The real costs in GA and can we lower them?
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Icarus, the point I was trying to make has been illustrated beautifully by the posters here. Aviation is too cheap right now, but I am hearing from people on other threads that we can make it cheaper. My question is which part of ATC and CASA reform can save money and make it more affordable while staying safe?
I've been in GA long enough to know the fixed costs are huge and can't be reduced in any significant way. I've worked for companies that had such tight profit margins we were working just to keep aircraft flying rather than making money. Hoping the money would come later with rep and goodwill. Not fun but they survived and are making money now, and I'm still alive.
I've been in GA long enough to know the fixed costs are huge and can't be reduced in any significant way. I've worked for companies that had such tight profit margins we were working just to keep aircraft flying rather than making money. Hoping the money would come later with rep and goodwill. Not fun but they survived and are making money now, and I'm still alive.
Silly Old Git
I've worked for companies that had such tight profit margins we were working just to keep aircraft flying rather than making money. Hoping the money would come later with rep and goodwill. Not fun but they survived and are making money now, and I'm still alive.
Hustle to pay the rent, unpaid tax collection for the gov , hope to strike Tatts one day
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If there's no profit in it, direct your energies elsewhere.
pretty simple business plan really. make a profit by charging what it costs, and not by cutting costs that cannot be cut. I think that was where this thread started........ someone asking where we can cut costs.
torres, mate your figures are so close to what we work on it is uncanny. (you need $1400PH to remain viable, and strange enough, thats what the going rate is from me.
)
Cost-cutting is not a dirty word
You say costs cannot be cut, but I'd say one of the first way of cutting costs is to expand the business and create better economies of scale. Sure, the costs aren't actually less, but maybe they are spread over a wider base.
Like I said before, if a business isn't continually trying to reduce costs, then it's setting itself up for a slump. Some of your competition will find a way of doing it. I think the problem is that cost-cutting is viewed so negatively (probably because it's normally done badly and short-sightedly) that many small enterprises don't actively pursue it.
A
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Andy RR
With respect, some of your arguments sound a bit like an MBA, great to hang on a wall but not very useful otherwise.
GA in Australia has been massively distorted by people wanting a business that will support their desire to fly aircraft. As wizhas pointed out, there are any number of operators only too willing to undercut to get yet another job. All operators are constantly looking at costs but the better one will recognise that some costs cannot be cut and properly factor them into their business plan.
Now if you want to see real pain, go and have a look at the Australian Cattle Industry. I have just come back from a day spent flying some government types to a couple of stations looking at the effect of drought. It was painful listening to one wife explain how they foresaw the drought (they are heading into a 6th year) by selling a large amount of stock. That made a tidy sum for them but the ATO is now into them over the next 5 years (averaging provisions) and with an interest bill that would make your eyes water with pain and thats without spending a penny on keeping the property operating. They are pulling 10 or so dead cattle a day out of the water holes and the breeders are next to be culled.
With respect, some of your arguments sound a bit like an MBA, great to hang on a wall but not very useful otherwise.
GA in Australia has been massively distorted by people wanting a business that will support their desire to fly aircraft. As wizhas pointed out, there are any number of operators only too willing to undercut to get yet another job. All operators are constantly looking at costs but the better one will recognise that some costs cannot be cut and properly factor them into their business plan.
Now if you want to see real pain, go and have a look at the Australian Cattle Industry. I have just come back from a day spent flying some government types to a couple of stations looking at the effect of drought. It was painful listening to one wife explain how they foresaw the drought (they are heading into a 6th year) by selling a large amount of stock. That made a tidy sum for them but the ATO is now into them over the next 5 years (averaging provisions) and with an interest bill that would make your eyes water with pain and thats without spending a penny on keeping the property operating. They are pulling 10 or so dead cattle a day out of the water holes and the breeders are next to be culled.
PLovett
Maybe it sounds MBA-ish, but I don't have one, nor any business 'qualifications'.
However your post highlights one of the problems facing GA businesses and farmers alike - many are 'businesses' to support a lifestyle rather than the other way 'round.
People running these types of 'businesses' are so emotionally tied to their lifestyles (be it a dream or reality) that they can't accept the reality of it or make the really tough decisions - like admitting their 'business' won't make money in a month of blue moons and acting accordingly.
A
Maybe it sounds MBA-ish, but I don't have one, nor any business 'qualifications'.
However your post highlights one of the problems facing GA businesses and farmers alike - many are 'businesses' to support a lifestyle rather than the other way 'round.
People running these types of 'businesses' are so emotionally tied to their lifestyles (be it a dream or reality) that they can't accept the reality of it or make the really tough decisions - like admitting their 'business' won't make money in a month of blue moons and acting accordingly.
A
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Well I spent the better part of this morning attending a debrief on some contract bids for a very large aviation contract where only the big kids get to play.
I the end it came down not to Quantitative = lowest bid but to Qualitative issues.
My point? there was a very narrow band of total prices, maybe 6% top and bottom between them. But in the numbers that we discuss here little if negligible differences. It came down to how much profit you were prepared to make or forego. The lowest margin was still acceptable in normal business practise and was not as far as I could tell from the operator with the lowest Qualitative score which while it might sound back to front would be expected.
The total was an 8 figure sum for an extended period.
While the CASA compliance cost number was not insignificant in dollar terms to the average person, as a percentage of the total hourly/annual costs 'twas a drop in the ocean. It was the same low single figure %age as it is for a small operator operating a single or a PVT guy and his C172
Simply proves to me once again that the whole grandstanding "unnecessary costs" and "Airservices ripoff" mantra is simply an attention getting device and as meaningless as me saying that Father Christmas is real. Isn't he?
I the end it came down not to Quantitative = lowest bid but to Qualitative issues.
My point? there was a very narrow band of total prices, maybe 6% top and bottom between them. But in the numbers that we discuss here little if negligible differences. It came down to how much profit you were prepared to make or forego. The lowest margin was still acceptable in normal business practise and was not as far as I could tell from the operator with the lowest Qualitative score which while it might sound back to front would be expected.
The total was an 8 figure sum for an extended period.
While the CASA compliance cost number was not insignificant in dollar terms to the average person, as a percentage of the total hourly/annual costs 'twas a drop in the ocean. It was the same low single figure %age as it is for a small operator operating a single or a PVT guy and his C172
Simply proves to me once again that the whole grandstanding "unnecessary costs" and "Airservices ripoff" mantra is simply an attention getting device and as meaningless as me saying that Father Christmas is real. Isn't he?
Bugsmasherdriverandjediknite
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I'd argue that if a business is not expanding then it's in decline. Or perhaps it's not really a business - just a trade with an expensive toolbox.
What would you define expansion as?. expansion into a market that cannot justify the expansion is a faster way to go broke than cutting costs that cannot stand cutting.
I define business as some thing that will carry itself, pay all costs and return a profit for the investment. (gives me something to do with my day as well
)I have been poking away at my business for 9 years, and get a wage and pay my bills. my assets base increases at a moderate rate (I guess you could call that expansion) and I service a market that remains viable at my charges, but wouldn't if I charged more, so I remain in business. I think mine is a good business.
Just out of interest, hows your business going?........or is it you wish you were in business?..
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There are few industries that have so many passionate people involved as aviation does. It is what makes this industry great to be in at times but also brings you to tears when you see some how people will throw away their own hard earned (or owed) money to get an other hour in the air or hour of revenue. Hopefully a few more in the industry will make business decisions with their head rather than their heart, yet manage to keep the heart in the business.
TH
TH
Last edited by Trash Hauler; 21st Dec 2006 at 09:13.
WOG
Can't say I've ever operated one minute of flying in over 30 years that did not include my realistically expected profit margin.
And I've never employed any staff on any remuneration less than their legal entitlement.
There are better things to do in life than lose money
Wiz
Been doing aircraft DOCs for 30 plus years on every aircraft I ever operated from C150 to DHC-8, including turbines and executive jets. Send me a PM if you want the formula and spread sheet!!
And you are probably right - $1,400 per hour for a C208B sounds about where the charge should be today!! My figures may be a little out of date.
Trash
Love those operators. They don't last long then all the work comes back - at an appropriate premium.
But a few words of Torres advice:
1. Read up on "debt to equity ratios". If you don't have the brass to invest at least 33% equity in your total assets (i.e. a maximum 2 : 1 debt to equity ratio), don't get into the game because you will fail.
2. Never pay off someone else's asset in the mistaken belief you will make money (i.e. never cross hire).
I've worked for companies that had such tight profit margins we were working just to keep aircraft flying rather than making money.
Can't say I've ever operated one minute of flying in over 30 years that did not include my realistically expected profit margin.
And I've never employed any staff on any remuneration less than their legal entitlement. There are better things to do in life than lose money
Wiz
Been doing aircraft DOCs for 30 plus years on every aircraft I ever operated from C150 to DHC-8, including turbines and executive jets. Send me a PM if you want the formula and spread sheet!!
And you are probably right - $1,400 per hour for a C208B sounds about where the charge should be today!! My figures may be a little out of date.
Trash
Love those operators. They don't last long then all the work comes back - at an appropriate premium.
But a few words of Torres advice:
1. Read up on "debt to equity ratios". If you don't have the brass to invest at least 33% equity in your total assets (i.e. a maximum 2 : 1 debt to equity ratio), don't get into the game because you will fail.
2. Never pay off someone else's asset in the mistaken belief you will make money (i.e. never cross hire).
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Torres, I worked in survey in the late 1990's and the line Km price meant if you dropped a flight you you lost money. It got that tight coz of demand dropping and competition. That changed and the ones who weathered the storm either got bought out or are now going great guns. Our wages stayed the same and the industry is doing well now. Cyclic with that flying, charter is an too competetive with too many new players ready to step up to the plate. Hence the turnover and fiscal firesales.
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Goodo for you then. Just don't apply to many of your business idea's to the aviation business, as I think it might jump up and bite you. 
Its just a little different than a normal business, and the margins are slim and the cost cutting has been done by our predecessors and left for us to live with.
Its just a little different than a normal business, and the margins are slim and the cost cutting has been done by our predecessors and left for us to live with.
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PLovett
Maybe it sounds MBA-ish, but I don't have one, nor any business 'qualifications'.
However your post highlights one of the problems facing GA businesses and farmers alike - many are 'businesses' to support a lifestyle rather than the other way 'round.
People running these types of 'businesses' are so emotionally tied to their lifestyles (be it a dream or reality) that they can't accept the reality of it or make the really tough decisions - like admitting their 'business' won't make money in a month of blue moons and acting accordingly.
A
Maybe it sounds MBA-ish, but I don't have one, nor any business 'qualifications'.
However your post highlights one of the problems facing GA businesses and farmers alike - many are 'businesses' to support a lifestyle rather than the other way 'round.
People running these types of 'businesses' are so emotionally tied to their lifestyles (be it a dream or reality) that they can't accept the reality of it or make the really tough decisions - like admitting their 'business' won't make money in a month of blue moons and acting accordingly.
A
As someone who was a graduate farm manager prior to changing careers to aviation, rather more qualified in business management than yourself (by your own admission), I take exception to these sweeping and somewhat patronising statements.
Isn't it preferable to make a good living and have the lifestyle you want than being someone else's wage slave?!
It is QUALITY, not price, that keeps the punters happy. If other operators want to work for charity, that's fine, it's never affected me, (cos I don't extend credit). I neither know nor care what their overheads are or what they are charging per hour.
And as for your views on expansion, good management principles state that you should be able to adjust with the market, and sometimes that means consolidating, recognising and getting rid of things that have become dead wood. Expansion for expansion sake, which means more cash flow required to service more debt, can make any business very vulnerable to collapse if the market changes - and aviation can change very quickly.
So, how can "WE" (?) reduce costs? Hardly something the successful operators are likely to divluge on these pages! It's not a case of simply reducing them, but recognising and managing them, factoring them in to the buisness plan, and setting workable margins.
Aviation businesses fail for the same reason as other businesses; bad financial management, unrealistic market expectations, bad debtor control and cr@p customer service.
There is no such thing as cheap flying, have a nice day.
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bad debtor control
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Quote WOG
But a few words of Torres advice:
1. Read up on "debt to equity ratios". If you don't have the brass to invest at least 33% equity in your total assets (i.e. a maximum 2 : 1 debt to equity ratio), don't get into the game because you will fail.
**********
For those operators who do not invest enough where are they most likely to attempt cut costs (or cut corners as the case may be)?
But a few words of Torres advice:
1. Read up on "debt to equity ratios". If you don't have the brass to invest at least 33% equity in your total assets (i.e. a maximum 2 : 1 debt to equity ratio), don't get into the game because you will fail.
**********
For those operators who do not invest enough where are they most likely to attempt cut costs (or cut corners as the case may be)?
- Pilot wages?
- aircraft maintenance?
- Compliance and other fees?
- Loan repayments?
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Cheers for the realistic and informative posts people, the real question I'm asking and the one I know nothing about is how much could changes in regulation effect the TOTAL viability of GA ops. There is another thread about, suggesting that the US has a cheaper industry due to changes in airspace and ATC .Rather than a subisidised home built domestic market. There are also inferences that regulation changes would also make flying cheaper.
Is this the case? What is the percentage of regulations in the overall costs of a GA op? Would any significant changes make profits greater? While keeping us safer? Is a $50.00 landing fee going to make your business unviable? Is a change in flight level for seperation going cause you to lose money and your business?
Is this the case? What is the percentage of regulations in the overall costs of a GA op? Would any significant changes make profits greater? While keeping us safer? Is a $50.00 landing fee going to make your business unviable? Is a change in flight level for seperation going cause you to lose money and your business?
Well I actually do have an MBA and spent considerable time working out aircraft costings as well. It's not rocket science.
You have to make a profit - and that profit has to match or exceed the (real) industry average - which is going to be the long term bond rate plus a margin for industry risk. Aviation is not the first, nor the last industry to have "players" who are in it for the lifestyle, or sex or whatever, and they are a royal pain in the backside until they go broke.
The best that you can do to protect yourself is to send your worst clients (the non payers/ chisellers/cheapskates) to these guys with your warmest recommendations because these guys deserve each other.
As for cutting costs, I've yet to see a well managed business that can cut costs more than 2% - 3% per annum in real terms and even that takes herculanean efforts.
Your best bet in business is to be seen to be providing value for money. If you find customers who have a problem with your charges, then either;
(a) There is someone elsewhere providing a cheaper and better product - translation, pull your socks up.
(b) Your customer has unrealistic expectations - in which case send him elsewhere.
I suspect that the only way your costs can be lowered by industry action is by a concerted attack on the structure of liability legislation which is what drives insurance costs - and that goes for the producers of the mythical "automotive part with the aviation sticker" as well.
Personally, as highways clog with trucks and families in SUV's, and using an major RPT operator continues to be slow torture, GA or flying yourself around becomes increasinglty attractive. My only regret is that I didn't get my licence ten years ago.
You have to make a profit - and that profit has to match or exceed the (real) industry average - which is going to be the long term bond rate plus a margin for industry risk. Aviation is not the first, nor the last industry to have "players" who are in it for the lifestyle, or sex or whatever, and they are a royal pain in the backside until they go broke.
The best that you can do to protect yourself is to send your worst clients (the non payers/ chisellers/cheapskates) to these guys with your warmest recommendations because these guys deserve each other.
As for cutting costs, I've yet to see a well managed business that can cut costs more than 2% - 3% per annum in real terms and even that takes herculanean efforts.
Your best bet in business is to be seen to be providing value for money. If you find customers who have a problem with your charges, then either;
(a) There is someone elsewhere providing a cheaper and better product - translation, pull your socks up.
(b) Your customer has unrealistic expectations - in which case send him elsewhere.
I suspect that the only way your costs can be lowered by industry action is by a concerted attack on the structure of liability legislation which is what drives insurance costs - and that goes for the producers of the mythical "automotive part with the aviation sticker" as well.
Personally, as highways clog with trucks and families in SUV's, and using an major RPT operator continues to be slow torture, GA or flying yourself around becomes increasinglty attractive. My only regret is that I didn't get my licence ten years ago.
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This was posted by Torres
Cessna 208B, purchase price US$2 mill, 1,000 hours per annum utilisation, the costs are approxoimately (including percentage of total cost):
Insurance $50/hr 5.7%
Interest $229/hr 26.3%
Other $13/hr 1.5%
Total Annual Costs $292/hr 33.5%%
Fuel $258.60/hr 29.7%
Maintenance & parts $129.09/hr 14.8%
Overhaul Provisions $51.50 5.9%
Crewing $80/hr 9.2%
Charges $60/hr 6.9%
Total Hourly Cost $579/hr 66.5%
Total Aircraft Operating Cost $871/hr 100%
********************
As you can see the cost of compliance (charges) is relatively small and even a significant reduction will not change the overall cost by more than a percent or 2. While the regulator mandates maintenance to maintain continued airworthiness the majority of maintenance task requirements are manufacturer mandated and unlikely to be reduced.
Personally I believe Guanty is on the money. GA in particular should be increasing their charges to ensure an adequate margin thus maintaining the overall viability of the industry.
Cessna 208B, purchase price US$2 mill, 1,000 hours per annum utilisation, the costs are approxoimately (including percentage of total cost):
Insurance $50/hr 5.7%
Interest $229/hr 26.3%
Other $13/hr 1.5%
Total Annual Costs $292/hr 33.5%%
Fuel $258.60/hr 29.7%
Maintenance & parts $129.09/hr 14.8%
Overhaul Provisions $51.50 5.9%
Crewing $80/hr 9.2%
Charges $60/hr 6.9%
Total Hourly Cost $579/hr 66.5%
Total Aircraft Operating Cost $871/hr 100%
********************
As you can see the cost of compliance (charges) is relatively small and even a significant reduction will not change the overall cost by more than a percent or 2. While the regulator mandates maintenance to maintain continued airworthiness the majority of maintenance task requirements are manufacturer mandated and unlikely to be reduced.
Personally I believe Guanty is on the money. GA in particular should be increasing their charges to ensure an adequate margin thus maintaining the overall viability of the industry.