Aircraft Economics

The profitability of airlines is important to assure a return on shareholder investment and the aircraft the airline utilizes can have an important impact.

Efficient utilization of aircraft requires close coordination among the different departments of the airline (fleet planning, schedule planning, passenger reservations, flight operations, ground operations, and airplane maintenance systems) as well as with other outside stakeholders (air traffic controllers and airport authorities). This can lead to shorter turnaround times which can provide important benefits, especially relevant in the case of short-haul carriers (Boeing, 2017).

Aircraft economics is a combination of reducing operation costs and maximizing potential at every level within the business. When it comes to operating an aircraft, there are different factors to consider. The most important of which are direct and indirect operating costs.

Direct Operating Costs are made up of the following elements: flight operation costs (which include crew, fuel, and insurance costs) material costs for the airframe and engine, and maintenance overheads, and depreciation cost. Direct Operating Cost is made up of the maintenance (which includes labor costs for the airframe and engine).

Indirect operating costs include expenses for: advertising and promotion, traffic servicing, aircraft servicing, reservations and sales, amortization (equipment required other than for the flight itself), passenger service, depreciation expense (maintenance equipment), maintenance and depreciation (ground equipment), general and administrative expenses (FAA, 2020).

Operators who aim to take advantage of the cost savings and efficiencies of increased airplane utilization may want to start by educating their workforces about the positive effects of reducing turn-times (turnarounds).

 The airline’s directives must take into account aircraft performance. Here the airlines must conduct a strict analysis of different aircrafts before they introduce one into their fleet or before operating an aircraft on a given route. Another important factor to consider is the airline’s finances. Operating an aircraft is a very expensive business, and “Cash determines the present …. profits determine the future”. A healthy balance sheet therefore allows airlines to maneuver in different terrains allowing for changes in tactics when necessary. When it comes to finance, it is worth remembering that “Turnover is vanity, profit is sanity, cash is reality” (Smith, R, 2018)

 Moreover, market conditions also play an important part in aircraft performance, either directly or indirectly. Markets inform airlines of the extent of present demand or that which can be expected in the near future. Knowledge of these figures (predictions) allows for an understanding of capacity, not in terms of volume but in terms of the performance of an aircraft fleet.

 Hofton, A. (2019) affirms that the aircraft that best meets corporate objectives is likely to have the following characteristics: 

  1. Well matched to the market (passenger & cargo) in terms of network, frequency, payload, range (max flying distance) and speed.
  2. Good operating economics balancing acquisition cost with operating cost (good fuel efficiency likely being a high priority)
  3. Adaptability, flexibility, continuity
  4. Attractive to the financial community (e.g. lessors and investment banks)
  5. Attractive to customers
  6. Product support (e.g. Maintenance Repair and Overhaul – MRO)
  7. Aircraft availability (new and used)
  8. Commonality with existing fleet
  9. Competitive ground handling and turnaround times
  10. Aligned with any political dimension (e.g.  Airbus in France)

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