The real costs in GA and can we lower them?
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The real costs in GA and can we lower them?
I have been listening to a few people put forward the idea we can reduce costs to GA ops. I don't have much experience in this but would like to know where the hidden costs are. Here are what I think are the main ones but could someone show me what I am missing out and the percentage of the ones I have included. Could they also explain what could be done to reduce them.
1. Maintanence and actual Aircraft.
2. AOC, CASA inspections and paperwork.
3 Hangar, spares and offices.
4 Various landing, airport charges.
5 Wages
6 Fuel
Now I know I've probably missed a few points given my lack of intelligence but which ones of these can we decrease? Of the hidden ones I haven't mentioned how can we reduce them. Where are the changes in infrastructure borne by the industry, hence the consumer and how big is that to the bottom line.
1. Maintanence and actual Aircraft.
2. AOC, CASA inspections and paperwork.
3 Hangar, spares and offices.
4 Various landing, airport charges.
5 Wages
6 Fuel
Now I know I've probably missed a few points given my lack of intelligence but which ones of these can we decrease? Of the hidden ones I haven't mentioned how can we reduce them. Where are the changes in infrastructure borne by the industry, hence the consumer and how big is that to the bottom line.
Bugsmasherdriverandjediknite
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I didn't see insurance on there.
Basically, they can't be cut as they are already cut to the bone (and in some ops, even further).
what needs to happen is instead of cutting costs, we need to start charging what aircraft really cost to run, plus your profit margin.
If the end user can't afford it............. so be it, don't use it. pretty simplistic way to view it I know, but that clearly is, how it is.
Basically, they can't be cut as they are already cut to the bone (and in some ops, even further).
what needs to happen is instead of cutting costs, we need to start charging what aircraft really cost to run, plus your profit margin.
If the end user can't afford it............. so be it, don't use it. pretty simplistic way to view it I know, but that clearly is, how it is.
Don Quixote Impersonator
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the wizard of auz
Game set and match, thank you linesmaen, thank you ballboys.
Twas always then in the good ol days t'is so now and will be till time immemorial.
There are some amongst us have the quaint idea that the aviation business runs differently to any other and that somehow we can turn back time, guess what?
EVERY other business or industry has compliance costs some higher some lower but they all have them.
Game set and match, thank you linesmaen, thank you ballboys.
Twas always then in the good ol days t'is so now and will be till time immemorial.
There are some amongst us have the quaint idea that the aviation business runs differently to any other and that somehow we can turn back time, guess what?
EVERY other business or industry has compliance costs some higher some lower but they all have them.
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wiz & gaunty
Amen. How long can we continue to subsidise our clients?
Who in this great brown land is allowing for depreciation on assets?
No one that I know of. Perhaps in the upper echelons of GA but somehow I doubt it.
Its not going to be long before there is a very tired fleet in GA without the never ending supply of second-hand aircraft to be flogged that little bit further.
Amen. How long can we continue to subsidise our clients?
Who in this great brown land is allowing for depreciation on assets?
No one that I know of. Perhaps in the upper echelons of GA but somehow I doubt it. Its not going to be long before there is a very tired fleet in GA without the never ending supply of second-hand aircraft to be flogged that little bit further.
Don Quixote Impersonator
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PLovett
That
has been upon us for the last 10 or so years its just that the operators haven't worked it out yet.
And there are still new guys trying to start new businesses with the same tired old aircraft.
They will tell you they are making a "killing" the same way that Qantas could lower "costs" airfares by a half. As you point the real trouble starts when you have to replace them new or used.
High end is going absolute gangbusters, the entry level is waaaay too high for the wannabes and stops the dreamers pretty much in their tracks. The sheer weight of capital required demands proper accounting and costing and the clients are sick to death of rattling around in, well rattletraps. They have no problem paying real money for real modern professionally operated aircraft, just like they used to over 35 years ago.
That
Its not going to be long
And there are still new guys trying to start new businesses with the same tired old aircraft.
They will tell you they are making a "killing" the same way that Qantas could lower "costs" airfares by a half. As you point the real trouble starts when you have to replace them new or used.High end is going absolute gangbusters, the entry level is waaaay too high for the wannabes and stops the dreamers pretty much in their tracks. The sheer weight of capital required demands proper accounting and costing and the clients are sick to death of rattling around in, well rattletraps. They have no problem paying real money for real modern professionally operated aircraft, just like they used to over 35 years ago.
business 101
It's all very well saying if the customer can't afford it, then they can shop elsewhere. That's a recipe for the industry falling on its arse. If the market won't bear your costs, then it will search elsewhere for an alternative - this is market economics in action.
In any business, if you aren't continuously trimming your costs, you are heading for disaster. If some of the costs are regulatory, then a company needs to continuely ensure they are always handled in the most cost-effective way possible.
Industry bodies need to continuously campaign for regulatory reform to improve the cost-effectiveness of regulation. It's the success of their industry at stake.
Aother aspect to making things financially viable is improving the economies of scale. This is especially true when you have relatively high 'fixed'-costs (such as regulatory compliance) This is why small players fail and larger players tend to grow - assuming they are competing in the same market segment.
Yet another is to value-add. Sell something the customer's willing to pay extra for, but doesn't cost the company (much) more to provide, given you may already have the infrastructure in place.
Business is business, not rocket science. It doesn't matter how passionate you are about your product or service, if the business plan doesn't allow growth and the making of a reasonable return, the bubble will burst, eventually. Change it, or pack up and go home.
A
In any business, if you aren't continuously trimming your costs, you are heading for disaster. If some of the costs are regulatory, then a company needs to continuely ensure they are always handled in the most cost-effective way possible.
Industry bodies need to continuously campaign for regulatory reform to improve the cost-effectiveness of regulation. It's the success of their industry at stake.
Aother aspect to making things financially viable is improving the economies of scale. This is especially true when you have relatively high 'fixed'-costs (such as regulatory compliance) This is why small players fail and larger players tend to grow - assuming they are competing in the same market segment.
Yet another is to value-add. Sell something the customer's willing to pay extra for, but doesn't cost the company (much) more to provide, given you may already have the infrastructure in place.
Business is business, not rocket science. It doesn't matter how passionate you are about your product or service, if the business plan doesn't allow growth and the making of a reasonable return, the bubble will burst, eventually. Change it, or pack up and go home.
A
WOG you missed the greatest costs - PLovett is on the money!
I won't comment on the "average" Aussie GA aircraft, but a real GA aircraft and a smart business operator knows debt servicing, aircraft depreciation and aircrew Award wages probably amounts to around 50% of the total hourly costs for any modern GA aircraft, such as the C208.
I'll dig out the actual percentages and post later.
I won't comment on the "average" Aussie GA aircraft, but a real GA aircraft and a smart business operator knows debt servicing, aircraft depreciation and aircrew Award wages probably amounts to around 50% of the total hourly costs for any modern GA aircraft, such as the C208.
I'll dig out the actual percentages and post later.
Bugsmasherdriverandjediknite
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Andy-RR, mate, this industry has been trimmed almost out of existence.
there really isn't any fat left to trim from it. basically, the incomes need to go up, as the industry has been undercharging for years. If the end user cannot afford to use the service, well the business plan simply will not work.......... and as you say, pack up your ball and bat and go into hot dog sales.
It has been tried, and to be quite truthful, the only real success stories are the ones that charge as they should, and even then the margins are slim.
Like you said, it aint rocket science. incoming needs to exceed outgoing and thats all there is to it.
there really isn't any fat left to trim from it. basically, the incomes need to go up, as the industry has been undercharging for years. If the end user cannot afford to use the service, well the business plan simply will not work.......... and as you say, pack up your ball and bat and go into hot dog sales.
It has been tried, and to be quite truthful, the only real success stories are the ones that charge as they should, and even then the margins are slim.
Like you said, it aint rocket science. incoming needs to exceed outgoing and thats all there is to it.
Wiz,
if the margins are slim and the costs are fully trimmed (hard to believe - it's really an ongoing process), then you need to scale up, collaborate, merge, takeover etc.
I don't know the industry much, but I'm guess Rex is an example of something bigger and perhaps more efficient than anything that's gone before.
Also, I don't see/hear a lot of noise on these esteemed pages about regulatory reform. A lot of bitching and moaning, perhaps. Maybe it just happens quietly and we'll see it when it bears fruit.
A
if the margins are slim and the costs are fully trimmed (hard to believe - it's really an ongoing process), then you need to scale up, collaborate, merge, takeover etc.
I don't know the industry much, but I'm guess Rex is an example of something bigger and perhaps more efficient than anything that's gone before.
Also, I don't see/hear a lot of noise on these esteemed pages about regulatory reform. A lot of bitching and moaning, perhaps. Maybe it just happens quietly and we'll see it when it bears fruit.
A
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My Uncle is an Autoelectrician(retired)
My Auntie..his wife..works as a catcher at their local skydive outfit.
My Uncle asks owner why no flying today.
Owner says..alternator has packed in..waiting for a replacement.
Let me have a look says my uncle.
Oh..just an American standard GM Alternator with a funny sticker on it..I can be back with one in 20 mins for a couple of hundred..I will even install it for you....
..You can fill in the rest..$1000 plus blah blah..approved parts..blah blah..overnight from flightline in Auckland blah blah..signed off by a LAME blah blah...thats why!!
My Auntie..his wife..works as a catcher at their local skydive outfit.
My Uncle asks owner why no flying today.
Owner says..alternator has packed in..waiting for a replacement.
Let me have a look says my uncle.
Oh..just an American standard GM Alternator with a funny sticker on it..I can be back with one in 20 mins for a couple of hundred..I will even install it for you....
..You can fill in the rest..$1000 plus blah blah..approved parts..blah blah..overnight from flightline in Auckland blah blah..signed off by a LAME blah blah...thats why!!
Of course your uncle knows that it is just an...
and he is of course qualified to fit said part to the aircraft. Clearly he has experience with aircraft electrical systems? No?
This in the wonderful world of skydive & parachute operators, where everyone except the pilot gets paid.
God (whichever one) help us from these people.
Whisky oscar golf what problem are you trying to solve? Flying is TOO CHEAP. See above from people that know.
It's like saying, I want to buy an Audi TT, how can we reduce costs so that I can afford one. I know mattyj's uncle could assemble it from parts for me.
American standard GM Alternator with a funny sticker on it
This in the wonderful world of skydive & parachute operators, where everyone except the pilot gets paid.
God (whichever one) help us from these people.
Whisky oscar golf what problem are you trying to solve? Flying is TOO CHEAP. See above from people that know.
It's like saying, I want to buy an Audi TT, how can we reduce costs so that I can afford one. I know mattyj's uncle could assemble it from parts for me.
Don Quixote Impersonator
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That bit that cracks me up is that those operators have for the last several decades been subsidising their clients big time. The irony is their clients actually have the money and the saving through the subsidy goes straight to their clients bottom line or the baot pen.
It gets worse those operators have actually convinced their clients that it actually gets cheaper over time. How do they do it? simple really, when they run out of engines they refinance the aircraft.
The sight of local mining magnet driving away in his new very exotic and very expensive car (value $250,000) to spend the evening on his $2,500,000 motor yacht, with the pilot watching wistfully as he walks back to his Chieftain/C402 (notional value $250,000 actual value maybe half) to pack it up for the night and go home in his clapped out Kinger is Monty Python stuff.
Not one thing to do with "unecessary costs" or overregulation, just a bunch of dumb operators indulging their hobby and calling it business.
If they were charging what it really costs the so called aviation business killing compliance costs would come back into proper focus and are as a percentage actually at international best practice levels or lower.
It gets worse those operators have actually convinced their clients that it actually gets cheaper over time. How do they do it? simple really, when they run out of engines they refinance the aircraft.
The sight of local mining magnet driving away in his new very exotic and very expensive car (value $250,000) to spend the evening on his $2,500,000 motor yacht, with the pilot watching wistfully as he walks back to his Chieftain/C402 (notional value $250,000 actual value maybe half) to pack it up for the night and go home in his clapped out Kinger is Monty Python stuff.
Not one thing to do with "unecessary costs" or overregulation, just a bunch of dumb operators indulging their hobby and calling it business.
If they were charging what it really costs the so called aviation business killing compliance costs would come back into proper focus and are as a percentage actually at international best practice levels or lower.
Bugsmasherdriverandjediknite
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I might just add for clarity, that Rex is a RPT operation, and not your average billy blowfly baron operation. they have many customers on the one flight, unlike billy blowfly, who has one customer needing the whole aircraft to go to Ooolabalonga. Billy blowfly has to pay his regulatory dues, but these are beyond his control and regardless of how much they are, they need to be worked into his operating costs and charged out prorata, not cut costs somewhere else to compensate so Ooolabalonga man will use his service because its cheaper. because the billy blowflys of the industry have been robbing Peter to pay Paul for so long to get the customer, the rates no longer support the costs of operation, and Peter aint got any bucks left to lend to Paul.
We need to charge the end user what the rate should be, not what we can cut it to, to get his business.
Business is business, to many hobby pilots out there making it hard by operating below cost and ooolablonga man will go to the cheapest man on the strip 90% of the time.
We need to charge the end user what the rate should be, not what we can cut it to, to get his business.
Business is business, to many hobby pilots out there making it hard by operating below cost and ooolablonga man will go to the cheapest man on the strip 90% of the time.
Well, maybe that's the case, but frankly that's the market for you. If it's easy for someone to start up a business and compete with you on price, then you're in a buyer's market - profits ain't going to go up.
It's a fact of life that people pay more for things that are hard to come by and less for things that are a-dime-a-dozen.
Understand this and plan your business accordingly...
A
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The performance of some of the new mid-size business jets is incredible. Even a humble ‘slowtation’ exceeds 400 knots and lifts a one tonne payload out of 1200 metres with eight hundred miles in the tanks.
New generation turbines have TBO’s of six thousand hours or more, some are on condition.
Passenger appeal is important. You hear the comments about the appeal of a Navajo over a Caravan. What crap. I bet the passengers don’t travel to the airport in FJ Holdens!
The charter industry in this country is behind the times and desperately needs revamping. If you want to hobby farm with old aircraft the punters will not part with their readies until they have no alternative. Charter rates are like fuel prices, when they rise you hear a mumble about buying smaller cars but people don’t, they just fork out. Unleaded fuel prices have increased by thirty per cent in just two years with diesel even higher and we are still forking out!
Bugsmasherdriverandjediknite
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I read that as 'too much competition out there to make it worth one's while'
If the customer can't afford to fly with me at my price, they are welcome to go to billy blowfly up the strip. doesn't mean I haven't planned my business properly, it means I'm not prepared to go broke by subsidizing the customer.
I call that good business.
you tell me how someone is supposed to compete in a market that is generally price driven, and has people lining up to go broke, thinking they will do better than the last guy, but make all the same mistakes. I certainly don't believe cutting costs that are already stripped to the bone is going to make you competitive, as your just going to be another billy blow fly that can't afford engines and props when the time comes........and then move over for the next guy.
Don Quixote Impersonator
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Ahhh wiz me old, 'tis music to me ears.
dragchute sometimes your clients have to learn the hard way.
Had a case recently we were as usual busy, valued and loyal client had an urgent need we couldnt fill and there wasn't a turbine suitable to us to be had anywhere and the only alternative was to bring one from interstate with deadheads both ways. Hmmmm and ouch he says I've been offered a piston twin (generic 35 yr old/new clunker bright new paint and probably the 7th or 8th new interior) think I'll give it a go, your call we say but we dont recommend it. Yup 2 days later from call from outer woop woop, asking how soon can the interstate aircraft pick him up from there to finish the job and sent the clunker home. And this company watch their dollars too.
Now if you want to pin the tail on the uneccesary costs donkey, a good bit of it is going into keeping aircraft flying that should be in the knackers yard or enjoying a snooze in the old persons home or in the local museum instead of into equipment that will return your capital. Having said that there are some great bargains to be had by private owners looking for a nice cabin class twin to restore.
dragchute sometimes your clients have to learn the hard way.
Had a case recently we were as usual busy, valued and loyal client had an urgent need we couldnt fill and there wasn't a turbine suitable to us to be had anywhere and the only alternative was to bring one from interstate with deadheads both ways. Hmmmm and ouch he says I've been offered a piston twin (generic 35 yr old/new clunker bright new paint and probably the 7th or 8th new interior) think I'll give it a go, your call we say but we dont recommend it. Yup 2 days later from call from outer woop woop, asking how soon can the interstate aircraft pick him up from there to finish the job and sent the clunker home. And this company watch their dollars too.
Now if you want to pin the tail on the uneccesary costs donkey, a good bit of it is going into keeping aircraft flying that should be in the knackers yard or enjoying a snooze in the old persons home or in the local museum instead of into equipment that will return your capital. Having said that there are some great bargains to be had by private owners looking for a nice cabin class twin to restore.
Said I'd dig out some numbers..........
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%
And that does not include depreciation, administrative and operational overheads etc - and operator profit margin.
Now, which part of those costs do you wish to lower? And more importantly, with inflation and rising costs - how?
If your dreams include operating a Cessna Caravan and don't include 1,000 hours per annum at $1,200 plus per hour minimum revenue, may I suggest either a long cold shower or stand outside burning up $100 bills!
Incidentally, I am not denigration the Caravan - a wonderful aircraft and the future of the Australian GA industry - simply pointing out fixed costs are just that - fixed - and anyone wishing to hire the aircraft must pay all the fixed costs plus operator's profit margin. Same principals apply to any aircraft type.
"Profit" is not a dirty word!!!
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%
And that does not include depreciation, administrative and operational overheads etc - and operator profit margin.
Now, which part of those costs do you wish to lower? And more importantly, with inflation and rising costs - how?
If your dreams include operating a Cessna Caravan and don't include 1,000 hours per annum at $1,200 plus per hour minimum revenue, may I suggest either a long cold shower or stand outside burning up $100 bills!
Incidentally, I am not denigration the Caravan - a wonderful aircraft and the future of the Australian GA industry - simply pointing out fixed costs are just that - fixed - and anyone wishing to hire the aircraft must pay all the fixed costs plus operator's profit margin. Same principals apply to any aircraft type.
"Profit" is not a dirty word!!!
Last edited by Torres; 21st Dec 2006 at 01:56.