Sponsor Message:
Aviation Technical / Operations Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
Acquisition Cost On New Fuel Efficient Planes  
User currently offlinefly828 From United States of America, joined Aug 2012, 14 posts, RR: 0
Posted (2 years 3 weeks 4 days 7 hours ago) and read 3786 times:
Support Airliners.net - become a First Class Member!

I am always wondering, nowadays people measure operation cost largely by looking at the fuel cost on different planes, however, has anyone factor in the acquisition cost of a new plane will be almost double or even more than it was for a similar capable plane, airlines save the fuel cost a bit but the depreciation cost on new planes will be much much more.

let's say a 777 serves the similar route as MD-11, sure the triple seven will be more economical, but the depreciation cost on new 777 will be possibly doubling the depreciation cost on a well maintained MD-11.

Am I thinking wrong?

5 replies: All unread, jump to last
 
User currently offlineN202PA From United States of America, joined Jun 2000, 1562 posts, RR: 3
Reply 1, posted (2 years 3 weeks 4 days 6 hours ago) and read 3749 times:

Can't the airline write off the depreciation of the asset (the plane), thereby showing that much more revenue on the bottom line?

Also, with fuel prices trending higher over time, one would think that used jets with good fuel economy will be in high demand in the future. That's especially true if the worldwide recession continues and makes buying new jets in 5-10 years less desirable.


User currently offlineAirlineCritic From Finland, joined Mar 2009, 707 posts, RR: 1
Reply 2, posted (2 years 3 weeks 4 days 6 hours ago) and read 3732 times:

It is a complex formula, you also have to factor in maintenance cost which tend to go up as planes grow older. And acquisition is far more than buying the plane, you'll also have to train crews, acquire simulators and maybe new personnel, etc.

But as a general rule, a.net is overly focused on fuel consumption performance. Real-world observations of airlines support the theory that fuel cost alone does not dictate loss/profit. The biggest factor for doing good business seems to be the right strategy and right geographical position, and proper management. Heck, you can even make money flying A-340s! 


User currently offlinefly828 From United States of America, joined Aug 2012, 14 posts, RR: 0
Reply 3, posted (2 years 3 weeks 4 days 6 hours ago) and read 3671 times:
Support Airliners.net - become a First Class Member!

"But as a general rule, a.net is overly focused on fuel consumption performance. Real-world observations of airlines support the theory that fuel cost alone does not dictate loss/profit."

I remember the days early 90s when a 737-300 was around 32-35 million, and a latest 737N is almost triple that price. if you are financing to get a jet, true, maybe 20% more capable or fuel efficient, however the interest cost is going to play a much bigger role to offset or even eat up the gain, doesn't matter if you buy it or lease it, somebody has to pay.

Look at those 787s and 763ER, I am afraid the maths is about the same; the other thing is chasing the latest models adds more fuel to allow airplane makers set the price for newer models virtually without any cap, the whole industry has sometimes redicus pricing power to mark up the value of its product, everyone contributes to inflate the price tag under the name of pursuaing better fuel economy.

With that being said, at the same time, service quality of airlines are dropping significantly worldwide, the industry standard is coming down cross the board, the cabin is getting more crowded, baggage is no longer reasonably free any more, food quality is getting cheaper and cheaper, and ....

are many of these pointed to the much higher cost of acquiring new planes?


User currently offlineFlighty From United States of America, joined Apr 2007, 8535 posts, RR: 2
Reply 4, posted (2 years 3 weeks 1 day 11 hours ago) and read 3412 times:

Quoting fly828 (Thread starter):

I am always wondering, nowadays people measure operation cost largely by looking at the fuel cost on different planes, however, has anyone factor in the acquisition cost of a new plane will be almost double or even more than it was for a similar capable plane, airlines save the fuel cost a bit but the depreciation cost on new planes will be much much more.

let's say a 777 serves the similar route as MD-11, sure the triple seven will be more economical, but the depreciation cost on new 777 will be possibly doubling the depreciation cost on a well maintained MD-11.

Am I thinking wrong?

An A320 flies maybe 11 hours a day and burns 900 gal per hour. So that's 10,000 gal per day, or 3.65 million gallons per year. That's over $10 million per year. Over 20 years, that's approx $200 million per A320, give or take. For a 777 the same figure is more like $500-600 million in lifetime fuel commitment.

Maintenance on a brand new A320 is going to be less than a 737 classic, because fewer skin repairs are necessary and a million other reasons.

New aircraft, once teething problems are out, are more dispatch reliable than old aircraft (generally) -- allowing you to operate fewer of them.

By my calcs, new aircraft are actually cheaper to operate than classic aircraft. The problem is, airlines in difficulty do not have access to capital to be able to enjoy these benefits. Therefore there is an advantage to being like SQ or WN with strong financial backing -- it allows you to acquire new aircraft and lower your overall costs. Not every new aircraft is cheaper to operate (and own), but it is a generality. It can be offset by things like DL using the D95 as a peak capacity weapon. Zero lease payment allows them to park it during the off season, which changes the equation, just as it does for electric power.


User currently offlineRoseflyer From United States of America, joined Feb 2004, 9637 posts, RR: 52
Reply 5, posted (2 years 3 weeks 1 day 9 hours ago) and read 3394 times:

Quoting AirlineCritic (Reply 2):
But as a general rule, a.net is overly focused on fuel consumption performance

I could not agree more. A.net is fascinated with fuel burn, so there are many threads about it.

Airlines purchase airplanes factoring in total ownership and operating costs. There are many factors involved that A.net completely ignores since if you read threads, you'd think all orders are based on fuel burn, CEO opinion on A vs B, and deep discounts "airplane sold at a loss".

In reality it is quite a complex process. The calculations involved in making a decision involve many factors.

Fuel burn is very important, but it is only part of a weighted decision process. Also, you can't say the A320 is 5% more efficient than the 738 and base any calculations on that. Trip vs per seat fuel burn numbers are important. A 10 seat capacity difference makes the a big impact. So while one might have better trip costs, one has better per seat costs, which is what the airline is usually looking at more closely (but not always). The operating environment also matters. Short trips vs long makes a big difference. You also have to include takeoff performance in because an airplane can have great MTOW fuel burn numbers, but they are meaningless if an airplane is operating 500 mile hops or if their main hub only has a 7,000ft runway and is TOW limited. There's no one airplane is more efficient than the other argument. It depends on the specific operating environment and conditions of the airline.

Acquisition cost is also important, but it also goes beyond purchase price. What are leasing rates? What is the depreciation? Leasing companies are only interested in the most popular models. Part of the reason why new airlines aren't ordering the 73G or A318 or A319 is that leasing companies don't like them because they are more of niche players and are harder to resell. Leasing companies charge extra for airplanes that are hard to sell, which is why Boeing capital had to finance most 717s since the leasing companies avoided them.

Maintenance is an important factor since it is about 8% of the operating cost of the airplane. Scheduled and unscheduled is important. Both Boeing and Airbus roll up the total scheduled maintenance costs over the lifetime of an airplane (depends on customer & operating environment). The difference between a 737 and A320 is about 10%. They also look at historical dispatch reliability numbers as each percentage point of airplane out of service and delays & cancellations has a negative impact on cost.

Crew training, maintenance support, and other add on features can also make or break a deal.


So in the end it is a weighted score of many factors. Whenever I see threads talking about fuel burn, deep discounts or CEO opinion, I cringe since I know I am reading opinions which are often uneducated.



If you have never designed an airplane part before, let the real designers do the work!
Top Of Page
Forum Index

Reply To This Topic Acquisition Cost On New Fuel Efficient Planes
Username:
No username? Sign up now!
Password: 


Forgot Password? Be reminded.
Remember me on this computer (uses cookies)
  • Tech/Ops related posts only!
  • Not Tech/Ops related? Use the other forums
  • No adverts of any kind. This includes web pages.
  • No hostile language or criticizing of others.
  • Do not post copyright protected material.
  • Use relevant and describing topics.
  • Check if your post already been discussed.
  • Check your spelling!
  • DETAILED RULES
Add Images Add SmiliesPosting Help

Please check your spelling (press "Check Spelling" above)


Similar topics:More similar topics...
OEM's And Weight Guarantee's On New Aircraft posted Mon May 7 2012 08:08:28 by CaptainKramer
Ovens On New Narrow Bodied Jets posted Thu Sep 1 2011 19:40:01 by bristolflyer
Checks performed on new aircraft? posted Thu May 12 2011 15:37:35 by lke2fly
Question On New York Approach Routes posted Thu Nov 11 2010 18:00:33 by Soxfan
AFT CoG: Why More Fuel Efficient? posted Mon Aug 17 2009 16:55:05 by JER757
Q400 Vs. A320/A321 - What's More Fuel Efficient? posted Sat Jul 25 2009 07:06:15 by YTZ
FAA Ruling On Center Fuel Tanks posted Thu Aug 14 2008 12:47:14 by B727LVR
Most Fuel Efficient Large Passenger Transport? posted Fri Jun 13 2008 13:28:20 by Africawings
Rules On Animals In GA Planes posted Wed May 14 2008 14:36:31 by QFA380
Why Only Tails Painted On New Aircraft? posted Thu Jan 24 2008 12:56:19 by Deaphen

Sponsor Message:
Printer friendly format