ECONOMIC ANALYSIS by liwenting

VIEWS: 24 PAGES: 16

									              9. AIRCRAFT PRICING AND ECONOMIC ANALYSIS


9.1 Introduction
Cost evaluation is an important element of the commercial airplane business. An airplane
company makes money by selling airplanes to operators who, in turn, make money by
selling the use of the airplanes to customers who wish to travel from place to place. The
operator, say an airline, determines the value of purchasing a particular airplane by
considering 5 basic elements:

       Capital cost – the cost of buying the airplane
       Direct operating cost – the cost of using the airplane, including fuel and
        maintenance
       Indirect operating cost – the annualized cost of utilizing the airplane in delivering
        service
       Total operating cost – the sum of all costs involved in providing service
       Cost per seat mile – the cost of moving a seat, full or not, per mile of route served

The various items may be treated sequentially in a manner that will permit a cost
evaluation for the aircraft under design.


9.2 Capital Cost
The airplane being designed must be priced for sale and this has often been a contentious
issue, both for commercial and military aircraft programs. This is due, in great measure,
to the need to estimate costs based on very little actual data, typically just the mission
statement which provides limited performance and physical characteristics of the final
airplane being designed, as described in Ref. 9-1. There are two major elements in
pricing a program, one is the cost of developing the airplane design and the second is the
cost of producing the airplane. These may be broken down further into the following
categories directly related to the making the airplane: engineering, tooling, manufacturing
labor, manufacturing material, flight test, and quality control. There are other indirect
costs associated with the operation of the business, including sales and customer service.
The detailed development of these costs can be quite complex and although there are
open sources for such procedures (e.g., Refs. 9-1 and 9-2), cost estimating typically
involves closely held proprietary procedures particular to individual aircraft companies.

An early comprehensive review of the estimation of airframe costs for military aircraft of
all types is found in Ref. 9-3. This report presents generalized equations for estimating
development and production costs on the basis of primary performance specifications,
like weight and speed. Separate equations are provided for the following cost elements:
engineering, tooling, nonrecurring manufacturing labor, recurring manufacturing labor,
nonrecurring manufacturing materials, recurring manufacturing materials, flight test
operations, and quality control, as well as equations for estimating total program cost and
prototype development cost. The equations were derived from cost data on 25 military
airplanes that first flew within the time period of 1953 to 1970 and covered empty


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weights from 5,000 to 279,000 pounds and speeds from 300 to 1300 knots. The resulting
equations showed three classes of aircraft: group 1 had weights less than 50,000 pounds
and a speed less than 550 knots, group 2 had weights of less than 50,000 pounds and a
speed of 1150 knots, and group 3 had weights greater than 50,000 pounds and a speed
less than 550 knots. Equations are presented for the total cost for 100 aircraft in
thousands of 1975 dollars as follows:

       Group 1: TC100 = 2967WE0.58 based on 9 aircraft (A-3, A-4, A-6, RB-66, F-3,
        F4D, F-100, F-102, T-38)
       Group 2: TC100 = 13.35WE1.16 based on 8 aircraft (A-5, B-58, F-4, F-14, F-104,
        F-105, F-106, F-111)
       Group 3: TC100 = 30.92WE0.96 based on 6 aircraft (B-52, C-5, C-130, C-133, KC-
        135, C-141)

Restricting the data presented for group 3 to those aircraft most like the commercial
airliners of interest here, i.e., removing the B-52 bomber and the turboprop C-130, and
adding data for the then new Boeing 747 and Douglas DC-10 suggests the following
slight modification to the total cost for 100 units:

       Group 3 revised: TC100 = 26WE0.96 based on 6 aircraft (C-5, C-133, KC-135, C-
        141, B747, DC-10)

Publicly quoted prices for Boeing aircraft in production in the year 2007 are given in Ref.
9-4 and are shown in Fig. 9-1. The total cost equation above appears in terms of 1975
dollars and may be approximately corrected to 2007 dollars by applying the ratio of the
consumer price index (CPI) for 2007 (208.4) to that for 1975 (53.8) to get a multiplier of
3.87. The federal government produces various price deflators illustrating the effect of
inflation on various sectors of the economy. Some of the deflators that are of use in the
aerospace industry are reproduced here in Table 9-1 (Ref. 9-5).

More extensive information on the consumer price index (CPI) and other economic
factors may be found in Ref. 9-6. The inflation of the 1975 cost by the CPI growth results
in the following equation:

               TC100 = 100.7WE0.96 in thousands of 2007 dollars

The cost of one aircraft would then be

               TC1 = 0.00101WE0.96 in millions of 2007 dollars                        (9-1)

The Boeing aircraft for which prices are available are shown as a function of empty
weight, along with the historical correlation of Eq. 9-1, in Fig. 9-2. The Boeing prices are
shown as a range, low and high values, since the exact price of a given aircraft depends
upon special equipment particular to different buyers.




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                                             Table 9-1
           FEDERAL PRICE DEFLATORS FOR GDP, DEFENSE, PPI AND CPI 1978-2007

     Gross Domestic Product (GDP)         Federal Gov’t Defense Purchases       Price Indices
YEAR FY GDP          CY GDP               Goods &          Equipment        PPI               CPI
     (FY2000=100) (CY2000=100)            Services         Investment       (CY1982=100) (CY82-84
                                          (CY2000=100) (CY2000=100)                           =100)

1978    45.2             45.8             45.0             78.0             71.3             65.2
1979    48.8             49.5 r           48.6             80.6             77.5             72.6
1980    53.1             54.0 r           53.9             85.3             85.8             82.4
1981    58.3             59.1             59.2             92.5             94.6             90.9
1982    62.3             62.7             63.4             99.0             100.0            96.5
1983    65.0             65.2             65.6             101.8            102.8            99.6
1984    67.4             67.7             70.3             103.1            105.2            103.9
1985    69.6             69.7             71.6             100.5            107.5            107.6
1986    71.3             71.3             71.6             95.5             109.7            109.6
1987    73.1             73.2             72.3             91.4             111.7            113.6
1988    75.4             75.7             73.6             90.6             114.3            118.3
1989    78.3             78.6             75.5             91.5             118.8            124.0
1990    81.3             81.6             78.0             93.2             122.9            130.7
1991    84.3             84.4 r           80.8             95.1             126.7            136.2
1992    86.4             86.4             83.6             95.9             129.1            140.3
1993    88.4             88.4             85.3             98.1             131.4            144.5
1994    90.3             90.3             87.4             101.0            134.1            148.2
1995    92.2             92.1             89.6             103.3            136.7            152.4
1996    94.0             93.9             92.4             103.5            138.3            156.9
1997    95.6             95.4             93.7             100.9            138.2            160.5
1998    96.8             96.5             94.6             99.5             137.6            163.0
1999    98.0             97.9             96.9             100.6            137.6            166.6
2000    100.0            100.0            100.0            100.0            138.8            172.2
2001    102.4            102.4            102.0            98.2             139.7            177.1
2002    104.3            104.2            105.8            97.0             139.1            179.9
2003    106.4            106.4            110.8            96.9             139.5            184.0
2004    109.2            109.5            115.9            98.2             141.4            188.9
2005    112.5            113.0            122.0            99.6             144.6            195.3
2006    116.0            116.6            127.0            101.2            146.9            201.6
2007E   118.9            119.4            130.2            101.9            149.4            207.1

Source: Aerospace Industry Association (Ref. 9-5) Bureau of Economic Analysis, "Current Business
Statistics" (Monthly) and Price Measurement Branch; Council of Economic Advisers, "Economic Report of
the President" (Annually); and Office of Management and Budget, "The Budget of the United States
Government" (Annually).

Notations:
E= Estimate

Key: CPI = Consumer Price Index, All Items, All Urban Consumers for 1978 and subsequent years.
            Previous years, All Urban Wage Earners.
CY = Calendar Year.
FY = Fiscal Year.
GDP = Gross Domestic Product.
PPI = Producer Price Index for Capital Equipment.



                                                  155
                             787-9
                             787-8
                             787-3
                              777F
                        777-300ER
                        777-200LR
                        777-200ER
                        767-400ER
                         767-300F
                        767-300ER
                        767-200ER
                             747-8
                         747-400F
                        747-400ER
                        737-900ER
                          737-800
                          737-700
                          737-600
                                      0      50     100       150      200      250     300        350
                                                       Price $2007 (millions)



                      Figure 9-1 Prices of Boeing aircraft in millions of 2007 dollars as reported in
                      Ref. 9-4


Curve fits for the cost of one aircraft in millions of 2007 dollars were based on the trend
shown in Eq. 9-1 are shown in the figure and are included below:

                      Boeing high price: TC1 =0.001235We0.96                                             (9-2)

                      Boeing low price: TC1 = 0.001108We0.96                                             (9-3)



                      350                   Boeing high: 0.001235(We)^0.96
                      300
                                Boeing low: 0.001108(We)^0.96
    Price (2007 $M)




                      250
                      200
                      150
                      100
                                                                    Historical: 0.00101(We)^0.96
                      50
                        0
                            0          100,000      200,000          300,000       400,000         500,000
                                                   Empty weight, We (lbs)



                      Figure 9-2 High and low Boeing Aircraft prices in millions of 2007 dollars versus
                      empty weight (Ref.9-4). Also shown is the historical correlation curve given in
                      Eq. 9-1 as well as curve fits for the high and low reported data.


                                                          156
It is clear that the historical correlation curve inflated by the CPI predicts a price below
even the Boeing low range prices. Not shown on the graph is the projected price for the
Airbus A380, the largest aircraft of current airliners whose empty weight of over 600,000
lbs is off the scale of Fig. 9-2. The A380’s projected price of over $300 million keeps
creeping up and it will likely end up much closer to the Boeing correlations. The effect of
the introduction of a new aircraft on the economics of the company introducing the
aircraft, as well as on its competitors is described in Ref. 9-7 for the particular case of the
A380. It is suggested that one use the correlation given above in Eqs. 9-2 and 9-3 for
the Boeing data to determine the initial cost of the design aircraft. Of course in future
years the cost data should be inflated suitably, or recourse may be made to current pricing
prevalent in the industry, as was done here with the Boeing data. It is interesting to
examine the specific cost of the aircraft in terms of $/lb and this is shown in Fig. 9-3. The
airliners are seen to cost about $750 to $800 per pound whereas the rule of thumb for
combat aircraft is around $1000 per pound.


                                   1000
                                    900
           Specific price ($/lb)




                                    800
                                    700
                                    600
                                    500
                                    400
                                    300       2000/We^0.08
                                    200
                                    100
                                      0
                                          0   100,000    200,000     300,000     400,000   500,000
                                                        Empty weight, We (lbs)



       Figure 9-3 Specific price of Boeing airliners as a function of empty weight.
       The square symbols denote the correlation of the specific price $/lb=2000/We0.08


9.3 Direct Operating Cost
In order to operate the aircraft as a revenue producer there are recurring costs that must
be paid. The major elements here are the cost of consumables, like fuel and oil, and the
cost of maintenance labor and parts. The professional society of the airliner business in
the U.S., the Air Transportation Association of America, used industry-wide statistical
data to develop a standard method for estimating comparative direct operating costs of jet
airplanes (Ref. 9-8). Their method is given in Appendix I. The method determines the
direct operating cost per air mile, denoted in the report by Cam, which can be readily
converted to other units such as cost per flight hour, and involves the calculation of a
number of primary variables. Note that these costs are in 1967 dollars and must be
adjusted appropriately for the current application. The different variables used in the cost
estimation method of Appendix I are discussed in detail and related to those developed
through the design elements in the preceding chapters in the following subsections.



                                                             157
        9.3.1 Block Speed The block speed is described in some detail in Appendix I, but
to help clarify the quantities involved the equation given for block speed is rearranged to
incorporate the variables and nomenclature of Chapter 2 of this handbook. The block
speed, in miles per hour, may first be put in terms of previously defined variables as
follows:

                                                           R
                                   Vblock                                             (9-4)
                                              t gm  t4  t10  tcr  tam

The quantity R is the range in statue miles and t4 and t10 denote the time, in hours, spent
in the climb and descent segments of the mission profile shown in Fig. 2-2. These times
are determined in the performance evaluations of Chapter 8. The cruise time, in hours, in
Eq. (9-4) is defined by


                           tcr 
                                    R  Ka  20   X c limb  X descent            (9-5)
                                                        V

In this equation the distances covered in climb and descent, Xclimb and Xdescent, are those
values, in statute miles, determined in Chapter 8 and V is the cruise velocity in piles per
hour. The airway distance increment is given by

               Ka=7+0.015R                 R<1400mi
                                                                                     (9-6)
               Ka=0.2R                     R>1400mi

The ground maneuver time tgm is defined as being 0.25hr for all aircraft though in the
current environment of substantial delays this appears to be an understatement. However,
for uniformity it is recommended that this standard be used in all calculations. In the
same fashion, the air maneuver time tam is specified as 0.1hr for all aircraft and again this
standard should be applied in all calculations.

       9.3.2 Block Fuel The reserve fuel required by the aircraft has already been
estimated in Chapter 2 and should have been refined in Chapter 8. The block fuel, in
pounds, is defined in Appendix I as follows:

                       WF ,block  WF , gm  WF ,am  WF ,4  WF ,5  WF ,10           (9-7)

This quantity is essentially equal to the fuel calculated to be used in the standard flight
profile, that is, segments 1-6 and 10 and 11 of Fig. 2-2,:

                                                5
                              WF ,block   WF ,i  WF ,10  WF ,11                    (9-8)
                                               i 1


The major difference is in the definition of the ground maneuver fuel Wf,gm, which is
based on the 15 minute ground maneuver time and is basically given by


                                                      158
                                                          14                   1 
                     WF , gm  T taxi  C j              T to  C j to         (9-9)
                                                  taxi
                                                          60                   60 

Here 14 of the 15 minutes of the ground maneuver time is spent at taxi-level thrust and
the remaining 1 minute at take-off thrust. The air maneuver fuel Wf,am, is based on the 6
minute air maneuver time at best cruise procedure which yields


                                                    6 Cj         
                                     WF ,am    W5 e 60 L / D  1                      (9-10)
                                                   
                                                                 
                                                                  

It is prudent to compare the calculation of the block fuel according to Eq. (9-7) with the
results of Eq. (9-8) as a check.

       9.3.3 Flight Crew Costs The flight crew cost equation for turbojet engines given
in Appendix I is based on economic conditions in 1967 and the results must be updated to
2008 dollars. It is convenient to simply inflate the equation result by the ratio of the
consumer price index (CPI) in 2008 to that in 1967 which is

                                          CPI 2008
                                                    6.552                               (9-11)
                                          CPI1967

This changes the relevant equation for cost per air mile (in $2008 per air mile) to

                                            W        1
                                Cam  0.328 to  655 Vblock                            (9-12)
                                           1000     

In order to assess the reasonableness of this simple correction the cost data provided by
Ref. 9- 9 was examined. There it is reported that the average compensation package for
flight crew, that is, pilots was $191,829 (in $2006) across a broad spectrum of airlines
including main legacy carriers, low-cost carriers, and others. The average monthly flying
hours logged across the same spectrum was reported as 51.6 hours. This yields an annual
average of 619.2 hours, which, for an assumed average block speed of 450mph, yields an
annual average of 278,640 air miles flown. Inflating that cost to $2008 results in a
compensation package of $208,243 (in $2008). Assuming that the number of air miles
flown remains the same the cost per air mile (in $2008) for a two-man flight crew is
estimated to be

                                        2  $208, 243
                               Cam                     1.49$ / mi                      (9-13)
                                         278, 640mi




                                                         159
Results obtained from Eqs. (9-12) and (9-13) are compared in Fig. 9-4 and suggest that
the direct inflation of the costs given in Appendix A is reasonable. The costs for the flight
crew as given by Eq. (9-12) include training and travel expenses so are likely to be higher
than that determined on the basis of direct compensation alone. Furthermore, the
compensation is an average over all carriers and aircraft so there is no dependence on
aircraft gross weight shown by Eq. (9-13). However, in practice the compensation for
flight crew is dependent on the gross weight of the aircraft. Therefore it seems reasonable
to use Eq. (9-12) to estimate flight crew costs.


                               2.5
                                         Cam=[.328(Wto/1000)+655]/Vblock
                                2
             Cam ($/airmile)




                               1.5

                                1                                       Eq.(9-13)

                               0.5

                                0
                                     0      200       400         600         800   1000   1200
                                                        Take-off weight (klbs)



       Figure 9-4 Comparison of the cost per air mile for the flight crew as given by
       Eqs. (9-12) and (9-13) as a function of aircraft take-off weight


        9.3.4 Fuel and Oil Costs The cost of Jet A fuel cannot currently be estimated
accurately by using simple consumer price index inflation. This technique was reasonably
accurate up to about 2002 when Jet A was about $0.54 per gallon but the fuel cost index
rose by a factor of 2.67 to $1.55 per gallon between then and late 2004. The actual fuel
costs are tracked weekly by United Cargo and are reported in Ref. 9-10. The level of Jet
A fuel cost was reasonably steady until the end of 2007 when it started to rise rapidly, as
shown in Fig. 9-5. Thus in calculating the fuel cost it is important to use current data as
can be found in Ref. 9-10. To convert to weight the density of Jet A may be taken as 6.76
lbs per gal at standard conditions. Turbine lubricating oil prices are more difficult to
obtain directly from standard searches and may require more detailed contact with
suppliers. Direct CPI inflation of the cost of the lubricating oil would yield $49.00 per
gal. On the other hand, the ratio of lubricating oil cost to fuel cost, which is about 79 in
Appendix I, would likely have remained relatively constant, but on this basis turbine
lubricating oil would cost as much as $300 per gallon. An examination of prices for
turbine oil shows a cost of around $50 per gallon suggesting that the simple CPI inflation
is sufficiently accurate and that the lubricating oils are not following the meteoric rise of
fuel prices, perhaps because they are synthetic oils.




                                                            160
                               4.5
                                 4



          Jet A cost ($/gal)
                               3.5
                                 3
                               2.5
                                 2
                               1.5
                                 1
                               0.5
                                 0
                                     1 05 2 05 3 05 4 05 1 06 2 06 3 06 4 06 1 07 2 07 3 07 4 07 1 08 2 08


                                                              Calendar quarter



       Figure 9-5 Cost per gallon of Jet A fuel as a function of calendar quarter as
       reported in Ref. 9-10

        9.3.5 Hull Insurance The insured value is assumed to be the full initial cost of
the aircraft and the insurance premium rate, which generally ranges from 1% to 3%, is
assumed to average 2% over the useful life of the aircraft, typically about 12 years,
although many airlines now operate aircraft for as much as 20 years.

        9.3.6 Airframe Maintenance Labor and Materials The correlation equation
given is directly proportional to the labor rate. The simple CPI inflation adjustment to the
labor rate results in $26.2 in $2008. Ref. 9-9 reports average annual salary cost for airline
maintenance personnel of $58,994 ($2006) while the average number of maintenance
workers per plane appears to be around 10 per airplane. For a 2000 hour work year and
inflating the $2006 to $2008 this yields a labor cost of $32 per hour in $2008. It is
considered appropriate then to use this higher value for the labor rate in the airplane labor
correlation equation. In this equation the flight time tf should be considered to be the
block time less the ground maneuvering time of 0.25hr, that is, tf = tb – 0.25. In the
equation for aircraft material costs it is sufficient to use the simple CPI inflator.

        9.3.7 Engine Maintenance Labor and Materials The engine maintenance costs
are proportional to the maximum take-off thrust and here the labor rate is again specified
for the 1967 period. It is suggested to use the same labor rate as for the airframe, $32 per
hour in $2008. The material cost equation depends upon engine cost, so that information
must be sought from the manufacturer. Jenkinson, et al (Ref. 9-11) present a suggested
correlation, which, updated to $2008 is of the form

                                                                           0.088
                                                                         Tcruise
                                                        Ce  1  0.956                                       (9-14)
                                                                         C j 2.58

The results of this approximation, applied to 26 turbofan engines, are illustrated in Fig. 9-
6. The circled data points enclose the actual price and the estimated price for the engines
indicated. The data is shown as a function of take-off thrust since that information is


                                                                 161
more readily available. There is appreciable scatter, but the trend is evident. Actual price
data should be used in the analysis wherever possible.


                                   14                                        PW4084
          Price (millions $2008)
                                   12            CFM-56
                                   10
                                    8
                                    6
                                    4
                                    2
                                    0
                                        0   20        40                60   80       100
                                                           Tto (klbs)



       Figure 9-6 Estimated turbofan engine cost in millions of $2008 based on Eq. (9-
       14) is shown as a function of take-off thrust in thousands of pounds. The circled
       data points enclose the actual price and the estimated price for the engines
       indicated.


       9.3.8 Maintenance Burden An indirect cost burden associated with the airframe
and engine labor costs is levied at a rate of 180% of the direct labor costs in these
categories. This reflects other costs such as employee benefits, travel, training, etc. and
should be used as indicated in Appendix I.

        9.3.9 Depreciation Recognizing that depreciation of capital value is specific to
the particular operator and current economic and competitive conditions the calculation
method uses a simple amortization over a fixed 12 year period over which the residual
value of the airplane is taken to be zero.

The values for the contribution to the cost per air mile from the various elements must be
summed to obtain the total direct operating costs for the airplane. The direct operating
cost in $/mile is denoted by Cam in the Appendix I but is often denoted by DOC.
Sometimes it is given in cents per seat mile, or DOC (cents/seat-mile) = 100Cam /Np.


9.4 Indirect Operating Cost
There are other costs associated with operating an airplane that are not connected with the
actual flight operations as described previously. These are costs associated with landing
fees, flight attendants, food and beverage service, passenger-related activities like
reservations, sales, and baggage handling, general and administrative expenses, etc. The
ATA has also developed statistical equations for estimating the indirect operating costs,
or IOC. Using these equations, Shevell (Ref. 9-12) generated an equation for IOC based



                                                           162
on a study of three aircraft: Boeing 747 (4 engines), Douglas DC-10 (3 engines), and a
large twin-engine jet typical of more current airliners. Modifying this approach to
eliminate the use of graphs and updating the cost to 2008 dollars, leads to the following
equation for IOC in 2008$/mile as follows:

               IOC = R-0.41[1.26x10-4WTO + (0.12 + 1.23LF)NP – 3.89]                 (9-14)

The quantity LF denotes the load factor and is equal to the ratio of paid passengers to NP,
the number of seats available. Note that the IOC depends on aircraft size through both the
gross take-off weight and the number of seats. It also grows with the load factor,
emphasizing that the costs increase as more passengers fill up the available seats. The
general trend of load factors is shown in Fig. 9-7 as reported by Ref. 9-8.




       Figure 9-7 Quarterly load factors for U.S. passenger airlines from 2000 to 2008
       as reported in the first quarter of 2008 by the Air Transportation Association in
       Ref. 9-10

Load factors for 6 major airlines (United, Delta, American, Northwest, Continental, and
US Airways) were considered strong during the period April through June 2004, ranging
from 73.1% to 86.4%, but the yields per passenger mile, at around 12 cents per passenger
mile, weren’t (Ref 9-13). Typical load factors for January 2006 and 2007 are show below
in Table 9-2, as reported in Ref. 9-14. Load factors are reported in airlines’ monthly
traffic reports while revenue per available seat mile, or unit revenue, is generally reported
only in quarterly financial reports. The fares charged may vary significantly in these
quarterly periods so the actual revenue will also vary.




                                            163
9.5 Breakeven Load Factor
The revenue provided by the paying passengers is equal to the average ticket price P paid
by the passengers actually carried on the flight so that

                       Income = (P)(NP)(LF)                                           (9-15)

The cost of a flight of range R is proportional to the TOC, the sum of DOC and IOC, and
is given by the following equation:

                       Expense = R(DOC + IOC)                                         (9-16)

Thus the breakeven load factor is that value for which the income and expense are
equivalent, or

                       LFBE = [DOC + IOC][ R/PNP]                                     (9-17)

                 Table 9-2 Recent Load Factors for Domestic Carriers

Airline                January 2007 (%)        January 2006 (%)        % Change
United                 78.9                    77.7                    1.5
Northwest              77.9                    79.7                    -2.3
Continental            76.3                    75.9                    0.53
American               75.2                    75.1                    0.13
Delta                  73.7                    73.4                    0.41
US Airways             73.3                    70.5                    4.0
Southwest              63.8                    63.4                    0.36


Breakeven load factors are shown for U.S. airlines in Fig. 9-7; note that there are only a
few profitable periods in the last 8 years. The recent profitability has just been eliminated
by the sudden surge in fuel prices. Longer trips and fewer seats will tend to increase the
breakeven load factor as will lower average ticket prices. However the DOC and IOC are
both dependent on range and number of seats so that the issue must be studied at a finer
level of detail to emerge with meaningful assessments of the breakeven load factor. A
review of the database of 41 commercial transports with 30 < NP < 555 and 800 < R <
9210 miles, the average value of the quantity R/NP is 25, with 12 <R/NP < 54. Ticket
prices, on the other hand, are sensitive to current economic conditions and the
competitive environment.

An overall cost breakdown is shown in Fig. 9-8 as reported in Ref. 9-8. This shows that
fuel costs now outpace labor costs and constitute the major portion of operating coast.
The total unit cost of operation of operation in cents per available seat mile (CASM) is
shown in Fig. 9-9 over the time period 2000-2008, with and without fuel cost, clearly
illustrating the major effect of those fuel costs. However, it is worth noting, from Fig. 9-
10 from Ref. 9-8 that in terms of paying passengers the fuel efficiency is now around 50
miles per gallon.


                                            164
Figure 9-8 Unit costs of airline operation in cents per available seat mile
broken down into the various cost categories as reported in the first quarter of
2008 by the Air Transport Association in Ref. 9-10




Figure 9-9 Unit cost of operation in cents per available seat mile over the period
2000-2008 as reported in the first quarter of 2008 by the Air Transport
Association in Ref. 9-10




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      Figure 9-10 Fuel efficiency of airlines from 2000 to 2008 in terms of revenue
      passenger miles (RPM) per gallon and available seat miles (ASM) per gallon as
      reported by Ref. 9-10


9.6 References

9-1   U.S. Department of Defense: “Joint Industry/Government Parametric Estimating
      Handbook”, Second Edition, 1999, on-line at
      www.ispa-cost.org/PEIWeb/newbook.htm

9-2   NASA: “Cost Estimating Resources,” www.jsc.nasa.gov/bu2/resources.html

9-3   J.P. Large, H.G. Campbell, and D. Gates: “Parametric Equations for Estimating
      Aircraft Airframe Costs”, RAND Corporation, Report R-1693-1-PA&E,
      February, 1976

9-4   The Boeing Company at www.boeing.com/commercial/prices

9-5   Aerospace Industries Association:
      www.aia-aerospace.org/stats/aero_stats/aero_stats.cfm

9-6   Bureau of Labor Statistics at http://stats.bls.gov/cpi


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9-7     D.A. Irwin and N. Pavcnik: “Airbus versus Boeing Revisited: International
       Competition in the Aircraft Market”, Journal of International Economics, 2004,
       in press. Available on-line through UF Library e-journal collection

9-8    Air Transportation Association: www.air-transport.org/ (click on economics and
       energy, in drop-down menu click on jobs and labor, at bottom of page under
       “inside this section” click on airline cost index, which puts you on the page
       “Quarterly Cost Index : U.S. Passenger Airlines” where links to tables and charts
       are given)

9-9    MIT Global Airline Industry program:
       http://web.mit.edu/airlinedata/www/default.html

9-10   United Cargo: www.unitedcargo.com (the link to the jet fuel index is on the
       lower right-hand corner of the page)

9-11   Jenkinson, L.R., Simpkin, P., and Rhodes, D.: Civil Jet Aircraft Design, AIAA ,
       Reston, VA, 1999

9-12   Shevell, R.: http://adg.stanford.edu/aa241/cost/atamethod.html

9-13   Aviation Week and Space Technology, July 19, 2004, p.72

9-14   Aviation Week and Space Technology, February 12, 2007, p.16




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