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Classification of cost

Operating costs of an aircraft can beconveniently divided into two parts:

Direct Operating cost (DOC), being thosecosts which vary according to the type of

aircraft used, and indirect operating costs(IOC), which are those not affected by

aircraft type. We can sub-divide both theDOC & IOC into fixed and variable. A

pure DOC/IOC division can be termed afleet-related classification and the

fixed/variable division is an operation-related classification

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Classification of cost

Total Operating costs

Direct Operating Costs Indirect Operating Costs

Fixed Variable Fixed Variable

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Cost ComponentsFuel costs (DOC):The basic components of

the fuel calculation comprises the following:-Price of fuel: Airline management is hostageto the movements of the overall price of oil,which are notoriously difficult to forecast.

OPEC controls around 40% of worldproduction and thus has a considerableinfluence on the price of crude. One way

airline can delay the effect of fuel price riseon the balance sheet is to hedge. Delta & BA

hedge up to 75%. Moreover, individual

airline that are bulk user at an airport areable to negotiate discount on published price.

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Cost ComponentsMaintenance Costs (DOC): DirectMaintenance cost (DMC) covering labour,material costs associated with themaintenance cost of airframe & engine,Indirect Maintenance cost (IMC) referred

to as burden covering overheads,administration, tooling, testingequipment & facilities, record keeping,supervision & quality control.Line maintenance: It covers checking

tyre pressure & oil level, which must becarried out either on a daily or weeklybasis. It consists 10%-15% of DMC.

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Cost ComponentsAirframe maintenance: For each aircrafttype the Manufacturer issues aMaintenance Planning Program (MPD)which defines tasks & time intervalcovering airframe structure, systems and

components. The MPD reflectsrecommendations for maintenance,which must then be built into anoperators customised maintenanceprogram, to be certified by local

airworthiness authority.Airframe maintenance is composed ofchecks, referred to as A, C & heavychecks or D.

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Cost ComponentsA checks can take place every 400flight hours & C checks every 15months. With this rhythm it would becommon for the 8thA check of a cycleto coincide with a C check. Heavy

structure checks take place every 5years, with additional structure checksevery 10 years.

Those tasks which are dimensioned by

both flight hours and the calendar can begrouped into package in order to avoidgrounding aircraft unnecessarily.

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Cost ComponentsEngine Maintenance: is the function of bothhours as well as cycles or take-offs. Everytime an aircraft takes off the engines arerunning at nearly their maximum poweroutput, causing wear & thermal stress.

Operating conditions such as hot & high-altitude airfield and short runway alsocontribute to wear.

Factors influencing Maintenance costsAirline influence-The degree to which anairline sub-contract or undertake its ownmaintenance determines the degree ofinvestment made in facilities & labour costsincurred.

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Cost ComponentsAircraft influence- The ageing of an aircraftwill affect baseline maintenance calculation intwo areas. Firstly, new aircraft enjoy ahoneymoon period when actual DMCs arebelow predicted mature level- due to

combination of newness effect, particularly ofengines. Secondly, the effect of warrantieson components. In general, maintenance willbe lower than the mature levels for up to 4-5years after entry into services.

Geographical influence- Operators based inremote locations must carry the additionalcost of being far from a supply of spares.Desert operations result in increases damagefrom sand ingestion & coastal operations areplagued with corrosion issues.

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Cost ComponentsRoute network & operations- Short-haulscheduled operators have a greater challengein maximizing their utilization than long-hauloperators. It is not unusual for the sameaircraft type to incur double the DMC on a

short-haul compared to a long-haul network.

Every take-off & landing or cycle , involvesthe acceleration & deceleration of engine,use of landing gear & lift devices. Also thefuselage is pressurized & depressurized &

doors closed & opened. Many cyclic-relatedcosts involves expensive items e.g. wheels,brakes & tyres. Higher average sectorlengths tend to mean that aircraft performsproportionately fewer cycles in relation tohours flown.