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Chapter 5.1_ Airline Cost Categorization - Center for Air

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Chapter 5.1_ Airline Cost Categorization - Center for Air Powered By Docstoc
					Chapter 5.1: Airline Cost
    Categorization
        Maryam Zavareh
                  Introduction


 Source :
   DOT Form 41 Data base
     Traffic, financial and operating cost data reported to the
      DOT by US airlines
     Published Quarterly
     Detail of reporting differs for different expense categories
                (Example: AC Operating expense and other
                 expenses based on AC type and region)
Administrative vs. Functional Cost
           Categories


 2 different Approaches for partitioning airline
  operation costs:
   Administrative
      Financial Accounting Statement
   Functional
      More detailed cost comparison across airlines and even
       across different aircraft types
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)
Administrative Cost Categories


 Services Purchased (advertising &
promotions, communications,
insurance, maintenance,
commissions, other services)

 Landing Fees, Rentals, Depreciation, other Expenses
       Administrative Cost Allocation




• Labors (Salaries)
• Materials
• Services
Limitation of Administrative Cost
         Categorization


 Not much detailed analysis
   Difficult to separate out the components of salaries,
    materials and services that are explicitly associated with
    operating the aircraft, as opposed to ground operations.
   Functional Cost Categories


 allocates costs to the different functions within the
  airline’s operation

   Flight Operating Costs
   Ground Operating Costs
   System Operating Costs
       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 – Capital costs of airline
    assets
      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


Indirect 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 miscellaneous
   overhead.
Functional Cost Allocation
        ICAO Cost Categories


 In many respects similar in structure to both
  functional and allocation schemes used by airlines and
  government around the world
Comparison Between ICAO and Form
        41 Cost Categories


  Overall , the structure of the cost allocation scheme is
   very similar.

        Category               ICAO                     Form 41


                                                     Three Categories:
                         Single Category:
                                               Direct Airframe Maintenance
      Maintenance        Maintenance and
                                                Direct Engine Maintenance
                             overhaul
                                                   Maintenance Burden



                          Single Category:         2 Main Categories:
     Ticketing, Sale,
                        Ticketing, Sales and           Advertising
       Promotion
                             Promotion              Distribution Cost
Cost Drives by Functional Categories


  Flight Operating Costs (FOC)
    Reported per block hour (correlated with the amount of
     time aircraft is being utilized)
  Aircraft Servicing Cost
    Reported per aircraft departure, including cleaning,
     fueling, marshaling
  Traffic Servicing Cost
    Reported per enplaned passenger, including the
     processing of passengers and their baggage
Cost Drives by Functional Categories


  Passenger Service Cost
    Reported per revenue passenger kilometer (RPK)
  Promotion and Sales Costs
    Reported as a percentage of revenue, responsible for
     the generation of revenue
  Other Indirect and System Overhead Costs
    Reported as a percentage of total operating expenses
Other Cost Category Comparison


  Total Operating Cost per Available Seat Mile (Unit
   Cost-CASM)
  Total Operating Expense per Passenger Enplaned or
   RPM
                        Notes


 Thanks for Listening.

 Any Question?
   Go to http://catsr.ite.gmu.edu/
   The Global Airline Industry


 Images were selected from various internet sites.

				
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