Airline Cost Categorization - Center for Air Transportation Systems

Chapter 5.1: Airline Cost
Maryam Zavareh
 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
 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
 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
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
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.
Form 41
Single Category:
Maintenance and
Three Categories:
Direct Airframe Maintenance
Direct Engine Maintenance
Maintenance Burden
Ticketing, Sale,
Single Category:
Ticketing, Sales and
2 Main Categories:
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
 Total Operating Expense per Passenger Enplaned or
 Thanks for Listening.
 Any Question?
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 The Global Airline Industry
 Images were selected from various internet sites.

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