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Author: mwilly Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 610  
Subject: UAL Date: 10/27/2001 8:36 AM
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Focus on seat mile costs and asset utilization. 

Salaries and entitlement labor contracts can and are offset through and increase in utilization...to a point. The hub and spoke carriers rely on long haul (>500 miles) international and transcon flights to offset their domestic short haul inefficiencies/costs. Without the subsidy of international travel its as they say, "pilots are usually the first ones at the scene of an accident".

ACMI is the pivot point number for running a profitable airline. Once the monthly Aircraft-Crews-Maintenance-Insurance is calculated we can arrive at the cost per hour of operating a particular aircraft.It would be easier if all our aircraft were the same from a safety and cost perspective...but

Aircraft: Monthly lease payment. You don't think we buy these things do you?
Crew: FAA requires a minimum number of Flight Attendants per seats and oh yeah..up front pilots or engineers must be in every seat as well
Maintenance: How do you think we keep 25 year old aircraft that were supposed to last 10 years like new?
Insurance: Ask AIG why its costs so much. It does.

There is a long list of costs to determine an aircraft's all-in cost.
Given an hourly all-in cost of $9,000, for instance, you realize finally charter that 767 for a Hawaii getaway for you and your friends from a consolidator. Other aircraft are more reasonably priced per hour.

Back...
With the hourly cost of flying a particular aircraft we can determine the minimum utilization, load factors and finally ticket prices we need to break even per flight.

Question:
Does the AMI portion go away if the $30M plane sits on the ground 2 hours between flights...uh...whaaaaat!) (exception - no fuel cost)

Seat mile cost (by aircraft) = ACMI hourly cost/trip time If a plane costs $5,000.00 an hour to fly then...

Seat Mile Costs: (5,000 miles*1.5 hr flt time/(500 mile trip))/No. seats (150)= 10 cents per mile

Cost for both cheeks seats = 10 cents per mile x 500 miles = $50.00 per ticket for this flight

Airport charges per passenger $10 = 50 + 10 = $60.00 However, the airlines does not see this $10 so lets back it out for now.

We're close to running our own airline now.
Calculating "Break Even Load Factor: BELF. This is a basic transportation formula, so you can also run busses, ships, taxis, almost everything but the Space Shuttle on this type of formula.

How many passengers do we need to breakeven for this flight.
Cost per hour/The airline's cost per ticket = $7,500/50 = 150 passengers

So to Break Even we have to fill the plane every time we take off. Fortunately our we never file fares that are = our cost, 2x our cost or even 3x our cost. :)

Let's get passengers who have to fly within 7 days to subsidize the major portion of every flight...or the 1st and Business class pax...yeah now we're talkin'

This would be a profitable flight by just filling up 1st Class.
And we're just warming up. Get the idea of what frequent flier miles cost when you take a trip?

So why is higher utilization so hard to achieve in hub and spoke carriers, as opposed to Southwest, Jet Blue and others? Well, that requires a more patient readership for its as dark and dirty as Osama's cave.
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