Per-flight costs
 

I got bored today and sat down to get an idea of how much it actually costs an airline to operate a flight from A to B. I'd like to share what I did, and get some more input from any other equally bored people.

I used a 737-600 on a 1,000 nm trip (approx 2 hours), and some estimated data on its fuel burn with 100 people and their bags on it. Using that, I got a number of about 12 lbs per mile fuel burn. That's about 2 gallons per mile, assume $4/gallon (I don't know what an airline might actually pay for Jet A) and you get a fuel bill of $8000 for the flight.

Pay the captain $140 per flight hour, the FO $80, and each of 3 flight attendants $30, and you get a $620 payroll. Lets just double that to account for hotel, per-diem, insurance, and all the other stuff they have to pay for crews. That's $1240.

Total so far is $9,240.

I have no idea how many man-hours of gate agent and ground crew labor it might take to operate a flight like this. 10 man-hours at $10/hour maybe? Let's just double it again to get a $200 cost for that.

$9440

Assuming the airline purchased the airplane and paid $50M cash for it, and expects to keep it for 20 years, it would break down to $6,850 per day. Lets assume that this airplane averages 4 flights per day. The cost of owning the airplane for this particular flight then is $1712. Let's just round that up to $1750.

Now we're at $11190.

I'm clueless as to the cost of maintenance/parts for something like this. I'm just going to say $1000 for this flight.

$12190.

Now, I know that insurance, taxes, and various other fees go into this as well. But I don't know how much. I'm going to stop here and see what else everyone can come up with, and what you can correct for me. Not to mention salaries of all the pencil-pushers, execs, and the like.

Even up to this point though, I've only got the cost per-passenger up to about $122.

'Inside American Airlines' covered this. I don't know if they still air it but I saw it a few times on CNBC.

I think your way low on your numbers. Your time for a 1000nm flight is too low. You need to include ground time and the now normal long delays when operating in and out of the major airports, like in New York. Most companies lease their airplanes, which I would guess a 737 would go for $150-200k a month for a carrier with good credit. You're not including benefits, any retirement plans, etc in labor costs. You're not including airport facility overhead, landing fees, corporate headquarters overhead, and, of course, the 10s of millions of dollars of bonuses paid to airline executives regardless of their airlines profitability or performance. Further, there are recurring employee training costs and FAA fines stemming from the incompetence of the airline maintenance managers. Further, there are lobbying costs in Washington and any "special" payouts. And the list could go on, but you get the idea.

I think he's just trying to find the gross profit per flight based on the costs of that flight, not all the overhead that has to be accounted for when deciding how an airline makes a profit, as opposed to how an individual flight makes a profit. Not that this number means a whole lot.

Assuming this is true - would the hypothetical "most profitable airline" be one that is owned by the employees? In other words... if you took an airline private - say, the one you're describing with the overpaid execs, and eliminated (or distributed some smaller fraction of the aforementioned bonuses to the new employee/owners), would that airline compete more effectively against the publicly owned airlines who are staggering under the weight of overpaid management?

I would think if your answer is "yes" - you believe that the management decision-making would be of the same or better quality, and exec compensation costs would be lower, then we'd see a bunch of airlines where private equity firms (probably of the venture capital type) would back employee takeovers, or new startups. PE firms back ventures where they believe that the best possible management is in play. Since we don't see them investing in employee-run airlines, there's probably a valid economic reason it isn't happening...maybe the "overpaid execs" are actually providing some commensurate value?

What would happen if airlines adopted the Ben & Jerry's compensation philosophy, where the highest paid employee (CEO) can make no more than 7x the lowest paid employee? I can think of only two possible outcomes:

1) the airline would do great because morale would be high throughout, and the executive compensation would not drain away profits that could be reinvested in the company.

2) no good CEO would be attracted to running the company, because that rock star CEO could go to some other airline for 20x the lowest employee's salary. Airline goes into oblivion because of the poor management decisions made by a cut-rate CEO.

Are there other variations on this theme I'm not considering? I really believe that option #2 can be avoided by smart, hard working thoughtful people transforming themselves from "worker bees" into educated, professional management rather than waiting for good professional management to "happen".

Damon, you're exactly right on what I'm looking for. I'm not trying to build a business plan for a start up airline or anything, I was just trying to get a finger on how much money from each ticket sold is not just covering the airlines costs. I don't care about executive bonuses, or anything like that. I just want to know that if the flight were an apple, how much does the airline pay for the apple?