Airline Operating Costs

Transcription

1 Airline Operating Costs By Peter Horder, Senior Vice President SH&E Ltd Prepared for: MANAGING AIRCRAFT MAINTENANCE COSTS Conference Brussels, 22 January 2003

2 Agenda Introduction Current Airline Environment Airline Cost Elements Indirect and Direct Operating Costs Overhead Cost Control Balance Sheet Effects Reference Sources Conclusions 1

3 Introduction Current airline environment Safety considerations and costs Security restrictions Insurance implications Cost reduction versus revenue increases 2

4 Airline Economic Affects from 11 September SCHEDULED CARRIERS! Frequency! Routes! Traffic! Revenues " Fares? Low Cost Carriers! Fares " Traffic " Revenues " Profitability! Profitability Low Cost Carriers have been clear winners since

5 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

6 Operating Cost Comparisons Per ASK Britannia Air 2000 Monarch BY DP ZB (EUR) FD COE EW FR LX U2 VB NI TV Operating Cost Per ASK BA OK LO TG GO QF Thai Airways Qantas British Airways Emirates CityFlyer Express Crossair Czech Eurowings Luxair LOT Maersk Air Portugalia EasyJet Go Ryanair BY DP ZB EK TG QF BA EK FD LX OK EW LG LO VB NI U2 GO FR ,000 1,500 2,000 2,500 3,000 Source SH&E, AEA, IATA, Form 41 Average Stage Length (Km) 5

7 Total Operating Costs Ticketing, Sales & Promotion 14% Admin & Other 12% Flight Ops 28% Passenger services 11% Depreciation 6% En-Route/Airport 18% Maintenance 11% Source (ICAO 2001 World Average) 6

8 Some ICAO and F41 Cost Breakdown Percentages Braathens easyjet Air India General & Admin JAL Continental Delta (F41) Sales & Promotion Passenger Service User Charges Depreciation & Amortisation Maintenance 7 Flight Operations

9 Labour Productivity has an Impact on Costs Revenue per Employee (US$ 000) 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

10 Fuel Cost per ASK LA AC 1.4 Fuel Cost per ASK (US cents) SK FR U2 IR MH LH IB GO TP AF GF BA CO AA KL QF AI UL EK CX SQ ,000 1,500 2,000 2,500 3,000 3,500 4,000 Average Stage Length (KM) Source SH&E 2001

11 Maintenance and Overhaul Costs as a Percentage of Total Operating Costs Percentage of Total Ryanair Maersk Air easyjet Braathens British European Brymon Airways Cityflyer Express GO Fly Luxair Lithuanian Silkair 10 Source: SH&E, ICAO 2000 Financial Data

12 Maintenance Cost per Flight hour Maintenance Cost per Flight Hour (US$) NH 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

13 Cost of Sales per Passenger 45 Cost of Sales = commissions, ticketing, sales and promotion costs Cost of Sales per Passenger (US$) BA NH EK SQ QF SV KL TP AF LH IB CO GF AC TG AA SK GO CX U2 FR 12 Source: Annual Accounts, Form 41, AAPA 2001

14 Marketing Expense as a Percentage of Sales 18% 16% 14% Marketing Expense as % of Revenue 12% 10% 8% 6% 4% 2% 13 0% IR TP SV EK BA JL QF TG AF KL GO U2 SK CO FR IB GF SQ Source: Annual Accounts, Form 41, AAPA 2001

15 Passenger Service Cost per Passenger Passenger Service per Passenger (US$) JL TP KE TG EK SQ GF AC AI GO AA SK CO AF U2 IR 14 Source: Annual Accounts, Form 41, AAPA 2001

16 Where Low Cost Carriers Achieve Advantage EUR per 1000 ASK Cost per Available Seat KM Sector length 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% LCC cost advantage 30% Total crew cost 5% Landing & handling charges 50% Passenger related 70% Sales cost 60% Others (overheads) European Scheduled LCC Average Diff % Focus on sector lengths up to, say, 1,500 km driven by reducing cost advantage increasing revenue need decreasing acceptance of lack of service 15

17 Direct Operating Costs Handling and dispatch fees 11% Navigation fees 5% Commissions 5% Insurances 1% Lease Charges 12% Flight Crew 12% Airport fees 4% Fuel and oil 27% Passenger Service Costs 8% Maintenance 15% Source ICAO

18 Indirect Operating Costs Other 2% Administration Costs 6% Depreciation and Interest 46% Staff Costs 12% Marketing Costs 34% 17

19 Cost Allocation by Network Route A - B A C A - D Total ASK RPK Yield Revenue Variable Cost Fixed Cost Total Cost Margin 2,200 1, ,000 8,450 4,400 12, , ,600 6,240 2,875 9, ,700 1, ,200 9,880 5,400 15, ,050 4, ,800 24,570 12,675 37, Overheads Operating Profit

20 Cost Allocation by Route Route A - B A C A - D Total ASK RPK Yield Revenue Variable Cost Fixed Cost Overheads Total Cost Margin 2,200 1, ,000 8,450 4, , , ,600 6,240 2, , ,700 1, ,200 9,880 5, , ,050 4, ,800 24,570 12, , Operating Profit 55 19

21 Which Costs may be Controllable/Avoidable? All costs are variable over time Strategic and Tactical decisions can be taken aggressive re-negotiation of contracts Hedging instruments E,g, fuel, currency Outsourcing Changes in accounting policies! Staffing Replacement or increased efficiency? Overtime Operating unprofitable routes More economical flying through different routings, aircraft and airports Allocation of indirect costs Do you know which routes really are unprofitable? Levels of service Low cost vs. full service model 20

22 Cost Data Sources Major Sources Airline Annual reports ICAO US DOT Form 41 Other Sources IATA AAPA UK CAA (and other national regulators) Profit & Loss Statement Revenues Operating Costs Balance Sheet Assets Liabilities 21

23 Operating Cost Reporting - ICAO Flight Operations Flight Crew Salaries, Expenses and Training Aircraft Fuel & Oil Insurance & Uninsured losses Lease/Rental of aircraft Maintenance & Overhaul Depreciation & Amortization User Charges & Station Expenses Landing & Airport Charges Route facility charges Station Expenses Passenger Services Ticketing, Sales & Promotion General & Administration 22

24 Financial Data from US DOT Form 41 Direct Operating Expenses Reported quarterly by fleet type Indirect Operating Expenses Reported quarterly by carrier and allocated by ASM or other appropriate measure to each fleet Other Finance Related Data Reported Traffic Statistics Revenues General Profit & Loss Balance Sheet 23

25 Direct Operating Cost Details US DOT Form 41 Flying Operations Flight Crew Salaries, Expenses and Training Aircraft Fuel & Oil Insurance & Uninsured losses Lease/Rental of aircraft Direct Maintenance Labour Repairs (by outside agencies) Materials [note, more detail than ICAO] Depreciation & Amortisation Flight Equipment Expense of Interchange Aircraft Other Depreciation & Amortization 24

26 Comparison/Benchmarking Issues ICAO Data for all ICAO carriers worldwide Profit & Loss and Balance Sheet But, Not broken down by fleet Maintenance & Overhaul not subdivided Limited data on low-cost/regional carriers DOT Form 41 Broken down by fleet New data quarterly But, Only for US carriers 25

27 Airline Operating Costs By Peter Horder, Senior Vice President SH&E Ltd Prepared for: MANAGING AIRCRAFT MAINTENANCE COSTS Conference Brussels, 22 January 2003