Loading please wait....

If you are a registered, please log in. If not, please click here to register.

Evaluating Cost

Measuring the value of Business Aviation requires a careful examination of costs and benefits- observes Pete Agur. Having previously examined the metrics of Safety and Service- this month the focus is on Efficiency.

Pete Agur   |   1st October 2012
Back to articles
Pete Agur Pete Agur

Peter Agur Jr. is Chairman and Founder of VanAllen - a business aviation consultancy firm with...
Read More

Evaluating Cost
The Metrics of Business Aviation Efficiency
Measuring the value of Business Aviation requires a careful examination of costs and benefits- observes Pete Agur. Having previously examined the metrics of Safety and Service- this month the focus is on Efficiency.

There are three great quotes about metrics that are especially appropriate for Business Aviation:

• “Not everything that counts can be counted- and not everything that can be counted counts”
- Albert Einstein.

• “What you do not measure- you cannot control”
– Tom Peters.

• “A penny saved is a penny earned”
- Benjamin Franklin

There is also another quote- attributed to financier J.P. Morgan (when he was questioned about his yacht) that may seem relevant. “If you have to ask how much it costs- you can’t afford it-” he said. However- when it comes to Business Aviation- his statement doesn’t hold water. You do need to know the costs of your Business Aviation services. After all- costs are one-half of the value equation. The other half is benefits.

Benefits come in two flavors: intangible and tangible. Intangible benefits vary with each user’s needs and sensitivities. Enhanced safety and security- reduced stress- improved fatigue management- heightened en route productivity- and enriched quality of life are all examples of the extraordinary intangible benefits you gain by using Business Aviation.

By definition- intangibles are hard to measure. That is why some of our clients look at the difference between the costs of Business Aviation versus their commercial alternatives to measure what they are paying to gain their intangible benefits. That is why the concept of intangible benefits is part of the brilliance behind Einstein’s quote; much about the value of Business Aviation services cannot be counted- but those intangible benefits they produce do count… hugely.

On the tangible side of the equation- many of the cost metrics used in Business Aviation are commercially- based and don’t count in our sector. For example- I often hear folks talk about the cost per hour when comparing one aircraft to another. This metric is a carryover from Commercial Aviation because many costs- like fuel and maintenance reserves- are incurred on an hourly basis. However- different aircraft often have different speeds so they cover miles at a different rate. That is why the apples-to-apples metric for comparing aircraft is cost per mile.

When I ask top executives what is their greatest constraint- their most frequent answer is “time”. They say there just isn’t enough of it. That is why they are so frustrated by the time lost when they travel commercially. They see airline travel as a black hole for time.

So how much time does commercial travel cost? A rough rule of thumb for measuring the door-todoor time difference between a business jet and the airlines is three hours per leg. That assumes a nonstop flight. Connections take at least another hour each.

A conservative measurement of the passenger hours saved using Business Aviation is enlightening. As a typical example: a business jet flies 450 hours per year. It flies an average leg length of 600 miles taking 1.5 hours with three passengers on-board. The annual total is 300 legs flown and 2-700 key passenger hours saved (300 legs x 3 hours saved x 3 passengers). The compensation rate of those passengers multiplied by the travel hours saved is a very large and tangible cost benefit to the company. Either hours saved or time-cost saved are metrics worth tracking.

Speaking of time- when I ask executives about their need to be punctual they often respond that it is much more important for their travel schedule to be flexible. That is not an option on the airlines. With that in mind- your aviation department can track scheduled departure times versus actual and identify the sources for those variances. Passenger-induced variances are a positive measurement of service. Operator controllable delays identify opportunities for improvement. That is the power behind Tom Peters’ point; if you don’t measure it- you cannot manage it.

Finally- we have the issue of saving pennies. The hours you save are incredibly important and valuable. I’ll give you three other examples of substantial savings that are rarely well measured:

- Fuel: The largest aircraft operating cost is fuel. Fuel makes up about 45% of the annual cash cost of most business jets. Does your aviation department have a fuel cost savings program? It probably does. How much is it saving? How does that compare to its peers? Are their efforts to create savings being effectively measured and maximized?

- Maintenance: Your technician is the only aviation department staff member who can save more than he or she costs. The work they do and the decisions they make can have a substantial impact on your aircraft’s resale value- utility and green dollar costs. Are those savings being measured and reported?

- Availability: Speaking of utility- an aircraft that is a few years old averages 5-6% of the year’s calendar days out of service for routine maintenance.

That is about 20 days per year. Each one of those days has lost opportunity costs or substitution costs. By reducing the maintenance down time those costs are lessened. Or by conducting the maintenance on low- or no demand days the impact on business use is minimized. Is your aviation department measuring the costs and benefits of those efforts?

J.P. Morgan’s words were applied to personal property- not to business tools like aircraft. When you ask what your business aircraft costs- you are making sure you can afford it.

Do you have any questions or opinions on the above topic? Get them answered/published in World Aircraft Sales Magazine. Email feedback to:

Related Articles

linkedin Print

Other Articles