Airlines Cost Comparison
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Most of aviation consultant companies practice benchmarking for airline operating cost in terms of CASK vs. Stage Length and represents the result by a curve passing through them without reporting the main parameter of the analysis which is the indicator of line fitness, Yes , they don’t report the value of coefficient of Determination R , which unfortunately a mislead worldwide practice, for a simple reason, if R is less than 80 % then we cannot rely on the parameters of this curve, Really in your hand, the approach to solve this dilemma, by using what so called Displacement Curve Approach.
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Airlines Cost Comparison
- 2. Benchmarking Study Airline Cost Comparison Displacement Curve Approach Mohammed S. Awed Consultant Date of Issue 1 – 1 -2014
- 3. Benchmarking Study –Airline Cost Comparison Displacement Curve Approach By: Mohammed Salem Awed Consultant Most of aviation consultant companies practice benchmarking for airline operating cost in terms of CASK – Cost per Available Seat Kilometers by a line fitness curve, and consequently they hold Adjusted CASK approach to get a meaningful results for the proposed airline of the study. While some of them rely on an empirical formula to practice which so called adjusted Cask, The comments on the line fitness curve displacement curve approach, generally speaking that if we are not control and define the level of R2, then there will be a room for everybody, i.e analyst will assemble the results for their interest, so we have to define properly the environments of data set and the level of R2 that the curve represents. While the Empirical formula will address only a point value and not define a curve of the airline. Definitely there is a relation between CASK and Stage Length, But that relation should define properly. Similarly for the term of RASK – Revenue per Available Seat Kilometers, the same approach can be applied. Source: CAPA
- 4. Airline Environments: We mean by the airline environment, the existing constrains that derive the airline business, i.e the business model that serve the community, so is it LCC ( Low Cost Carriers) , FSC ( Full Service Carriers) Hybrid, Legacy and Mega Carriers. So when we set up an analysis, either to consider the same environment ( community ) or same airline, which may also help us to define precisely the relation between short, medium and long haul operation with CASK (Cost per Available Seat kilometers). Displacement Curve Approach: The idea behind this approach is curve fitting which can be fairly fitted if R2 is greater than 80% - any figure below than that level will lead to improper decision. Then if the previous arguments consistent, that will lead to use the formula of the resulting curve in such away to satisfies the new point location of an airline used to compare, i.e. to move and displace the whole curve to pass through the required point, off course at different stages length. While for airlines it is good to concentrate on one airline, defining its short, medium and long haul values of CASK, this will give the clear picture about the right curve for the airline, a fair examples are Lufthansa Group and Turkish Airline, by developed their curves, we can create the resulting curve to use its for formula in mapping the right curve to pass the required airline point (Displacements) Resulting Curve: This curve addressing the relation between CASK and stage lengths for airlines, Yes there is a relation between CASK and stage length but to what level, is exponential or logarithmic or power one. The parameters of this curve use to re-calculate, and represent the other points – that defining the right displacement value to re-draw and map the new curve.
- 5. Benchmarking Study - Gulf Region: As mentioned previously, the relation between CASK and Stage Length is inversely proportional That’s means as the distance increase the value of CASK relatively decrease, but the question at what slop, and what are the right parameters to calculate, off-course we cannot compare short haul operating airline with a long haul operating airline, but we can developed and position the airline according to the outcome parameters that define by study of LH and TK, yes we are interesting to define the parameters of curve and not the values, and accordingly we use the step ( the difference ) values of the airline reported figures and the value of bottom line curve of the resulting curve to reflect and derive the airline curve. Similarly we can develop many curves for MS, GF, RJ, ET, EK, EY, and QR. Now it is easy to read and compare these airlines at different stage lengths i.e. Short, Medium, and Long haul operation, as shown in the figure. Summary: The normal procedure by airline practice for comparing Adjusted CASK is unfair, for sample reason, they are not reported the value of line fitness of the curve i.e. ( R2 ). So to hold and rely on fair results (goodness of fit) we have to get R2 is equal or greater than 80%, if we practice values less than that, then there will a room for everybody to get different curves – different parameters and sequentially different results. The right track is to address the same environments i.e. working on airline figures ( short-medium and long haul) and fit these values to define the right curve, so that we can study the parameters of the curve, finally the more airlines involve in the study the more accurate curve, that will give a good and clear comparison for benchmarking study.