pdxtriple7
Posts: 641
Joined: Mon Dec 27, 2004 6:27 am

How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 3:47 am

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.
 
dutchjet
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Joined: Sat Oct 14, 2000 6:13 am

RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 3:56 am

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.
 
hawaijahaz
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Joined: Sat Oct 09, 2004 3:48 am

RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 4:03 am

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
 
B7878
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Joined: Mon Oct 31, 2005 5:24 am

RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 4:03 am

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.
 
pdxtriple7
Posts: 641
Joined: Mon Dec 27, 2004 6:27 am

RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 4:07 am

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.
 
pdxtriple7
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RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 4:10 am

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.
 
dutchjet
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RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 4:15 am

Apologies, I clearly misread the post.
 
TPAPDX
Posts: 60
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RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 4:58 am

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.
 
ikramerica
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Joined: Mon May 23, 2005 9:33 am

RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 5:07 am

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.
 
sabenapilot
Posts: 2442
Joined: Sat Feb 26, 2000 6:18 pm

RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 5:15 am

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....
 
Alessandro
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RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 5:39 am

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.
From New Yorqatar to Califarbia...
 
svenvdm
Posts: 199
Joined: Fri Dec 29, 2000 1:23 am

RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 5:51 am

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.
 
elvis777
Posts: 346
Joined: Sat Aug 20, 2005 9:23 am

RE: How Long Does It Take An Aircraft To Turn A Profit

Mon Dec 05, 2005 7:05 am

Hello SvenvdM,

Thanks for the pdf. Real neat stuff.

Peace

Elvis777
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