2 Introduction Source : DOT Form 41 Data base Traffic, financial and operating cost data reported to the DOT by US airlinesPublished QuarterlyDetail of reporting differs for different expense categories(Example: AC Operating expense and other expenses based on AC type and region)
3 Administrative vs. Functional Cost Categories 2 different Approaches for partitioning airline operation costs:AdministrativeFinancial Accounting StatementFunctionalMore detailed cost comparison across airlines and even across different aircraft types
4 Administrative Cost Categories Salaries and related fringebenefits for all personnel(general management, flight personnel, maintenance labor, other personnel)Materials Purchased (fuel & oil,parts, passenger food,other materials)
5 Administrative Cost Categories Services Purchased (advertising &promotions, communications,insurance, maintenance,commissions, other services)Landing Fees, Rentals, Depreciation, other Expenses
6 Administrative Cost Allocation Labors (Salaries)MaterialsServicesRef: The Global Airline Industry
7 Limitation of Administrative Cost Categorization Not much detailed analysisDifficult to separate out the components of salaries, materials and services that are explicitly associated with operating the aircraft, as opposed to ground operations.
8 Functional Cost Categories allocates costs to the different functions within the airline’s operationFlight Operating CostsGround Operating CostsSystem Operating Costs
9 Flight Operating Costs Direct operating costsFlying operations– Flight crew, Fuel costsMaintenance – routine maintenance,extensive major checks, “labor & parts”Form 41 reports maintenance for direct airframe, direct engine and overhead/ burdenDepreciation & Amortization – Capital costs of airline assets
10 Ground Operating Costs Aircraft servicing– handling aircraft on ground,landing feesTraffic servicing– processing passengers,baggage and cargo at airportsPromotion and sales – airline reservation centers, ticketing offices, travel agencycommissions, and distribution system fees
11 System Operating Costs Indirect operating costsPassenger Service– meals, flight attendants,in-flight servicesAdvertising and PublicityGeneral and Administrative – can’t be associated to a particular activityTransport-related – costs associated with the generation of transport related revenues. Fees paid to regional airline partners, extra baggage expense, and other miscellaneous overhead.
13 ICAO Cost CategoriesIn many respects similar in structure to both functional and allocation schemes used by airlines and government around the world
14 Comparison Between ICAO and Form 41 Cost Categories Overall , the structure of the cost allocation scheme is very similar.CategoryICAOForm 41MaintenanceSingle Category: Maintenance and overhaulThree Categories:Direct Airframe MaintenanceDirect Engine MaintenanceMaintenance BurdenTicketing, Sale, PromotionSingle Category:Ticketing, Sales and Promotion2 Main Categories:AdvertisingDistribution Cost
15 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 CostReported per aircraft departure, including cleaning, fueling, marshalingTraffic Servicing CostReported per enplaned passenger, including the processing of passengers and their baggage
16 Cost Drives by Functional Categories Passenger Service CostReported per revenue passenger kilometer (RPK)Promotion and Sales CostsReported as a percentage of revenue, responsible for the generation of revenueOther Indirect and System Overhead CostsReported as a percentage of total operating expenses
17 Other Cost Category Comparison Total Operating Cost per Available Seat Mile (Unit Cost-CASM)Total Operating Expense per Passenger Enplaned or RPM
18 Notes Thanks for Listening. Any Question? Go toThe Global Airline IndustryImages were selected from various internet sites.