MIT
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Operating Costs and Productivity Measures
Dr. Peter P. Belobaba
16.75J/1.234J
Airline Management
February 15, 2006
MIT
ICAT
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
0 .0 0
Other
Supplies
Utils & Office
Promotion
Ad &
Communication
Insurance
Commissions
Passenger
Material
Maintenance
Beverage
Food &
Landing Fees
Services
Professional
Ownership
Fuel
Labor
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Objective Cost Category Breakdown (3Q2005)
U N IT C O S T B Y C A T E G O R Y
C ents per A S M
3 .5 0
3 .0 0
2 .5 0
2 .0 0
1 .5 0
1 .0 0
0 .5 0
Source: ATA data
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Form 41 Functional Cost Categories
• Aircraft operating costs
– Expenses associated with flying aircraft, also referred to as “Direct
Operating Costs” (DOC)
• Aircraft servicing costs
– Handling aircraft on the ground, includes landing fees
• Traffic service costs
– Processing passengers, baggage and cargo at airports
• Passenger service costs
– Meals, flight attendants, in-flight services
• Reservation and Sales costs
– Airline reservations and ticket offices, travel agency commissions
• Other costs, including:
– Advertising and publicity expense
– General and administrative expense
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Activity Drivers by Functional Category
• Aircraft 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)
• Reservations and Sales Costs
– % of Total Revenue (average 10%)
• Other Indirect and System Overhead Costs
– % of Total Operating Expense (average 12%)
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2004 Functional Cost Breakdown
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Airline Operating Cost Breakdown
• 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”.
MIT
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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
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Example: B757-200 FOC (2003 US data)
• Costs per block-hour of operations (avg. 181 seats):
CREW
$ 869
FUEL
$ 904
MAINTENANCE
$ 875
OWNERSHIP
$ 767
TOTAL FOC
$3415 per block-hr
• Based on 1267 mile average stage length and 9.7
block-hr daily utilization (weighted averages):
– Different stage lengths and utilization by different airlines result in
substantial variations in block-hour costs for same aircraft type
– Also, differences in crew costs (union contracts, seniority),
maintenance costs (wage rates), and ownership costs (age of a/c)
MIT
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Boeing 757-200 Flight Operating Costs 2003
Table 9 - Hourly flight and Seats Costs for the B757-200
Airline
American
Delta
United
Northwest
Continental
US Airways
ATA
America West
average
Number of
Aircraft
142
106
96
54
41
30
16
13
498
Sv
(seats)
175
185
182
182
178
182
214
190
186
Source: DOT Form41 Schedule P-5.2
HFC
HSC
Utilization
($/hr)
($/seat-hr)
(hrs/day)
3370.1
19.26
10.2
3382.8
18.29
11.0
3516.8
19.32
9.1
2923.7
16.06
9.2
3445.7
19.36
10.7
4308.0
23.67
9.9
4284.3
20.02
8.9
3808.4
20.04
8.3
3630.0
19.50
9.7
SL
(Miles)
1430.8
1084.8
1361.5
1157.7
1506.1
1015.2
1390.4
1073.5
1252.5
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Unit Cost by Airline Group
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Unit Costs by Functional Category 2004
Lowfare carriers have lowest CASM across
all average stage lengths
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C A S M v s . S ta g e L e n g th 2 0 0 3
$ 0 .1 5
$ 0 .1 4
US
$ 0 .1 3
DL
$ 0 .1 2
AA
CASM
$ 0 .1 1
UA
NW
$ 0 .1 0
AS
CO
$ 0 .0 9
FL
$ 0 .0 8
HP
W N
$ 0 .0 7
TZ
B6
$ 0 .0 6
$ 0 .0 5
0
500
1000
S ta g e L e n g th (m ile s )
1500
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Unit Cost and Ave Stage Length 2000-2004
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Ex-transport related CASM 2000-2004
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Yield and Stage Length 2000-2004
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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”)
MIT
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Components of Aircraft Productivity
Average Aircraft Capacity
Departures per Day
175.0
5.0
4.8
170.0
4.6
4.4
165.0
4.2
4.0
160.0
3.8
3.6
155.0
3.4
3.2
150.0
3.0
2000
2001
2002
2003
2004
2000
2001
2002
Average Stage Length
1,000.0
980.0
960.0
940.0
920.0
900.0
880.0
860.0
840.0
820.0
2000
2001
2002
2003
2004
2003
2004
MIT
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US Major Airlines Aircraft Productivity
Aircraft Productivity (ASMs per day)
700,000
680,000
660,000
640,000
620,000
600,000
580,000
560,000
540,000
520,000
500,000
2000
2001
2002
2003
2004
MIT
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AIRCRAFT UTILIZATION 1999-2003
12.00
11.50
Block Hours per Day
11.00
10.50
TOP 6 NETW
NON-NETW
10.00
9.50
9.00
8.50
8.00
1999 1999 1999 1999 2000 2000 2000 2000 2001 2001 2001 2001 2002 2002 2002 2002 2003 2003 2003 2003
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
MIT
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Example: Boeing 737-500 Productivity
Airline
Flights
per Day
Block
Hours
Stage
Length
Seats
ASMs
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
MIT
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Example: B737-500 FOC per Block Hour
Airline
Crew
Fuel
Mainten
ance
Owner
ship
Total
Continental
$510
$430
$651
$698
$2,291
United
$927
$487
$1048
$510
$2,974
Southwest
$388
$537
$251
$350
$1,526
MIT
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Lowfare carriers lead in aircraft utilization at
all average stage lengths
Aircraft U tilization 2003
14
BHs/ aircraft day
B6
13
12
11
WN
FL
AS
TZ
10
HP
AA
US
DL
9
CO
UA
NW
8
0
500
1000
Stage Len gth (miles)
1500
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Employee Productivity
• Measured in ASMs per 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
MIT
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Legacy carrier employment down by 25%
since 2000, a loss of over 100,000 jobs
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US Major Airline Labor Cost per Employee
Average Salary+Benefits per Employee
$90,000
$85,000
$80,000
$75,000
$70,000
$65,000
$60,000
2000
2001
2002
2003
2004
MIT
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Lowfare carrier salaries/benefits per
employee 25% lower than legacy carriers
S alaries and B enefits per E m ployee
$90,000
$80,000
$70,000
CPI Adjusted to 2000
$60,000
$50,000
Legacy
Low fare
$40,000
$30,000
$20,000
$10,000
$0
1997
1998
1999
2000
2001
2002
2003
MIT
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ASMs/employee vs. Average Stage Length
ASMs/Employee (000)
550
500
450
400
350
300
0
200
400
600
800
Average Stage Length
1000
1200
1400
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ASMs/employee and Average A/C Size
ASMs/Employee (000)
550
500
450
400
350
300
100
120
140
160
Average Seats per Departure
180
200
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Employee Productivity Up 30% From 2002
E M P L OYE E P R OD U C T IV IT Y
A S M s per F TE , 4 Q tr M oving S um
2,400
2,300
2,200
2,100
2,000
1,900
1,800
1,700
1Q05
1Q04
1Q03
1Q02
1Q01
1Q00
1Q99
1Q98
1Q97
1Q96
1Q95
1Q94
1Q93
1Q92
1Q91
1Q90
1,600
Source: ATA data
MIT
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ASM per Employee 2000-2004
Annual ASM per Employee
3,000,000
2,800,000
2,600,000
2,400,000
2,200,000
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
2000
2001
2002
2003
2004
MIT
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Revenue per Employee
Annual Operating Revenue per Employee
300,000
280,000
260,000
240,000
220,000
200,000
180,000
160,000
140,000
120,000
100,000
2000
2001
2002
2003
2004
MIT
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ASM per Dollar of Salaries+Benefits
Annual ASM per Dollar Salaries & Benefits
30.0
29.0
28.0
27.0
26.0
25.0
24.0
23.0
22.0
21.0
20.0
2000
2001
2002
2003
2004
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Revenue per Dollar of Labor Expense
Operating Revenue per Salary/Benefit Dollar
3.500
3.000
2.500
2.000
1.500
1.000
2000
2001
2002
2003
2004
MIT
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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