Question Concerning Operating Costs?
 

Question Concerning Operating Costs?
I am helping a university student prepare a paper concerning the Airbus A380. The particular airline he has chosen for his case study is experiencing many technical faults resulting in some pretty costly delays. As a BA employee, I was always told that an aeroplane sitting on a pier-served stand at Heathrow cost in the region of £300 for every minute it sat beyond its scheduled departure time.

(I have a suspicion that was just a figure lucked at random to impress on one the importance of "doing yer bit" to ensure on time departure.)

Related to this A380 topic, would anyone out there have an approximate idea of the likely average costs per minute of a delay?

The other fact of interest would be in aeroplane manufacturers' procedures. Nearly all new aeroplanes, and in particular aeroplanes of a new design, will develop a few teething troubles in its early days. Do the airlines accept that this will happen and they absorb the costs themselves, or do they prepare an invoice and claim the costs of consequential losses from the manufacturer - or do they simply negotiate some sort of contra agreement?

Some sort of definitive answers would probably gain my friend some kudos and higher marks!

Thank you for your help.

Bealine

I have little doubt that it is figure plucked at random.

Your student might be able to get a copy of Beyond Airline Disruptions by Jasenka Rapajic (ISBN 978-0-7546-7440-5) from his/her university library. There is an interesting table on P16 giving various estimates. One of the highest is for Euro 600 per wide bodied jet per minute from a 'Major European Airline'.

There are several types of cost:

Direct (staff overtime, cost of running APU, etc)

Reactionary - having to re-book passengers who miss connections, etc

Loss of revenue if the passenger decides to use another airline next time

The cost to the passenger of lost time (as used by economists for cost benefit analysis but not actually a cost to the airline).

Many of these will only kick in at a certain point.

There has been considerable schedule creep in recent years. Compare block times between LHR & CDG or AMS now and 20 years ago. Of course they are not delays (actually padding to reduce delays), but as an exercise apply the £300 per minute to the length that the schedule has been extended).

Thanks for that - I shall order "Beyond Airline Disruptions" on Tuesday when I have a day off!

Cheers

Ian

bealine - when an airline orders a new aircraft from the maker both sides sit down and hammer out a contract, no two companies are likely to have the same contract.

One company may want six crews per aircraft trained at the makers facility, another company may say they will do their own training but want an upmarket galley fit, etc. etc. etc. so it is quite possible that an agreement about downtime in, say, the first year will be reached too. Both makers and airlines are very secretive about their deals!

Costing is one area that alas comes my way all too often !

You must remember the maxim that "costs can be bent to show whatever you want". There are whole books on the subject, many of which offer opposing opinions. A typical example is this "delays cost £(insert large figure here) per minute" quoted.

The basis for this nonsense is often taking the total operating costs for the whole airline for a year (let's say £1.8 billion) and dividing it by the total number of flying hours (say 100,000 hours, a fleet of 40 averaging 2,500 hours per year each). You will see my example works out to £18,000 per hour, or "our planes cost £300 per minute to run", which is very conveniently your figure as well. You can always get an airline's total operating costs for the year from their published annual financial accounts, which often give the number of hours flown as well, so you can see these basic figures for yorurself for real.

But if the aircraft is delayed in departure, what are the additional costs ? If you are "sitting on a pier-served stand" then the engines are not operating, no extra fuel is consumed, and in particular no hour-based maintenance costs are clocking up either. Crew are paid (broadly) by the flying hour, so there is little extra there either. Things like insurance or the share of the MD's salary cost no more than if you got away on time. What cost there is, is the much smaller "additional cost" of the actual delay, simplistically how much extra you have to shell out compared to if you had not been delayed. This is a much smaller figure, but is much more tedious to work out.

Believe it or not, some quite substantial businesses are run without their accountants having grasped these basic principles. If you know the railway you may have heard of the "Beeching Report" in the 1960s, which was a fundamental over-simplification of costing that led to inappropriate decisions and restructuring of an entire industry, including huge investments in new capital equipment that was not required.

In passing "Cost Benefit Analysis" is usually a complete fraud, bending the figures using a theoretical pseudo-science to show what normal figures never would.