Airline Operating Costs and
Measures of Productivity
Chapter 5
Lesson 4
Sources:
The Global Airline Industry
Peter Belobaba, Amedeo Odoni, Cynthia Barnhart, MIT, Library of Flight Series
Published by John Wiley & Sons, © 2009, 520 pages, Hardback
http://ocw.mit.edu/OcwWeb/Aeronautics-and-Astronautics/16-75JSpring-2006/CourseHome/index.htm
1
Chapter 3 Review
Operating Profit = RPM x Yield – ASM x Unit Cost
(Revenue) – (Operating Expenses)
QOS
QOS
RPM
ASM
# Flights
RPM
Unit Cost
Economies
Of Scale
Yield
RPM
Unit Cost
Operating Expense
Revenue
Spill
Airline
Profit
Chapter 4
2
200
$$40
$90
$115
$140
$165
$190
$215
$240
$265
$290
$315
$340
$365
$390
$415
$440
$465
$490
$515
$540
$585
$640
$675
$710
$760
$790
$835
$895
$995
$1,070
$1,210
$1,300
$1,440
$1,800
400
Demand
600
0
50
100
150
200
250
300
350
400
450
500
550
600
650
700
750
800
850
900
950
1000
1050
1100
1150
1200
1250
1300
1400
1450
1650
1700
1750
1800
1850
2000
2550
Demand
Chapter 4 Review
IAD-DEN Demand vs. Price ($5 buckets)
250
Overbooking
AU =CAP /(1‐NSR + 1.645 STD)
700
200
Price Discrimination vs.
Product Differentiation
IAD-DEN Demand vs. Price ($50 buckets)
150
100
500
50
300
0
100
Price
0
D=MxFaxTb
Price
3
LogD = LogM +aLogF +bLogT
Chapter 5 Review
LCC Strategies
No Frequent Flyer
Single Cabin
No Frills
Unit Cost
QOS
ASM
QOS
RPM
# Flights
RPM
System
Economies
No Travel Agencies
Of Scale
Point-Point/ less connect
No Commisions
Fuel/ Hedging
Ground
Unit Cost
Unit Cost
Labor/ No Unions Lower Wages
Maint/ Commonality
Yield
RPM
Unit Cost
FOC
Operating Expense
Spill
Revenue
Airline
Profit
4
Chapter 5 Review (Cont.)
LCC Strategies
No Frequent Flyer
Single Cabin
No Frills
Inputs
$
Passengers
Unit Cost
QOS
System
ASM
QOS
RPM
No Travel Agencies
# Flights
RPM
Economies
Of Scale
Point-Point/ less connect
No Commisions
Ground
Fuel/ Hedging
Controls
Safety
Policies
Strategies
Unit Cost
Unit Cost
Labor/ No Unions Lower Wages
Yield
RPM
Unit Cost
Outputs
$
Passengers
Maint/ Commonality
FOC
Operating Expense
Spill
Revenue
Airline
Profit
Feedback
Aircraft Productivity
Aircraft Utilization (block-hours /day)
ASMs /Aircraft /Day
Average Stage Length
#of Departures /Day
Aircraft Capacity (seats /aircraft)
Employee Productivity
ASMs /Employee
ASMs /Labor $
Revenue /Employee
Revenue /Labor $
5
Outline
•
Airline Cost Categorization
– Administrative vs. Functional
– Cost Drivers
•
Operating Expense Comparisons
– Percentage Breakdown
– Legacy vs. Low-Cost Airlines
– Flight Operating Costs
•
Comparison of Airline Unit Costs
– Total Operating Cost vs. Unit Costs
– Legacy vs. Low-Cost Airlines Unit Costs
– Comparisons in Europe, Asia, and Worldwide
•
Measures of Airline Productivity
– Aircraft Productivity
– Labor Productivity
•
•
Delay Costs
Willingness to Pay
6
Airline Cost Categorization
7
DOT Form 41
• Form 41 contains traffic, financial, and operating cost data
reported to the DOT by US Major airlines
– Data is reported and published quarterly for most tables
– Detail of reporting differs for different expense categories
• Aircraft operating expenses by aircraft type and region of
operation
• Other expenses more difficult to allocate by aircraft type
• DOT Form 41 includes the following schedules:
–
–
–
–
–
–
P12 : Profit and Loss statement
P52 : Aircraft Operating Expenses
P6 : Operating Expenses by Objective Groupings
P7 : Operating Expenses by Functional Groupings
P10 : Employment Statistics
B1 : Balance Sheet
8
Administrative Cost Categories
• Administrative Cost Categories
– Salaries and related fringe benefits for all personnel (general
management, flight personnel, maintenance labor, other personnel)
– Materials Purchased (fuel & oil, parts, passenger food, other
materials)
– Services Purchased (advertising & promotions, communications,
insurance, maintenance, commissions, other services)
– Landing Fees, Rentals, Depreciation, other Expenses
• Although consistent with general accounting principals,
Administrative Cost Categorization does not allow for more
detailed analysis of the specific activities that comprise the
airline operation and contribute to airline costs
– “Salaries & Benefits” does not allow one to separate out important subsets of
this category, aircraft crew cost
9
Administrative Cost Categories
10
Functional Cost Categories
• Functional Cost Categories –allocates costs to the different
functions within the airline’s operation
– Flight operating costs/ Direct operating costs
• Flying operations – Flight crew, Fuel costs
• Maintenance – routine maintenance, extensive major checks, “labor & parts”
Form 41 reports maintenance for direct airframe, direct engine and overhead/ burden
• Depreciation & Amortization
– Ground operating costs
• Aircraft servicing – handling aircraft on ground, landing fees
• Traffic servicing – processing passengers, baggage and cargo at airports
• Promotion and sales – airline reservation centers, ticketing offices, travel agency
commissions, and distribution system fees
– System operating costs
•
•
•
•
Passenger Service – meals, flight attendants, in-flight services
Advertising and Publicity
General and Administrative – can’t be associated to a particular activity
Transport-related – costs associated with the generation of transport related
revenues. Fees paid to regional airline partners, extra baggage expense, and other
misc overhead
11
2004 Functional Cost Breakdown
12
Cost Drivers by Functional Category
• Flight operating costs
– Per Block Hour (for example, $3415 for 185-seat B757-200 in 2003)
• Aircraft Servicing Costs
– Per Aircraft Departure (average $1135 in 2003)
• Traffic Servicing Costs
– Per Enplaned Passenger (average $18)
• Passenger Servicing Costs
– Per RPM (average $0.015)
• Promotion and Sales Costs
– % of Total Revenue (average 10%)
• Other Indirect and System Overhead Costs
– % of Total Operating Expense (average 12%)
13
Operating Expense Comparisons
14
Airline Operating Cost Breakdown
• Adapted from Form 41
FLIGHT (DIRECT) OPERATING COSTS (DOC) = 53.1%
– All costs related to aircraft flying operations
– Include pilots, fuel, maintenance, and aircraft ownership
– Varies primarily because of fuel price
GROUND OPERATING COSTS = 20.5%
– Servicing of passengers and aircraft at airport stations (14.2%)
– Promotion and reservations/sales charges (6.3%)
– Dropped from a high around 30%, because of major reductions in promotions
and sales costs
SYSTEM OPERATING COSTS = 26.4%
– Passenger Service (6.7%)
– General and Administrative (5.9%)
– Transport-Related expenses (13.7%)
– The growth in Transport-Related expenses can be attributed to changes in
reporting rules and a higher reliance on regional partners as feeder airlines
15
Flight Operating Costs
• Flight operating costs (FOC) by aircraft type:
– Reflect an average allocation of system-wide costs per block
hour, as reported by airlines for each aircraft type
– Can be affected by specific airline network or operational
patterns
– Collected by US DOT as Form 41 operating data from airlines
• Typical breakdown of FOC for US carrier:
CREW: Pilot wages and benefits
FUEL: Easiest to allocate and most clearly variable cost
MAINTENANCE: Direct airframe and engine maintenance cost,
plus “burden” or overhead (hangars and spare parts inventory)
OWNERSHIP: Depreciation, leasing costs and insurance
16
Legacy vs. Low-Cost Airlines
• Network Legacy Carriers (NLCs)
–
–
–
–
More Traditional Airlines
Operate large hub-and-spoke networks
Regional, Domestic and International Service
Big Six (American, United, Delta, Northwest,
Continental, US Airways/ America West)
• Low-Cost Carriers (LCCs)
–
–
–
–
Operate smaller networks
High proportion of point-to-point or non-hub
Reduced levels of service and low fares
Southwest, AirTran, Frontier, ATA, JetBlue, Spirit
17
The LCC Business Model
• Characteristics of all or at least most LCCs
– Fleet Commonality – reduces the costs of spare parts,
maintenance and crew training
– Point-to-Point instead of connecting hub networks – reduces
costs of handling connecting passengers and improves
productivity of both aircraft and crews
– No labor unions and lower wages – higher productivity due to
less restrictive work rules
– Single cabin/ class service – reduces complexity and costs
– Open seating – less time processing passengers and no boarding
passes, improves productivity and reduces costs
– Reduced Frills – less seating space, no food and no beverages ,
increases ASM and reduces passenger service cost
– No frequent-flyer programs – reduces administrative costs
– Avoids traditional distribution channels – no travel agencies, no
commissions, tickets directly from airline (website or phone)
18
Comparison of Major LCC Characteristics
South West
Single Aircraft Type
or Family
Point-to-point no
hubs
X
No labor unions/
lower wages
X
JetBlue
AirTran
X
X
X
X
West Jet
X
X
X
Open seating
X
X
X
Reduced Frills
X
X
X
X
No frequent flyer
program
X
X
X
X
X
X
X
Avoid global
distribution systems
Ryan Air
X
X
Single cabin/ class
Easy Jet
19
Recent Trends in Operating Costs
• Flying Operations (Figure 5.7)
– Costs doubled between 1995 to 2007
– NLCs 50% higher than LCCs
• Maintenance (Figure 5.8/5.9)
– From 2000 – 2005 NLCs spent 60% more than LCCs
– By 2007 NLCs spent 100% more than LCCs
– Positive relationship between the average age of an
airline’s fleet and maintenance costs per block hour?
(NextGen?)
• Passenger Service (Figure 5.10)
– NLCs spend twice the amount LCCs spend per RPM on
Passenger Service until 2001
– Gap has narrowed to 50% by 2007
20
Recent Trends in Operating Costs
(Cont.)
• Aircraft and Traffic Services (Figure 5.11/5.12)
– Steady increase, especially with security related expenses
after 9/11
– NLC costs double the costs of LCCs (larger aircraft, longer
distances)
– NLC traffic servicing expenses 2-3 times the LCC costs
• Promotion and Sales (Figure 5.13/5.14)
– Gap has closed between NLC and LCC Costs per RPM
– NLC costs double LCC costs per enplanement
21
Flight Operating Cost Comparisons
• Flight Operating Costs (FOC) can differ
– Across different aircraft types
– Across different airlines for the same aircraft
• Four Components of FOC
–
–
–
–
Crew – all wages and benefits paid to pilots
Fuel – most variable cost element in FOC
Maintenance – Direct and Overhead
Ownership – Depreciation, Leasing, Taxes and
Insurance
22
Example: A320 FOC (2008 US data*)
• Cost per block-hour of operations (avg. 149
seats)
– Crew
– Fuel/Oil
– Maintenance
– Ownership
– Total
$ 477
$2413
$ 523
$ 730
$4143
• Based on 1135 mile average stage length and
11.2 block-hr daily utilization
23
* Aviation Daily Quarterly Reports
Example (Cont.): A320 FOC (2008 US data*)
Airline
Overall
JetBlue
United
US Airways
Northwest
USA 3000 Airlines
Crew
$ 477
$ 449
$ 486
$ 470
$ 543
$ 372
Fuel/Oil
$ 2,413
$ 2,235
$ 2,482
$ 2,501
$ 2,480
$ 2,919
Maintanance
$
523
$
264
$
589
$
916
$
446
$
670
Ownership
$
730
$
575
$
784
$
934
$
670
$ 1,002
Total
$ 4,143
$ 3,523
$ 4,341
$ 4,821
$ 4,139
$ 4,963
Airline2
# Aircraft Stage Length Seats/Dept. Block Hours
Overall
360
1135
149
11.2
JetBlue
105
1282
150
13.1
United
97
1116
147
10.7
US Airways
75
1151
150
11.1
Northwest
73
917
148
9.6
USA 3000 Airlines
10
1168
168
10
RPMs
525,380
610,284
498,479
529,099
432,923
543,231
ASMs Load Factors
639,919
0.821
760,446
0.803
604,783
0.824
640,100
0.827
508,483
0.851
675,119
0.805
24
* Aviation Daily Quarterly Reports
A320 Costs Changes 2006 to 2008*
Airline
Northwest
United
JetBlue
Crew
Fuel
Maintenance
Ownership
Total
$ 543
(-12%)
$ 2,480
(53%)
$ 446
(17%)
$ 670
(2%)
$ 4,139
(26%)
$ 486
(7%)
$ 2,482
(52%)
$ 589
(25%)
$ 784
(16%)
$ 4,341
(34%)
$ 449
(15%)
$ 2,235
(43%)
$ 264
(14%)
$ 575
(-1%)
$ 3,523
(27%)
2008 cost per block hour
% change from 2006
25
* Aviation Daily Quarterly Reports
FOC $ for Selected Aircraft*
FOC $ per hr
Seats
FOC $ per
seat-hr
777
$10,272
262
$39
4444
13.2
747-400
$14,300
367
$39
4751
12.5
757-200
$5,307
180
$29
1433
10.5
A330-200
$8,378
281
$30
3686
13.4
A319
$3,854
128
$30
908
10.8
737-300
$3,880
132
$29
596
9.5
CRJ 100/200
$1,702
50
$34
425
8.9
Type of Aircraft
Stage Length
Block Hours
26
* Aviation Daily Quarterly Reports
Comparison of Airline Unit Costs
27
Low fare carriers have lowest CASM
across all average stage lengths
28
Figure 5.18
Lessons from CASM vs. Stage Length
• Unit cost comparisons should not be made
between airlines unless differences in their
average stage length are taken into account
• Differences in unit costs between NLCs and
LCCs in 2003 were significant, even when we
account for stage length
29
Unit Cost by Airline Group
30
Unit Costs by Functional Category 2004
31
NLC vs LCC Unit Costs
• Fuel expenses are compared under assumptions
all airlines are subject to the same fuel price
environment (They are not)
– Fuel price hedging
• Both NLC and LCC experienced a drop in unit
costs after 2001 and a rise in unit costs after 2004
– NLC’s drop reflects cost-cutting strategies put in place
after 9/11 (employee layoffs and passenger service
cutbacks)
– NLC’s rise in costs primarily due to fuel prices
– LCC’s rise in costs tempered by their capacity growth
during the same period
32
Unit Cost and Ave Stage Length 2000-2004
33
Yield and Stage Length 2000-2004
34
Measures of Airline Productivity
35
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”)
36
Components of Aircraft Productivity
37
US Major Airlines Aircraft Productivity
Aircraft Productivity (ASMs per day)
38
AIRCRAFT UTILIZATION 1999-2003
39
Example: Boeing 737-500 Productivity
40
Example: B737-500 FOC per Block Hour
41
Lowfare carriers lead in aircraft
utilization at all average stage lengths
42
Employee Productivity
• Measured in ASMsper employee per period
• 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
43
Legacy carrier employment down by 25%
since 2000, a loss of over 100,000 jobs
44
US Major Airline Labor Cost per
Employee Average Salary+Benefits per Employee$
45
Lowfare carrier salaries/benefits per employee
25% lower than legacy carriers
Salaries and Benefits per Employee$
46
ASMs/employee vs. Average Stage Length
47
ASMs/employee and Average A/C Size
48
Employee Productivity Up 30% From 2002
49
* ATA
ASM per Employee 2000-2004Annual
ASM per Employee
50
Revenue per Employee
Annual Operating Revenue per Employee
51
ASM per Dollar of Salaries + Benefits
Annual ASM per Dollar Salaries & Benefits
52
Revenue per Dollar of Labor Expense
Operating Revenue per Salary/Benefit Dollar
53
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
54
Delay Cost Model
55
U.S. Delay Cost Model
• To modify the model for the US data and for all
aircrafts
ICAO Engine Emissions
• Taxi Fuel Burn Rate
BTS P52
• Maintenance
Cost
• Fuel prices
• Crew Costs
• Airborne Fuel
Burn Rate
General Model
Cost of Delay
Factors from the
US data
PAX delay cost for the US airlines is 0, since airlines do not have to
compensate the passengers as they do in Europe.
Additionally the maintenance coefficient was found to be ~ 0.
56
Calculating Delay Costs for Airlines
Cgate_delay= ccrew*crew cost + cother
Cgate_delay_15= .03*crew cost + $.21
Cgate_delay_65= .46*crew cost + $.21
.46
Ccrew
• Gate Delay Costs – other costs = $.21/min
.03
• Taxi Delay Costs – other costs = $.12/min
15
65
Gate Delay
Ctaxi_delay= cfuel*taxi burn rate*fuel price + ccrew*crew cost + cother
Ctaxi_delay_15= 1*taxi burn rate*fuel price + .00*crew cost + $.12
Ctaxi_delay_65= 1*taxi burn rate*fuel price + .43*crew cost + $.12
• Airborne Delay Costs – other costs = $.10/min
Cair_delay= cfuel* burn rate*fuel price + ccrew*crew cost + cother
Cair_delay_15= 1* burn rate*fuel price + .01*crew cost + $.10
Cair_delay_65= 1* burn rate*fuel price + .46*crew cost + $.10
57
Delay Cost Study Results
Gate Delay
July 2007 Delay costs $ 8,492,145
Delay cost per flight
$
30.26
Delay minutes
4,022,321
Delay cost per minute $
2.11
Taxi out Delay
$ 10,754,556
$
38.33
2,276,214
$
4.72
Airborne Delay
$ 41,441,667
$
147.69
1,052,131
$
39.39
Taxi in Delay
$
3,110,810
$
11.09
728,188
$
4.27
Total Delay
$ 63,799,178
$
227.37
$
8,078,854
$
7.90
July 2007 Departure delays by segment of flight for selected airports (New York, San Francisco, Washington, Boston, Philadelphia, and Dallas)
Airline
american
southwest
delta
us airlines
united
continental
jet blue
northwest
american eagle
air tran
air wisconsin
com air
ExpressJet
Republic Airlines
Gate Delay
$ 1,272,838
$ 581,768
$ 727,080
$ 416,258
$ 550,133
$ 885,487
$ 626,087
$ 184,893
$ 423,625
$ 393,055
$ 204,604
$ 223,066
$ 321,204
$ 131,820
Taxi out Delay
$ 1,828,159
$
581,715
$ 1,215,887
$
892,844
$ 1,030,883
$ 1,111,575
$ 1,001,468
$
364,349
$
376,629
$
287,737
$
133,906
$
337,824
$
348,175
$
75,043
Airborne Delay
$ 5,859,727
$ 6,201,624
$ 3,079,572
$ 3,764,669
$ 2,945,020
$ 2,341,061
$ 2,048,026
$ 1,536,632
$
851,741
$
927,879
$ 1,204,321
$
939,059
$
586,765
$
886,370
Taxi in Delay
$ 873,476
$ 229,303
$ 290,221
$ 196,096
$ 254,389
$ 218,211
$ 183,966
$
99,053
$ 142,279
$ 103,138
$
28,433
$
69,319
$
51,283
$
16,935
July 2007 Departure delays for airlines exceeding $1M in delay costs
Total Delay # Flights $ per flight
$ 9,834,200 38,399 $ 256.11
$ 7,594,410 28,722 $ 264.41
$ 5,312,760 13,233 $ 401.48
$ 5,269,868 15,129 $ 348.33
$ 4,780,425 19,015 $ 251.40
$ 4,556,335 14,387 $ 316.70
$ 3,859,548 14,752 $ 261.63
$ 2,184,927
7,048 $ 310.01
$ 1,794,274 24,508 $
73.21
$ 1,711,810
7,670 $ 223.18
$ 1,571,264 12,259 $ 128.17
$ 1,569,268
8,556 $ 183.41
$ 1,307,427 11,211 $ 116.62
$ 1,110,167
5,147 $ 215.69
58
Delay Cost Study Results
Aircraft
B752
B737
MD82
A320
B733
A319
CRJ2
B738
E145
MD88
E170
B735
MD83
E190
E135
B712
CRJ1
B734
Gate Delay
$ 794,859
$ 602,399
$ 619,102
$ 666,428
$ 574,161
$ 308,906
$ 333,964
$ 523,472
$ 542,696
$ 295,444
$ 189,513
$ 355,881
$ 187,480
$ 211,808
$ 256,153
$ 262,947
$ 177,892
$ 120,198
Taxi out Delay
$ 1,435,696
$
582,814
$
895,085
$ 1,315,475
$
618,854
$
603,246
$
333,642
$
683,996
$
422,478
$
503,327
$
119,199
$
430,128
$
233,817
$
228,699
$
276,426
$
197,903
$
252,791
$
213,059
Airborne Delay
$ 3,691,511
$ 4,649,791
$ 3,230,645
$ 2,594,288
$ 3,464,556
$ 2,826,820
$ 2,528,964
$ 1,764,857
$ 1,808,727
$ 1,659,392
$ 1,321,926
$
741,454
$ 1,015,068
$ 1,021,585
$
711,110
$
700,814
$
732,486
$
819,107
Taxi in Delay
$ 444,658
$ 204,566
$ 455,587
$ 294,020
$ 181,687
$ 145,379
$
78,126
$ 190,269
$ 109,635
$
98,798
$
29,081
$
79,724
$ 119,692
$
31,092
$
63,297
$
71,115
$
54,852
$
54,217
Total Delay # Flights $ per flight
$ 6,366,725
18,662 $ 341.16
$ 6,039,570
22,570 $ 267.59
$ 5,200,419
20,840 $ 249.54
$ 4,870,211
20,241 $ 240.61
$ 4,839,259
19,561 $ 247.39
$ 3,884,352
14,650 $ 265.14
$ 3,274,695
22,824 $ 143.48
$ 3,162,595
12,479 $ 253.43
$ 2,883,536
23,464 $ 122.89
$ 2,556,961
6,142 $ 416.31
$ 1,659,718
7,637 $ 217.33
$ 1,607,188
6,102 $ 263.39
$ 1,556,057
5,900 $ 263.74
$ 1,493,185
4,694 $ 318.11
$ 1,306,986
13,355 $
97.86
$ 1,232,779
6,894 $ 178.82
$ 1,218,021
6,498 $ 187.45
$ 1,206,580
4,268 $ 282.70
July 2007 Departure delays for aircraft exceeding $1M in delay costs
59
Delay Cost Study Results
Airport
DFW
JFK
PHL
LGA
EWR
BOS
SFO
DCA
IAD
BWI
OAK
SJC
Gate Delay
$ 959,984
$ 701,569
$ 505,110
$ 409,444
$ 594,332
$ 416,529
$ 262,320
$ 214,479
$ 244,891
$ 264,315
$ 96,497
$ 66,585
Taxi out Delay
$
881,398
$ 1,819,817
$ 1,006,537
$ 1,035,883
$ 1,093,532
$
475,273
$
328,623
$
322,695
$
356,161
$
264,049
$
95,769
$
44,986
Airborne Delay
$ 2,674,620
$ 1,929,810
$ 2,147,482
$ 1,895,051
$ 1,296,275
$ 2,035,500
$ 1,933,248
$ 1,838,970
$ 1,575,527
$ 1,585,187
$ 1,227,613
$ 1,049,198
Taxi in Delay
$ 213,078
$ 132,221
$ 127,386
$ 119,169
$ 115,202
$ 147,260
$ 151,861
$
90,158
$
87,773
$
99,819
$
64,249
$
55,618
Total Delay # Flights $ per flight Total Delay
$ 4,729,080 26,013 $ 181.80
715,435
$ 4,583,418 12,594 $ 363.94
675,469
$ 3,786,516 17,089 $ 221.58
585,909
$ 3,459,548 14,760 $ 234.39
533,884
$ 3,099,341 13,075 $ 237.04
535,720
$ 3,074,561 11,680 $ 263.23
367,926
$ 2,676,051 12,782 $ 209.36
280,038
$ 2,466,301 11,087 $ 222.45
266,938
$ 2,264,352 11,246 $ 201.35
292,379
$ 2,213,370 10,248 $ 215.98
242,499
$ 1,484,127
6,875 $ 215.87
125,457
$ 1,216,387
5,843 $ 208.18
89,718
$ per min delay per flight
$ 6.61
27.50
$ 6.79
53.63
$ 6.46
34.29
$ 6.48
36.17
$ 5.79
40.97
$ 8.36
31.50
$ 9.56
21.91
$ 9.24
24.08
$ 7.74
26.00
$ 9.13
23.66
$ 11.83
18.25
$ 13.56
15.35
July 2007 Departure delay costs and delays for departures from 12 selected airports
60
JFK-ATL Profit Analysis
• Daily Cost = # flights * (landing Fee + avg hrs *
(DOCless fuel/hr + Burn Rate * fuel price))/days
• Profit = itineraries (passengers*airfare)*10/days
Year QUARTER Fleet Seats
2007
3
1
25
2007
3
2
50
2007
3
3
75
2007
3
4
100
2007
3
5
125
2007
3
6
150
2007
3
7
175
2007
3
9
200
2007
3
10 225
2007
3
11 250
2007
3
12 275
2007
3
15 300
2007
3
17 325
Burn Rate
$
202
$
435
$
458
$
854
$
844
$
963
$ 1,252
$ 1,428
$ 1,723
$ 1,942
$ 2,236
$ 3,125
$ 3,471
DOC-Fuel/Hr
$
640
$
854
$
779
$
1,154
$
1,074
$
1,150
$
1,277
$
649
$
1,786
$
1,842
$
1,377
$
3,084
$
3,301
landing fees ATL hrs # flights
$
112
2.18
0
$
137
2.48
36
$
218
2.50
58
$
330
2.62
0
$
356
2.55
1
$
367
2.48
136
$
686
2.58
0
$
546
2.33
84
$
945
2.53
0
$
904
2.52
1
$
904
2.52
1
$
904
2.52
61
$
904
2.52
28
cost
daily cost
cost
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
159,118
258,354
7,399
1,088,990
732,629
15,312
15,624
1,488,084
747,105
4,512,616
49,589
61
Profit Analysis Example (minus Delay)
• JFK-ATL
– Average 4.5 flights per day
– Average 656 passengers per day
– $137 Average Fare
– $89.9K of Revenue per day
– $49.6K of Operational Cost per day
– Profit ~$89.9K-$49.6K = $40.3K per day
• Profit Margin = Profit/Revenue = 44.8%
62
Profit Analysis Example (With Delay)
• JFK-ATL Delays
– Profit ~$89.9K-$49.6K = $40.3K per day
– Average Daily Gate Delay costs = $11.2K
– Average Daily Taxi out Delay costs = $19.2K
– Average Daily Airborne Delay costs = $9.4K
– Profit = $40.3K - $11.2K - $19.2K - $9.4K = $0.7K
• Adjusted Profit Margin = .8%
Taxi Burn Rate = 1/20 Burn Rate
63
Impacts of Frequency of Service
and Aircraft Gauge
64
JFK-ATL WTP Curve
700
y = 1529e-0.007x
R² = 0.9895
600
cum demand
Expon. (cum …
Cumulative Demand
500
400
300
200
100
0
0
200
400
600
800
1000
1200
1400
Average Airfare
65
Creating Revenue vs Demand Curves
•
•
•
•
Demand = M * exp(Price*Coeff)
Ln(Demand) = Ln(M) + Price*Coeff
Price = (Ln(Demand) - Ln(M) )/Coeff
Rev = Demand*Price
JFK-ATL WTP Curve
700
y = 1529e-0.007x
R² = 0.9895
600
cum demand
Expon. (cum …
Cumulative Demand
500
400
300
200
100
0
0
200
400
600
800
Average Airfare
1000
1200
R=D*P
Revenue
Ln (Cumulative Demand)
= Demand*(Ln(Demand) - Ln(M) )/Coeff
D
P
D
1400
Average Airfare
Demand
66
Creating Cost Curves
• Cost = # flights * (landing Fee + avg hrs *
(DOCless fuel/hr + Burn Rate * fuel price))
• Demand = Aircraft Size * LF
Seats
25
50
75
100
125
150
175
200
225
250
275
300
325
.8 load factor
20
40
60
80
100
120
140
160
180
200
220
240
260
Burn Rate
201.871063
435.416042
457.862811
854.052282
844.192546
963.060289
1252.49704
1427.53677
1723.4391
1941.70643
2235.88571
3125.1471
3471.22935
DOC-Fuel/Hr fuel price
639.5336063
$2
853.9040381
$2
778.9684357
$2
1153.857825
$2
1073.760104
$2
1150.468386
$2
1276.665393
$2
648.8347814
$2
1786.161585
$2
1841.879827
$2
1377.113204
$2
3083.879418
$2
3300.659972
$2
landing fees
111.90723
136.854702
217.636991
330.257006
355.917262
367.084226
686.174268
545.993237
945.152783
903.811259
903.811259
903.811259
903.811259
ATL hrs
Cost per flight seat cost per flight
2.183333333
$2,389.73
$95.59
2.483333333
$4,419.95
$88.40
2.5
$4,454.37
$59.39
2.616666667
$7,819.06
$78.19
2.55
$7,399.39
$59.20
2.483333333
$8,007.28
$53.38
2.583333333 $10,455.46
$59.75
2.333333333
$8,721.78
$43.61
2.533333333 $14,202.19
$63.12
2.516666667 $15,312.46
$61.25
2.516666667 $15,623.50
$56.81
2.516666667 $24,394.81
$81.32
2.516666667 $26,682.33
$82.10
67
JFK-ATL Profit analysis for 4 Flights per day LF=.8
$140,000
$120,000
cost
rev
$100,000
profit
Revenue/ Cost/ Profit
$80,000
$60,000
$40,000
$20,000
$80
160
240
320
400
480
560
640
720
800
880
960
1040
$(20,000)
Seats
25
50
75
100
125
150
175
200
225
250
275
300
325
$(40,000)
.8 load factor
Burn Rate
20 201.871063
$(60,000)
40 435.416042
60 457.862811
80 854.052282
$(80,000)
100 844.192546
120 963.060289
140 1252.49704
160 1427.53677
180 1723.4391
200 1941.70643
220 2235.88571
240 3125.1471
260 3471.22935
DOC-Fuel/Hr
639.5336063
853.9040381
778.9684357
1153.857825
1073.760104
1150.468386
1276.665393
648.8347814
1786.161585
1841.879827
1377.113204
3083.879418
3300.659972
landing fees
111.90723
136.8547016
217.6369908
330.2570056
355.9172622
367.0842257
686.1742678
545.9932367
945.152783
903.8112586
903.8112586
903.8112586
903.8112586
ATL hrs 4 flights
2.183333
80
2.483333
160
2.5
240
2.616667
320
Aircraft
Size
2.55
400
2.483333
480
2.583333
560
2.333333
640
2.533333
720
2.516667
800
2.516667
880
2.516667
960
2.516667
1040
airfare
$ 421.48
$ 322.46
$ 264.53
$ 223.44
$ 191.56
$ 165.51
$ 143.49
$ 124.41
$ 107.59
$ 92.54
$ 78.92
$ 66.49
$ 55.06
$
$
$
$
$
$
$
$
$
$
$
$
$
cost
10,089
18,492
19,123
33,412
31,804
34,207
46,168
37,799
62,606
66,733
67,977
103,062
112,212
Avg Airfare = $137
$
$
$
$
$
$
$
$
$
$
$
$
$
rev
33,718
51,593
63,488
71,499
76,623
79,446
80,355
79,625
77,464
74,029
69,451
63,831
57,258
$
$
$
$
$
$
$
$
$
$
$
$
$
profit
23,630
33,101
44,365
38,087
44,819
45,239
34,187
41,826
14,858
7,296
1,473
(39,231)
(54,954)
68
JFK-ATL Profit analysis for 6 Flights per day LF=.8
$200,000
Down Gauging
cost
$150,000
rev
profit
Revenue/ Cost/ Profit
$100,000
$50,000
$-
120
240
360
480
600
720
840
960
1080 1200 1320 1440 1560
$(50,000)
More Flights would increase delay costs
$(100,000)
Seats
25
50
75
100
125
150
175
200
225
250
275
300
325
.8 load factor Burn Rate
20 201.871063
$(150,000)
40 435.416042
60 457.862811
80 854.052282
$(200,000)
100 844.192546
120 963.060289
140 1252.49704
160 1427.53677
180 1723.4391
200 1941.70643
220 2235.88571
240 3125.1471
260 3471.22935
DOC-Fuel/Hr
639.5336063
853.9040381
778.9684357
1153.857825
1073.760104
1150.468386
1276.665393
648.8347814
1786.161585
1841.879827
1377.113204
3083.879418
3300.659972
landing fees
111.90723
136.8547016
217.6369908
330.2570056
355.9172622
367.0842257
686.1742678
545.9932367
945.152783
903.8112586
903.8112586
903.8112586
903.8112586
ATL hrs 6 flights
2.183333
120
2.483333
240
2.5
360
2.616667
480
Aircraft
Size
2.55
600
2.483333
720
2.583333
840
2.333333
960
2.533333
1080
2.516667
1200
2.516667
1320
2.516667
1440
2.516667
1560
airfare
$ 363.55
$ 264.53
$ 206.61
$ 165.51
$ 133.63
$ 107.59
$ 85.57
$ 66.49
$ 49.66
$ 34.61
$ 21.00
$ 8.57
$ (2.87)
$
$
$
$
$
$
$
$
$
$
$
$
$
cost
15,133
27,738
28,685
50,118
47,706
51,311
69,251
56,699
93,909
100,099
101,966
154,594
168,319
$
$
$
$
$
$
$
$
$
$
$
$
$
rev
43,626
63,488
74,379
79,446
80,181
77,464
71,876
63,831
53,638
41,536
27,717
12,337
(4,473)
Historic Actual Avg Airfare = $137
profit
$ 28,494
$ 35,750
$ 45,694
$ 29,328
$ 32,474
$ 26,153
$ 2,625
$ 7,133
$ (40,271)
$ (58,564)
$ (74,249)
$ (142,257)
$ (172,792)
69
JFK-ATL Profit analysis for 2 Flights per day LF=.8
$90,000
Upgauging
cost
$80,000
rev
Revenue/ Cost/ Profit
$70,000
profit
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
Less Flights would decrease delay costs
$40
80
120
160
200
240
280
320
360
400
440
480
520
Aircraft Size
Seats
25
50
75
100
125
150
175
200
225
250
275
300
325
.8 load factor
20
40
60
80
100
120
140
160
180
200
220
240
260
Burn Rate
201.871063
435.416042
457.862811
854.052282
844.192546
963.060289
1252.49704
1427.53677
1723.4391
1941.70643
2235.88571
3125.1471
3471.22935
DOC-Fuel/Hr
639.5336063
853.9040381
778.9684357
1153.857825
1073.760104
1150.468386
1276.665393
648.8347814
1786.161585
1841.879827
1377.113204
3083.879418
3300.659972
landing fees
111.90723
136.8547016
217.6369908
330.2570056
355.9172622
367.0842257
686.1742678
545.9932367
945.152783
903.8112586
903.8112586
903.8112586
903.8112586
ATL hrs 2 flights
2.183333
40
2.483333
80
2.5
120
2.616667
160
2.55
200
2.483333
240
2.583333
280
2.333333
320
2.533333
360
2.516667
400
2.516667
440
2.516667
480
2.516667
520
airfare
$ 520.50
$ 421.48
$ 363.55
$ 322.46
$ 290.58
$ 264.53
$ 242.51
$ 223.44
$ 206.61
$ 191.56
$ 177.94
$ 165.51
$ 154.08
$
$
$
$
$
$
$
$
$
$
$
$
$
cost
5,044
9,246
9,562
16,706
15,902
17,104
23,084
18,900
31,303
33,366
33,989
51,531
56,106
Avg Airfare = $137
$
$
$
$
$
$
$
$
$
$
$
$
$
rev
20,820
33,718
43,626
51,593
58,116
63,488
67,903
71,499
74,379
76,623
78,295
79,446
80,120
$
$
$
$
$
$
$
$
$
$
$
$
$
profit
15,776
24,472
34,065
34,887
42,214
46,384
44,819
52,600
43,077
43,257
44,306
27,915
24,014
70
JFK-ATL Daily Profit analysis LF=.8
$100,000
$50,000
$-
Profit
25
50
75
100
125
150
175
200
225
250
275
300
325
$(50,000)
$(100,000)
4 Flights profit
Avg Airfare = $165
2 Flights profit
Avg Airfare = $223
6 Flights profit
Avg Airfare = $206
$(150,000)
$(200,000)
Aircraft Size
71
Airline Profit Model
Revenue per Passenger
Direct Cost (per segment)
– Airfare
•
•
•
•
Ticket (-7.5%)1
Segment Tax (-$3.60) 1
PFC (-$3.63) 2
911 (-$2.50) 1
– Freight/ Mail (+2.4%) 3
– Fees (+$10.17) 4
BTS Reports 4
2008**
2009
Ancillary Fees*
$ 7.50 $ 10.17
Bags
$ 2.09 $ 3.54
Cancel
$ 2.20 $ 3.08
* Bags, Cancel/Change, Pets, Freq Flyer
** Based on 3rd & 4th Quarter
New Airfare = .949(Airfare) + $.44
•
•
•
•
•
Fuel
Labor
Maintenance
Other
Landing Fees (BTS) 5
–Per Landing (+$306.69)
–Per Klbs (+$2.85)
4QTR09 Revenue 3
Passenger
$18,513 70.0%
Regional Affiliates $5,337 20.2%
Cargo
$633 2.4%
Other Revenues
$1,964 7.4%
3- Aviation Daily Airline Revenue (4QTR09)
4- BTS Airline Revenue Reports (2008-2009)
5- BTS Airline Cost Reports (2007) and BTS T100 (2007)
1- http://www.airlines.org/Economics/Taxes/Pages/GovTaxesandFeesonAirlineTravel.aspx
2- http://www.faa.gov/airports/pfc/monthly_reports/
72
Airline Markets Example
Market
Itinerary
Segment
/ Leg
Airline
Seats
PAX
Connecti
ng PAX
O-D
Traffic
%
Connecting
Load
Factor
Daily
Freq
IAD-BOS
IAD-BOS
IAD-BOS
Airline 1
100
50
N/A
50
N/A
.5
2
IAD-BOS
IAD-PHL-BOS
IAD-PHL
Airline 1
150
100
75
25
75%
.67
4
IAD-PHL-BOS
PHL-BOS
Airline 1
100
75
N/A
75
N/A
.75
4
IAD-JFK-BOS
IAD-JFK
Airline 2
200
150
50
100
50%
.75
2
IAD-JFK-BOS
JFK-BOS
Airline 2
100
50
N/A
50
N/A
.5
2
IAD-BOS
IAD-BOS
IAD-BOS
Airline 2
100
75
N/A
75
N/A
.75
3
IAD-PIT
IAD-BOS-PIT
IAD-BOS
Airline 2
200
100
25
75
50%
.5
1
IAD-BOS-PIT
BOS-PIT
Airline 2
150
75
N/A
75
N/A
.5
1
IAD-BOS
 For this example no additional passengers are boarding at the connection
• Frequency Share for IAD-BOS –
– Airline 1 = 2/6 = 33%,Airline 2 = 4/6 = 67%
• Market Share for IAD-BOS –
– Airline 1 = ((2x50)+(4x75))/ ((2x50)+(4x75)+(2x50)+(3x75)+(1x75)) = 50%
• “Market” O-D Traffic for IAD-BOS =
((2x50)+(4x75)+(2x50)+(3x75)+(1x25)) = 750
• “Segment” or “Leg” O-D Supply for IAD-BOS =
((2x100)+(3x100)+(1x200)) = 700
73
Airline Markets Example
Market
Itinerary
Segment
/ Leg
Airline
Seats
PAX
Connecti
ng PAX
O-D
Traffic
%
Connecting
Load
Factor
Daily
Freq
IAD-BOS
IAD-BOS
IAD-BOS
Airline 1
100
50
N/A
50
N/A
.5
2
IAD-BOS
IAD-PHL-BOS
IAD-PHL
Airline 1
150
100
75
25
75%
.67
4
IAD-PHL-BOS
PHL-BOS
Airline 1
100
75
N/A
75
N/A
.75
4
IAD-JFK-BOS
IAD-JFK
Airline 2
200
150
50
100
50%
.75
2
IAD-JFK-BOS
JFK-BOS
Airline 2
100
50
N/A
50
N/A
.5
2
IAD-BOS
IAD-BOS
IAD-BOS
Airline 2
100
75
N/A
75
N/A
.75
3
IAD-PIT
IAD-BOS-PIT
IAD-BOS
Airline 2
200
100
25
75
50%
.5
1
IAD-BOS-PIT
BOS-PIT
Airline 2
150
75
N/A
75
N/A
.5
1
IAD-BOS
 For this example no additional passengers are boarding at the connection
• RPM = (2x50x1)+(4x100x1)+(4x75x1)+(2x150x1)+(2x50x1)+(3x75x1)+
(1x100x1)+(1x75x1) =1600
• ASM = (2x100x1)+(4x150x1)+(4x100x1)+(2x200x1)+(2x100x1)+
(3x100x1)+(1x200x1)+(1x150x1) = 2450
• ALLF for IAD-BOS = (2x.5)+(3x.75)+(1x.5)/6 = .625
• ALF for this network – for this example all flight legs are 1 unit of distance
= RPM/ASM = 1600/2450 = .653
74