Airline Economics 2016 Airline Planning Workshop The statements contained herein are based on good faith assumptions and provided for general information purposes only. These statements do not constitute an offer, promise, warranty or guarantee of performance. Actual results may vary depending on certain events or conditions. This document should not be used or relied upon for any purpose other than that intended by Boeing. Boeing is a trademark of The Boeing Company.
Objectives Airline Economics Define the operating cost components that impact airline profitability Introduce maintenance costs and its drivers Understand introductory and transition costs Select the right airplane by analyzing options from an airplane cost perspective
Total aircraft efficiency Aerodynamics Engine Weight
Define the operating cost components that impact airline profitability The statements contained herein are based on good faith assumptions and provided for general information purposes only. These statements do not constitute an offer, promise, warranty or guarantee of performance. Actual results may vary depending on certain events or conditions. This document should not be used or relied upon for any purpose other than that intended by Boeing. Boeing is a trademark of The Boeing Company.
Airplane Economics Operating Costs Revenue Profits
Operating cost categories Total Operating Costs (TOC) Airplane Related Operating Costs (AROC) Systems Related Operating Costs (SROC) Payload Related Operating Costs (PROC) Cash Airplane Related Operating Costs (CAROC) Ownership Costs General and administrative Airplane Passenger Cargo Passenger Related Costs Cargo Related Costs Fuel Flight Crew Cabin Crew Maintenance Landing Navigation Airplane Station Ground Power Financing Depreciation Introductory Investment Operating Lease Hull Insurance Food In flight services Handling Commissions Advertising Reservation and sales Baggage handling Handling Commissions Advertising Reservation and sales
Contributions to Total Operating Costs System Related Operating Costs Cargo Related Operating Flight Costs Crew Cash Airplane Total Related Operating Related Operating Costs Costs Costs Cabin Crew Passenger Related Operating Costs Other Ownership Navigation Fees Landing Fees Fuel Airplane Related Cash Airplane Operating Costs Related Operating Costs Maintenance
Fuel costs are driven by: Airplane type Airplane size Payload Trip distance Airline rules
Oil and jet fuel price outlook Oil price volatility returns, mid-term price outlooks $60 - $80 per barrel Forecast Oil price forecasts are nominal annual average prices for 2015-18 Historical data source: EIA, futures: ICE
Over 28% fuel reduction with design improvements 0% 737 Classic 737NG Blended Winglets Carbon Brakes Base Relative Fuel Consumption Enhanced Engines 737 MAX -10% -7.5% -4.0% -0.4% -2.0% 28% -20% -30% -14.0% -40% -50% Baseline is the 737 Classic, 1,000 NM mission
Flight crew costs: Salary/block hour rates Benefits Hotel & per diem Recurrent training
Cabin crew costs: Number of attendants Salary/block hour rates Benefits Hotel & per diem Recurrent training
Maintenance costs account for 14% - 20% of cash airplane related operating costs Airplane size and airline operations are the major drivers of costs
Each bar represents a different way to view total maintenance costs Total maintenance cost Labor Line A C D/4C/SI APU Equipment and furnishings Structure Landing gear Systems Routine Nonroutine Flight cycle Material Component maintenance Engines Flighthour Labor/material Maintenance Events ATA Chapters Routine/ Non-routine Flight-Cycle Flight-hour
Navigation fees are driven by: Airplane weight # LHR Distance flown Countries flown over # SIN
An example of how navigation fees vary Operating Aircraft: 777-300ER JFK-FRA LHR-CDG LHR-SVO Distance 3,351 nm 188 nm 1,359 nm Cost $4,079 $689 $4,348
Landing fees are defined by each local authority Landing fees are driven by: Airplane weight Noise Emissions
An example of how landing fees vary 737-700W 737-800W 737-900ERW New York (JFK) $981 $1,106 $1,192 Shanghai (PVG) $473 $530 $568
Costs vary by airplane and operation ~ $11,600 per trip ~ $165,000 per trip
The Sonic Cruiser
Maintenance Cost Drivers: From a Manufacturer s View The statements contained herein are based on good faith assumptions and provided for general information purposes only. These statements do not constitute an offer, promise, warranty or guarantee of performance. Actual results may vary depending on certain events or conditions. This document should not be used or relied upon for any purpose other than that intended by Boeing. Boeing is a trademark of The Boeing Company.
Maintenance costs drivers two views Manufacturer Inherent Aircraft Reliability Aircraft Maintainability Product Support Airline Operations Maintenance Practices Accounting Practices Support Practices
The 3 major areas of maintenance costs influence a manufacturers view Product Support Continuous Improvement Engineering Training & Spares Documentation Access MPD MMEL Commonality Maintainability Characteristics Inherent Reliability Design System Redundancy Quality Type MPD Maintenance Planning Data MMEL Master Minimum Equipment List
Airplane size is a driver of maintenance costs Maintenance Cost / Flight Hour Older Technology Newer Technology Advanced technologies reduce the impact of size on airplane maintenance costs Airplane Size
Technology - getting more from fewer parts 777 777X/787 23 parts 13 parts
Electrical Power Distribution Optimization Traditional Power Architecture 787 No-bleed Systems Architecture Engine Bleed Air Electric Power
Technology Simplified Trailing Edge 767 6-Bar Linkage 777 4-Bar Linkage 787 Single Hinge
787 Flap/Slat Sequencing F L A P S 1 5 15 20 25 30
Systems driven maintenance interval at EIS Longer intervals, less maintenance, less often +39% Setting new industry standards at EIS +100% *EIS entry into service
Technology composite fuselage Composites drive lower weight, fewer parts and fasteners, and less maintenance
First internal structures inspection interval at EIS Longer intervals, less maintenance, less often +33% +50% Setting new industry standards at EIS +100% *EIS entry into service
Airplane age impacts costs Airframe maintenance cost/flight hour Newness Maturity Aging Higher Utilization Actual Lower Utilization Amortized Two dimensional aging curve Defined by age (years) and annual utilization (flight hours) Years in service
What about engines? The longer an engine is on wing, the lower the maintenance costs.
Major factors that influence engine maintenance costs Engine thrust rating Engine derate Operating environment Engine Maintenance Costs Average flight leg
Engine maintenance overview Plan Period (Typically Years) 1 st Interval 1 st Shop Visit $ spent 2 nd Interval 2 nd Shop Visit $ spent 3 rd Interval 3 rd Shop Visit $ spent $/Engine SV $/Engine Flight Hour Time On-Wing Cost Breakdown
Environmental effects on engine maintenance Environmental effects can impact both time-on-wing and shop visit costs Sand Dust Pollution Compressor Blades Compressor Vanes Combustion Chamber Turbine Blades Turbine Vanes Sand Dust Pollution North America Seasonal South America Europe Seasonal Seasonal Source Van Donkelaar, A., et al., Global estimates of ambient fine particulate matter concentrations from satellite-based aerosol optical depth: Development and application, Environmental Health Perspective, 2010, Volume 118, Issue 6 North Africa/ Middle East China India Source 737NG/CMF567B WTT Meeting, May 22-24, 2012
Takeaways for engine maintenance costs Keep the engine on-wing by using preventive measures Minimize full power takeoffs where they are not needed (i.e. maximize the use of derates where possible) Purchase only the thrust rating required. Sub-fleet of higher thrust required for certain markets is a way to minimize costs Water wash engines as needed to reduce environmental impacts
How can airlines reduce maintenance costs? Understand the costs Improve operations Find opportunities o o o Capture Monitor Compare o o o Escalate intervals Outsource Delete unnecessary tasks o o o Training Optimize facility Renegotiate contracts
Understanding Introductory and Transition Costs The statements contained herein are based on good faith assumptions and provided for general information purposes only. These statements do not constitute an offer, promise, warranty or guarantee of performance. Actual results may vary depending on certain events or conditions. This document should not be used or relied upon for any purpose other than that intended by Boeing. Boeing is a trademark of The Boeing Company.
Introductory and transition costs Capital expenditures to support a new or incremental fleet introduction SPARES TRAINING FACILITIES DOCUMENTS Airframe Flight Crew Tooling MPD Engine Cabin Crew Upgrades Weights Mechanics Rentals MMEL Technical Software
Commonality can reduce provisioning costs Initial provisioning, $ Airplane with no commonality Airplane with partial commonality Savings Airplane with total commonality Existing airplane fleet Fleet size
Recurring benefits of commonality Single Aisle Family Twin Aisle Family 100% Engine commonality 100% Flight Deck commonality 737-900 747 Common ground support equipment 737-800 777 98%-100% common airframe spares Common ground handling 737-700 737-600 Operational commonality Flight deck commonality Speed Range 787 Parts commonality where it makes sense
Commonality eliminates labor duplication New Deliveries New Subfleet 767-200ER 737 MAX 737NG Fleet 737NG Fleet Fleet Supported by Fleets Supported by 737 Chief Pilot and staff 737 Technical Pilots 737 Pilot Trainers (TRE/TRI/LTC) 737 Line Crews & Reserves 737 Chief Pilot and staff 737 Technical Pilots 737 Pilot Trainers 737 Line Crews & Reserves 767 Chief Pilot and staff 767 Technical Pilots 767 Pilot Trainers 767 Line Crews & Reserves Duplicate set of pilots
Select the right airplane by: Analyzing options from the cost perspective The statements contained herein are based on good faith assumptions and provided for general information purposes only. These statements do not constitute an offer, promise, warranty or guarantee of performance. Actual results may vary depending on certain events or conditions. This document should not be used or relied upon for any purpose other than that intended by Boeing. Boeing is a trademark of The Boeing Company.
Which aircraft has better economics? 737-800W 162 seats Cost per trip Cost per seat-mile 737-900ERW 178 seats 1,000 NM sector North American short-medium rules
The fan chart of airplane operating costs 20% 10% 747-200 used 767-200ER MD11 used Relative seat-mile cost, % 0% -10% 767-300ER 767-400ER 787-8 787-9 777-200LR 777-200ER 777-300ER 747-400 used 747-8 -20% 2 Engines 4 Engines -30% -20% 0% 20% 40% 60% 80% 100% Relative trip cost, %
Exercise The fan chart challenge Each table will be assigned one question to answer Take 2 minutes to discuss the answer One person from the table will answer the question by pointing it out on the chart
Exercise The fan chart challenge Questions: 1. Which axis represents risk and which represents reward? 2. Which area of the chart is most desired and why? 3. Identify an airplane that is less attractive cost-wise and why? 4. If the MD11 was new where would it be found? 5. If a global carbon tax is put in place, which airplanes will benefit most? 6. If you add more seats on to the 777-300ER where would you find it? 7. Where would the 787-10 as a simple stretch of the 787-9 be found? What about if you increased its range capability? 8. What cost, if included on this chart, may make the 747-400 more attractive to operate, relative to new airplanes? 9. Where would a 250-seat, Mach 0.98 Sonic Cruiser be found?
Q1) Which axis represents risk and which represents reward? 20% Relative seat-mile cost, % REWARD 10% 767-200ER MD11 used 0% 767-300ER 767-400ER 777-200LR 747-400 used -10% 787-8 777-200ER 747-8 787-9 777-300ER -20% 2 Engines 4 Engines -30% -20% 0% 20% 40% 60% 80% 100% Relative trip cost, % RISK 747-200 used
Q2) Which area of the chart is most desired and why? 20% 10% 747-200 used 767-200ER MD11 used Relative seat-mile cost, % 0% -10% -20% 767-300ER 767-400ER 787-8 J 787-9 777-200LR 777-200ER 777-300ER 2 Engines 747-400 used 747-8 4 Engines -30% -20% 0% 20% 40% 60% 80% 100% Relative trip cost, %
Q3) Identify an airplane that is less attractive cost-wise and why? 20% K 10% 747-200 used 767-200ER MD11 used Relative seat-mile cost, % 0% -10% 767-300ER 767-400ER 787-8 787-9 777-200LR 777-200ER 777-300ER 747-400 used 747-8 -20% 2 Engines 4 Engines -30% -20% 0% 20% 40% 60% 80% 100% Relative trip cost, %
Q4) If the MD11 was new where would it be found? 20% 10% 747-200 used 767-200ER MD11 used Relative seat-mile cost, % 0% -10% 767-300ER 767-400ER 787-8 787-9 777-200LR 777-200ER 777-300ER 747-400 used 747-8 -20% 2 Engines 4 Engines -30% -20% 0% 20% 40% 60% 80% 100% Relative trip cost, %
Q5) If a global carbon tax is put in place, which airplanes will benefit most? 20% 10% 747-200 used 767-200ER MD11 used Relative seat-mile cost, % 0% -10% 767-300ER 767-400ER 787-8 787-9 777-200LR 777-200ER 777-300ER 747-400 used 747-8 -20% 2 Engines 4 Engines -30% -20% 0% 20% 40% 60% 80% 100% Relative trip cost, %
Q6) If you add more seats on to the 777-300ER where would you find it? 20% 10% 747-200 used 767-200ER MD11 used Relative seat-mile cost, % 0% -10% 767-300ER 767-400ER 787-8 787-9 777-200LR 777-200ER 777-300ER 747-400 used 747-8 -20% 2 Engines 4 Engines -30% -20% 0% 20% 40% 60% 80% 100% Relative trip cost, %
Q7) Where would the 787-10 as a simple stretch of the 787-9 be found? What about if you increased its range capability? 20% 10% 747-200 used 767-200ER MD11 used Relative seat-mile cost, % 0% -10% 767-300ER 767-400ER 787-8 787-9 777-200LR 777-200ER 777-300ER 747-400 used 747-8 -20% 2 Engines 4 Engines -30% -20% 0% 20% 40% 60% 80% 100% Relative trip cost, %
Q8) What cost, if included on this chart, may make the 747-400 more attractive to operate, relative to new airplanes? 20% 10% 747-200 used 767-200ER MD11 used Relative seat-mile cost, % 0% -10% 767-300ER 767-400ER 787-8 787-9 777-200LR 777-200ER 777-300ER 747-400 used 747-8 -20% 2 Engines 4 Engines -30% -20% 0% 20% 40% 60% 80% 100% Relative trip cost, %
Q9) Where would a 250-seat, Mach 0.98 Sonic Cruiser be found? 20% 10% 747-200 used 767-200ER MD11 used Relative seat-mile cost, % 0% -10% 767-300ER 767-400ER 787-8 787-9 777-200LR 777-200ER 777-300ER 747-400 used 747-8 -20% 2 Engines 4 Engines -30% -20% 0% 20% 40% 60% 80% 100% Relative trip cost, %
Conclusion The statements contained herein are based on good faith assumptions and provided for general information purposes only. These statements do not constitute an offer, promise, warranty or guarantee of performance. Actual results may vary depending on certain events or conditions. This document should not be used or relied upon for any purpose other than that intended by Boeing. Boeing is a trademark of The Boeing Company.
Key takeaways Profitability always includes cost control The right airplane fleet will minimize costs Fuel, maintenance, and fees are key costs Environmental costs are increasing, but addressable Fleet commonality provides benefits Fan Chart will tell you where you are and where you can be Environmental impact offset by new airplanes, fuel alternatives, and operating practices.