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December 2005

Category: Operating Costs – Business Aviation

Author: David Wyndham

The costs involved to get the job done!

Fuel costs - now that's a scary topic! One thing you may be doing is comparing your current costs (fuel and others) to different aircraft. Be careful, it's not only what you measure, but also how you measure that counts.

We are doing some benchmarking between several clients and one of the items is ‘cost’. This seems easy at first: just report your costs to me and I'll do the rest. It isn't so easy when you get into it, however.

First there is the matter of defining the costs. What to include and what to exclude? Are we talking variable costs, fixed costs, or both? Here’s a little reminder:

Variable Costs

A variable cost will vary in proportion to the level of activity. As activity increases, the total cost will increase but the cost per unit will remain constant. An example of this can be fuel. An increase in utilization will have a corresponding increase in fuel consumed. However, the cost unit (gallon of fuel) will not be affected by a change in utilization.

Fixed Costs

A fixed cost as the name implies, remains essentially constant for a given period or level of activity. A full-time pilot's salary is a fixed cost. Whether you fly a little or a lot, the pilot still is paid their same salary. The cost per unit will change with a change in activity.

Finding a good cost measure

In aviation, we all have a bad habit of talking hours. After all, we fly to save time, so hours are a good measurement. This isn’t the case when it comes to costs, however. There's still more work to do.

Let's compare a King Air B200 and a Citation Encore. Keeping life easy, assume both operators pay the same price for fuel at their local FBO. The King Air has a fuel cost of $452 per hour and the Encore reports $840 per hour. There you have it, the jet costs $388 per hour more for fuel! What's missing?

Cost Per Nautical Mile

Neither operator simply files their aircraft around for an hour or two watching the sunset. They are used to transport persons from one location to another, and back again. The aircraft's job isn't to fly hours; its job is to fly miles.

When you compare costs, you need to look at what the job is. If both aircraft are used as passenger shuttles, then a cost per passenger-mile is appropriate. Cargo haulers look at cost per ton-mile. Airplanes that fly miles should be compared to using a cost per mile basis.

If the King Air averages 240 nautical miles each hour, its cost per mile for fuel is $1.88. If the Encore averages 370 nautical miles each hour, its cost per mile for fuel is $2.30 per mile. So what looks like one airplane having 85% higher fuel costs (per hour) is really only 22% higher (per mile, or per trip).

Essentially, some aircraft take longer than others to do the job, so even if they are less costly per hour, the cost to do the job may wind up being more.

So when comparing aircraft costs, remember, not only do you need to know what the costs include and exclude, remember that the last step is to compare cost per mile: The cost to get the job done.

David Wyndham is a partner at Conklin & de Decker. The mission of Conklin & de Decker is to furnish the general aviation industry with objective and impartial information in the form of professionally developed and supported products and services, enabling its clients to make more informed decisions when dealing with the purchase and operation of aircraft. With over 1,800 clients in 90 countries around the world, Conklin & de Decker combines aviation experience with proven business practices.

More information from www.conklindd.com; Tel: +1 508 255 5975


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