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Measuring Costs

by David Wyndham 1. November 2005 00:00
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It's not only what you measure, but how you measure that counts.

We are doing some benchmarking between several clients and one of the items is "cost." 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.

In aviation, we all have a bad habit of talking hours. After all, we fly to save time, so hours are a good measurement. Not when it comes to costs, however. There's still more work to do. Aircraft are used to transport persons from one location to another, and back again. The aircraft's job isn't to fly hours, it's 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.

Let's compare a King Air B200 and a Citation CJ3. Keeping life easy, assume both operators pay the same price for fuel at their local FBO. The King Air variable cost is $840 per hour and the CJ3 reports $1,140 per hour. There you have it; the jet costs $300 per hour more to operate! What's missing?

Cost per Nautical Mile. If the King Air averages 250 nautical miles each hour, its cost per mile is $3.36. If the CJ3 averages 360 nautical miles each hour, its cost per mile is $3.17 per mile. So what looks like one airplane having 36% higher variable costs (per hour) really has a 5.6 % per mile lower variable cost. 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 be wind up being more.

Another, even more refined measure is cost per seat mile (or per ton-mile if flying cargo). Take two aircraft with the same cost per NM of $3.60. Aircraft A has five passenger seats while aircraft B has 6. Aircraft A costs $0.72 per passenger NM while aircraft B costs $0.60 per passenger mile – a 17% difference.

So when comparing aircraft costs, remember, not only do you need to know what the costs include and exclude, don't forget the last step is to compare the cost to get the job done.




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