilometer (RTK)

Let us assume that the revenue of operating a flight with a 164-seat A320 aircraft is 61,705$ per round trip.

By dividing the revenue of operating flight which is 61,705$ by the available tonne-kilometer (58,608 ATK), which is 1.05 $;

The Yield

Simply , 61,705$ - 46,000$ = 15,705$

This means 0.26 cent per tonne-kilometer

The calculation of costs will not be accurate due to the lack of accurate information, which in turn needs actual statistics and actual financial figures for each cost item. But I'm sure if you understand the math and have the information you can apply the math that results in actual numbers for costs and profits. ?Furthermore, you can understand the cost comparison parameters and metrics.

Summary

There are many factors affecting the level of operating costs. These are grouped under four main headings in accordance with their primary source: (A) characteristics of the air craft, (B) current economic environment, (C) route structure, and (D) decision of the carrier.

The factors listed under (A) include such design characteristics as capacity and speed, crew size, fuel and oil consumption, value of aircraft, and required time between overhauls, and are considered as common to all aircraft of a given type.

The factors listed under (B), (C] and (D), however, may lead to rather wide variations in the direct unit costs associated with one aircraft type under different operating conditions.

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