Airline Cost Categorization - Center for Air Transportation Systems
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Transcript Airline Cost Categorization - Center for Air Transportation Systems
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
Maintenance
Single Category:
Maintenance and
overhaul
Three Categories:
Direct Airframe Maintenance
Direct Engine Maintenance
Maintenance Burden
Ticketing, Sale,
Promotion
Single Category:
Ticketing, Sales and
Promotion
2 Main Categories:
Advertising
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.
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The Global Airline Industry
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