Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
How Long Does It Take An Aircraft To Turn A Profit  
User currently offlinePdxtriple7 From United States of America, joined Dec 2004, 695 posts, RR: 0
Posted (8 years 9 months 3 weeks 3 days 8 hours ago) and read 9661 times:

I've been wondering about this question for a long time. How long does it take to make an aircraft profitable or pay for itself? Like does a 744, for example, need to be in service for say 5 years flying long hauls daily to generate more revenue than the cost of purchasing the aircraft? I hope this makes sense.

12 replies: All unread, jump to last
 
User currently offlineDutchjet From Netherlands, joined Oct 2000, 7864 posts, RR: 57
Reply 1, posted (8 years 9 months 3 weeks 3 days 8 hours ago) and read 9646 times:

Airliner projects become profitable when a certain number of airplanes are sold and delivered, its not really based upon time. There are many variables, if an airliner is a totally new design, the costs and breakeven numbers are higher, it an airliner is a variant or update of an existing model, the costs and breakeven numbers are far lower.

A very, very general number that most agree on is that a manufactuer of an airliner will break even when its sells about 350-400 airplanes of a given type - those numbers can run higher if extraoridnary development costs were involved, many different variants are offered, or the type offers several different engine types. Of course, a big factor is the pricing of an airliner, and sometimes manufacturers offer launch customers of a type deep discounts which can influence the break even point.


User currently offlineHawaijahaz From United States of America, joined Oct 2004, 352 posts, RR: 0
Reply 2, posted (8 years 9 months 3 weeks 3 days 8 hours ago) and read 9621 times:

I think that Pdxtriple7 is refering to the breakeven point with respect to the airline. How long does the airline have to fly the aircraft before it pays for itself. That's what I understood from it. Correct me if I'm wrong.

I would think that the breakeven point would depend on a lot of factors. The kind of routes its used on (high yield), long or short haul, the current economic conditions, etc. What might be interesting to know is how airlines depreciate the aircraft...i.e. over how many years.

PG


User currently offlineB7878 From United States of America, joined Oct 2005, 6 posts, RR: 0
Reply 3, posted (8 years 9 months 3 weeks 3 days 8 hours ago) and read 9620 times:

Dutchjet......I suggest you read the topic one more time. Pdx's question refers to one individual airframe once it enters service with an airline where you are talking about from the prospective of an planemaker.

User currently offlinePDXtriple7 From United States of America, joined Dec 2004, 695 posts, RR: 0
Reply 4, posted (8 years 9 months 3 weeks 3 days 8 hours ago) and read 9607 times:

I think I didn't describe the question well enough...

I'm talking about an aircraft making a profit for an airline. Eventually ticket sales and advertising will surpass the cost of the aircraft, but how long does the aircraft need to be in service for this to happen?

I hope this makes more sense.


User currently offlinePDXtriple7 From United States of America, joined Dec 2004, 695 posts, RR: 0
Reply 5, posted (8 years 9 months 3 weeks 3 days 8 hours ago) and read 9599 times:

Hawaijahaz and B7878 are correct.

Quoting Hawaijahaz (Reply 2):
would think that the breakeven point would depend on a lot of factors. The kind of routes its used on (high yield), long or short haul, the current economic conditions, etc. What might be interesting to know is how airlines depreciate the aircraft...i.e. over how many years.

To make it easier, just pick a longhaul route like SYD-LAX on a 744 or something like that.


User currently offlineDutchjet From Netherlands, joined Oct 2000, 7864 posts, RR: 57
Reply 6, posted (8 years 9 months 3 weeks 3 days 8 hours ago) and read 9581 times:

Apologies, I clearly misread the post.

User currently offlineTPAPDX From United States of America, joined Oct 2005, 87 posts, RR: 0
Reply 7, posted (8 years 9 months 3 weeks 3 days 7 hours ago) and read 9511 times:

Like Hawaijaz mention, it depends on alot of factors.

However, most airlines don't purchase new aircraft outright, rather, they lease or finance them via operating leases and/or financed purchase agreements thru a commercial lender or an entity like ILFC, GATX, etc.

As such, they simply make monthly payments on the aircraft - and that amount will depend on the value of the aircraft. It usually runs about 8-13% of the value per annum - depending on credit worthiness of the leasee/purchaser, market demand for the aircraft type, who will be responsible for heavy maintenance, etc.

The real answer lies with how and where the aircraft is placed by the airlines. Airlines, those with smart managment that is, will need to match the higher cost of the ownership of these aircraft with a city-pair market that can generate higher yields than other routes - however, in todays increasingly competative marketplace, that is getting more and more diffcult.

Typical low-yield markets are were leisure travel dominates the traffic.

The cost to own the aircraft will lower over time, as the asset depreciates in value.

In short, I don't believe there is an answer to the question - as it depends on the airline, their cost structure, ownership cost, city-pairs, yields, and so on.


User currently offlineIkramerica From United States of America, joined May 2005, 21532 posts, RR: 59
Reply 8, posted (8 years 9 months 3 weeks 3 days 7 hours ago) and read 9477 times:

Quoting TPAPDX (Reply 7):
The real answer lies with how and where the aircraft is placed by the airlines. Airlines, those with smart managment that is, will need to match the higher cost of the ownership of these aircraft with a city-pair market that can generate higher yields than other routes - however, in todays increasingly competative marketplace, that is getting more and more diffcult.

not entirely. planes aren't flown in a vacuum. let's say one airline is "wasting" two jets on a low yield route that they must keep in their systemr that could serve two different destinations with much higher yields. They might look to replace planes on that low yield route with a larger one and then move the other planes to the routes they would make oodles of cash. Thus the new plane may not "break even" from the route it's on, but the combined restructuring of routes with those 3 aircraft would be more profitable than the original route with the two.

Or it might be that by adding 1 new long-haul plane, it leads to better utilization of 3 others as well, thus the value isn't just in the added flight that new plane can do, but the added revenue the other planes can now earn. You'll see this with CO when they add those two 777s. Utilization of the whole 777 will go up a bit, thus offsetting the cost of the two planes.

In other words, the plane can't just be seen as adding a route and making or breaking the decision on that route. It must be analyzed with respect to the fleet, the network and utilization of other jets on that network as a result of adding this new unit.



Of all the things to worry about... the Wookie has no pants.
User currently offlineSabenapilot From Belgium, joined Feb 2000, 2714 posts, RR: 46
Reply 9, posted (8 years 9 months 3 weeks 3 days 7 hours ago) and read 9457 times:

Quoting TPAPDX (Reply 7):
Most airlines don't purchase new aircraft outright, rather, they lease or finance them via operating leases and/or financed purchase agreements thru a commercial lender or an entity like ILFC, GATX, etc. Airlines then simply make monthly payments on the aircraft - and that amount will depend on the value of the aircraft. It usually runs about 8-13% of the value per annum - depending on credit worthiness of the leasee/purchaser, market demand for the aircraft type, who will be responsible for heavy maintenance, etc.

Indeed, one can say that on average a plane is paid off over a period of 10 years. It can be 8 it could be 12, but it will never be 5 or 15.

So airlines flying planes older than 10 years actually make good money doing so (despite their often higher fuel consumpion), since leasing rates go down considerably once the plane is paid for as the lease contract is then turned into a rent....


User currently offlineAlessandro From , joined Dec 1969, posts, RR:
Reply 10, posted (8 years 9 months 3 weeks 3 days 6 hours ago) and read 9420 times:

Well, you have to look upon the whole package, what are the employee costs, do the airline need to spend money on training, spare parts/technical crew can it be shared with other operators at the same airport if you have a long-thin line.

User currently offlineSvenvdM From Germany, joined Dec 2000, 209 posts, RR: 0
Reply 11, posted (8 years 9 months 3 weeks 3 days 6 hours ago) and read 9394 times:

A very interesting topic indeed! I remember an article from the Airline Monitor I read for my Aviation Management studies titled AIRCRAFT VALUES AND PRICES.

The complete text is at http://www.airlinecapital.com/aircraftvalues.pdf and is really insightful and worthwhile reading.

Here´s a short excerpt:

Quote:
Putting it another way, the economic value of
airplanes was declining in terms of what that
airplane could earn in commercial service. For many
years this fact had no impact on the cost of that
equipment as its price continued to grow until in the
late 1990s it finally flattened out. The yield curve
says that the capital cost of an airline seat should be
somewhere around $200,000, or 35% below where it
actually is today. Putting that in terms that may be
easier to understand, it means a new 737-700 should
sell for $27 million and a new A-319 for $25
million! (Interestingly that A-319 price may be close
to what Easyjet actually paid when it placed its
recent order.) However, even at these prices it would
still take more than a year to produce revenue equal
to the cost so those aircraft may still be overpriced.
To see why look at operating earnings rather than
revenue. At a 5% operating margin, a reasonable
average for the airlines, it would take twenty years
to earn the airplane cost when annual revenue was
equal to that cost – but when two years of revenue
are required it would take forty years of operating
earnings to recover the cost.


User currently offlineElvis777 From United States of America, joined Aug 2005, 360 posts, RR: 3
Reply 12, posted (8 years 9 months 3 weeks 3 days 5 hours ago) and read 9309 times:

Hello SvenvdM,

Thanks for the pdf. Real neat stuff.

Peace

Elvis777



Leper,Unevolved, Misplaced and Unrepentant SportsFanatic and a ZOMBIE as well
Top Of Page
Forum Index

This topic is archived and can not be replied to any more.

Printer friendly format

Similar topics:More similar topics...
How Long Does It Take An Aircraft To Turn Around? posted Tue Aug 12 2003 23:43:54 by OverseasBHX
How Long Does It Take For A Plane To Get Repainted posted Wed Oct 25 2000 05:12:21 by Qantas777
How Long Does It Take To Build An Aircraft? posted Tue Nov 6 2001 10:35:46 by VS744
How Long Does It Take To Assemble An Aicraft? posted Sat Apr 22 2006 21:28:28 by Anthsaun
How Long Does It Take For An Airline To Change? posted Sat Jul 28 2001 11:19:45 by Naimas
How Long Does It Take To Replace A Busted Tyre? posted Mon Oct 30 2006 09:58:24 by Kwcarolma
How Long Does It Take Films To Get To Airlines? posted Thu Apr 7 2005 21:45:46 by Yanksn4
How Long Does It Take To... posted Wed Mar 10 2004 08:33:52 by JmhLUV2fly
How Long Does It Take To Get To ORD From Downtown? posted Mon Nov 17 2003 19:56:35 by MSPman
How Long Does It Take A Plane To Get This Dirty?! posted Thu Oct 11 2001 00:18:30 by Delta777-XXX