OldAeroGuy
Topic Author
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### A380 Operating Cost Per Pax Relative To The 773ER

The A.Net conventional wisdom for this relationship is about a 22% advantage for the A380, as reflected in articles like this one:

http://www.emg.rs/en/emplus/130585.html

The A380 advantage, as analyzed by Airbus, is stated to be when both airplanes are configured to the same comfort standard. This would seem to mean that the SQ configurations for these two airplanes, seating 471 and 278 respectively, would be a good example of a common comfort standard.

However, this article also says the A380 has a 12% fuel burn per passenger advantage over the 773ER. Using this fuel burn relationship, the operating cost advantage as stated seems a bit high.

From some work I once did for the 773ER, I believe it's operating costs and their approximate relative weights are as follows:

Fuel 60%
Flight Crew 12%
Cabin Crew 11%
Airframe Maint 5%
Engine Maint 3%
Landing Fee 4%
Control & Comm 3%
Ground Handling 2%
Total 100%

If the 773ER is 22% higher in operating costs per pax, then the summation of these costs for the A380 would need to be 82%. (0.82*1.22 = 1.0).

Using the 12% higher 7773ER fuel burn stated in the article, the fuel burn portion would drop to 53.6% (60/1.12 = 53.6).

With the revised fuel, the remainder of the costs must sum to 28.4% to support 82% lower costs (82% - 53.6% = 28.4%).

Flight Crew: 12% * (278/471) = 7.1% (assumes no Flight Crew premium for operating larger airplane)

Cabin Crew: 11% (unchanged because equal service standard implies equal FA per pax)

Airframe Maint: 5% * (610/471) * (278/370) * 0.9 = 4.4% (Airframe Maint related to OEW, assumes A380 10% improvement)

Engine Maint: 3% * (4*70/471) * (278/(2*115.3)) = 2.1% (Engines at same tech level, power by the hour)

Landing Fee: 4% * (860/471) * (278/554) = 3.7% (Landing fee based on MLW)

Control & Comm 3% * (278/471) = 1.8%

Ground Handling 2% * (278/471) = 1.2% (Assumes no additional fee for A380 Code F wing span)

Total: 31.3% + 53.6% = 84.9%

So the 773ER would be about 18% more expensive per seat to operate than the A380 in the SQ configuration assuming it has a 12% higher fuel burn per seat.

There are plenty of "knobs" to turn that alter the results. For instance, assume that a portion of Flight Crew pay is related to airplane MTOW.

Flight Crew: 6% * (278/471) +( 6% * (278/471) * (1250/775)) = 9.3%

New Total: 33.5% + 53.6% = 87.1%

Under this assumption, the 773ER would be about 15% more expensive to operate per seat.

Of course all this is subject to interpretation, including my cost breakdown for the 773ER.

I'd be happy to see a link on this topic performed by an airline rather than an OEM. I can't seem to find one.

Airplane design is easy, the difficulty is getting them to fly - Barnes Wallis

Zkpilot
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Joined: Wed Mar 08, 2006 8:21 pm

### RE: A380 Operating Cost Per Pax Relative To The 773ER

Sounds pretty reasonable...

of course that all works out if the A380 is full or close to it... if it is only going out with 278 pax (or say 300) then the 773ER is going to kill it economically not to mention the extra hold space available on the 773ER for freight!
57 types. 38 countries. 24 airlines.

Arniepie
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

Doesn't the fact that the A380 simply has more seats put extra pressure on overall seatprice on the routes
this plane is used for?
I always was under the impression that price was determined by how long before people book their flight and as
the date nears, when there are still a fair amount of seats available, certainly with something as big as the 380, the
prices must go down quite substantially, no?

I clearly remember reading (on A net or PPrune) that especially on slot restricted airports ,like the ones the 380 is
meant for, it can be more beneficial to use planes that are booked out very quickly and long before the actual flight
takes place to guarantee a high yield/big profit.

Planes that are too small (under 50 seats) like we've seen the past 20-30 years used by commuter services seem to
be on their way out, save for markets that have no alternative like islands or very remote places.
Probably the same can be said for planes that are too big, they esentially undermine the overall profitability by adding
too much capacity, again with the exception of markets that have no real alternatives like the bussiest citypairs that
are constantly underserved, but how many airports really qualify for those parameters is the question.

Probably explains the lukewarm salesnumbers for anything bigger than the 77W.
[edit post]

zeke
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting OldAeroGuy (Thread starter): Comments and/or questions?

Airlines do not just pay operating costs, they also have to pay the cost of ownership.

An A380 costs around 375 million, the 77W around 300 million on lists prices. The A380 carries around 70% more passengers, however only costs 25% more to purchase.

Good topic for someone who is retired and no longer has their pulse on what is happening in the real world. Cost of ownership of assets is covered in most if not all airlines annual reports.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News

WingedMigrator
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting zeke (Reply 3):Airlines do not just pay operating costs, they also have to pay the cost of ownership

Depreciation is very much an operating cost. It didn't show up on OldAeroGuy's list.

redflyer
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting zeke (Reply 3):An A380 costs around 375 million, the 77W around 300 million on lists prices. The A380 carries around 70% more passengers, however only costs 25% more to purchase.

An interesting observation. However, I'm curious: given that the 77W is in far more demand, which would also indicate that its resale value would also be far more higher (as would the fact that a delivery date on the production line is farther out) than an A380's, wouldn't that mean that an A380's discounted price as compared to a 77W mean that on a per-seat basis its sale price would be comparable from the standpoint of depreciation?
My other home is in the sky inside my Piper Cherokee 180.

zeke
Posts: 11202
Joined: Thu Dec 14, 2006 1:42 pm

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting redflyer (Reply 5): An interesting observation. However, I'm curious: given that the 77W is in far more demand, which would also indicate that its resale value would also be far more higher (as would the fact that a delivery date on the production line is farther out) than an A380's, wouldn't that mean that an A380's discounted price as compared to a 77W mean that on a per-seat basis its sale price would be comparable from the standpoint of depreciation?

I will try and convert that question into English.

Depreciation is not based upon resale value, it is based upon purchase price. Depreciation schedules are country specific depending on local tax laws. Some airlines claim that other airlines have an unfair advantage as they do not receive the same depreciation schedule under their local tax laws.

Today’s demand for a 77W has little effect on what the resale value will be in 10 years, it is the demand in 8-12 years that will dive that figure.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News

rwessel
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting zeke (Reply 6):Depreciation is not based upon resale value, it is based upon purchase price. Depreciation schedules are country specific depending on local tax laws. Some airlines claim that other airlines have an unfair advantage as they do not receive the same depreciation schedule under their local tax laws. Today’s demand for a 77W has little effect on what the resale value will be in 10 years, it is the demand in 8-12 years that will dive that figure.

No, no, no.

You are correct in terms of *tax* accounting, which arguably isn't real accounting at all. If your (public*) airline tried to present its books on a tax basis, it would be laughed off Wall Street (and delisted by the NYSE for not following proper accounting standards, and probably smacked around by the SEC).

It terms of the actual bottom line for a corporation, depreciation is the actual decline in value of an asset. It has nothing to do with tax depreciation schedules (which impact how much tax you have to pay, and when). Ideally, a proper estimate of the value of each asset would be made annually, using data from a highly liquid market in that asset. In practice, most markets for industrial assets are anything but liquid, and all sorts of estimates are made, and there are a number of standard schedules for generating those estimates. But you'll need to include a footnote if you stray too far from those (IOW, you had better justify an unusually fast or slow depreciation schedule for an asset). Also a predetermined schedule allows some predictability as asset values are often volatile (again, just to the very ill-liquid markets). But in an ideal world, if you bought a 777 ten years ago for \$300m, and you could sell it today for \$200m, the accumulated depreciation for that asset *should* be \$100m.

*If it’s privately held, they can do their books any way they like, but will still have to do the tax books per your local taxing agencies’ rules

zeke
Posts: 11202
Joined: Thu Dec 14, 2006 1:42 pm

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting rwessel (Reply 7):No, no, no.

Its is very much dependant on where the aircraft are registered, and what tax rules they fall under. Depreciation is cost allocation, it is not a measure of the assets market value at any period of time. In this article you can see that SQ depreciates their aircraft over 3 years, whilst QF does it over 10.

http://www.routesonline.com/news/24/...or-aircraft-depreciation-overhaul/

More recently QF changed their formula to a straight line depreciation schedule over a longer period

"From 1 January 2010, all passenger aircraft will be depreciated to a residual value of 10 per cent at 20 years, compared to the previous policy of 12.5 or 20 per cent at 20 years, depending on aircraft type."

http://www.qantas.com.au/infodetail/...t/investors/2009HYMediaRelease.pdf

This is almost identical to the CX does it, aircraft are depreciated over 15 to 20 years to residual value of between 10% to 20% of cost. EK does similar, however over 15 years.

The methods of depreciation that are used in industry include straight line, progressive, and regressive, double declining, sum of years, and in the USA MACRS. Some operators depreciate their airframes based upon cycles and hours as well.

The US is somewhat unique in that companies often have two sets of books, one for tax purposes where the use MACRS (which is a form of accelerated depreciation), and another for the public where a straight line depreciation is often used.

 Quoting rwessel (Reply 7):But in an ideal world, if you bought a 777 ten years ago for \$300m, and you could sell it today for \$200m, the accumulated depreciation for that asset *should* be \$100m.

So in your world, inflation does not exist. Depreciation is about allocating costs, nothing to do with the market value of the asset.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News

Stitch
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting redflyer (Reply 5):I'm curious: given that the 77W is in far more demand, which would also indicate that its resale value would also be far more higher (as would the fact that a delivery date on the production line is farther out) than an A380's...

The 777-300ER and A380-800 both enjoy the highest average values of any (Western) commercial airliner in service today. Even during the darkest days of the GFC, when aircraft values were hit hardest, both models held their values very well.

redflyer
Posts: 3886
Joined: Thu Feb 24, 2005 3:30 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting zeke (Reply 6):I will try and convert that question into English. Depreciation is not based upon resale value, it is based upon purchase price.

So what you're saying is that I could depreciate an asset so that it's residual value is less than market value?

And thanks for the English lesson...I'll be sure to water-down my prose in the future so that even a simpleton forum member will understand it.

 Quoting Stitch (Reply 9):The 777-300ER and A380-800 both enjoy the highest average values of any (Western) commercial airliner in service today.

Given that they are the newest, most modern, and most efficient commercial planes flying I'm sure that their values would be the highest compared to other aircraft. But this issue is about how they compare with one another with regards to those values.
My other home is in the sky inside my Piper Cherokee 180.

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### RE: A380 Operating Cost Per Pax Relative To The 773ER

Give the 380 a few years till some of them start to be resold. The tax schedule might not match up to the real world very well. There are some interesting ways to account for maintanence costs that can make comparisons a little iffy too.

 Quoting redflyer (Reply 10):And thanks for the English lesson...I'll be sure to water-down my prose in the future so that even a simpleton forum member will understand it.

Not that I'm likley to go see Brokeback Mountain with Zeke anytime soon, but he was right. Your "prose" was just plain garbled english.

[Edited 2011-11-29 09:39:59]
Anon

redflyer
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting nomadd22 (Reply 11):Not that I'm likley to go see Brokeback Mountain with Zeke anytime soon, but he was right. Your "prose" was just plain garbled english.

Be careful when throwing stones while living in a glass house, especially when using words such as "likley" (I won't remind you that "english" should have an uppercase "E").
My other home is in the sky inside my Piper Cherokee 180.

zeke
Posts: 11202
Joined: Thu Dec 14, 2006 1:42 pm

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting redflyer (Reply 10): So what you're saying is that I could depreciate an asset so that it's residual value is less than market value?

Assuming you had a small business and needed an aircraft for 100% business use, you could purchase yourself a new light aircraft like a SR22 and under the current tax rules you could depreciate 100% of that aircraft this year. That is assuming Section 179 expensing which would allow your businesses to expense up to \$500,000 in capital improvements for the 2011 tax year.

see http://cirrusaircraft.com/static/img...axprogram/tax_promo_whitepaper.pdf

Diamond have a similar page with their “Depreciation Calculator”

Under MACRS, business users would normally depreciate their aircraft over a 5 year period. http://www.gkglaw.com/publications/DepreciatingAircraft.pdf

In both cases, the accelerated depreciation schedule exceeds the rate at which the aircraft market value would normally reduce.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News

PolymerPlane
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Joined: Thu May 11, 2006 1:12 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting redflyer (Reply 10):So what you're saying is that I could depreciate an asset so that it's residual value is less than market value?

Yes. When you sell the asset, you'll have gain or loss from sale of asset, and it will be taxed accordingly.

That's how a lot of housing rental companies can make their money, by depreciating their assets, eventhough their actual values are appreciating (at least before the housing meltdown).
One day there will be 100% polymer plane

redflyer
Posts: 3886
Joined: Thu Feb 24, 2005 3:30 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting zeke (Reply 13):
 Quoting PolymerPlane (Reply 14):

Thanks for the tax advice, guys! I had no idea coming to an aviation forum I could get top-notch info on airplanes AND accounting practices, and all from the same expert sources! Who would've imagined???
My other home is in the sky inside my Piper Cherokee 180.

MoltenRock
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting redflyer (Reply 5):An interesting observation. However, I'm curious: given that the 77W is in far more demand, which would also indicate that its resale value would also be far more higher (as would the fact that a delivery date on the production line is farther out) than an A380's, wouldn't that mean that an A380's discounted price as compared to a 77W mean that on a per-seat basis its sale price would be comparable from the standpoint of depreciation?

Huh? What the hell are you going on about? You obviously don't understand depreciation and tax law. For instance, Infiniti (autos) sell far fewer units in the USA than Chevy or Ford, yet Infiniti resale values are some of the highest in the industry, thus their residual values are much higher than the other two are. Depreciation has NOTHING to do with "sales volume", and if anything, is inversely proportionate to the overall volume of units being output, thus invalidating your anti-A380 bias.

Depreciation for tax purposes is a fixed schedule regardless if an asset is actually worth more or less over that fixed timeframe. Why do you find that so hard to understand?

cmf
Posts: 3120
Joined: Sun Jun 12, 2011 11:22 pm

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting zeke (Reply 6): Depreciation schedules are country specific depending on local tax laws.

Often the rules give companies a lot of flex. LH do new planes at 12 years and Air Berlin at 10 for example.

 Quoting zeke (Reply 8):SQ depreciates their aircraft over 3 years, whilst QF does it over 10.

SQ is 15 years for new airplanes. I think QF is 20 for new.

 Quoting redflyer (Reply 10):So what you're saying is that I could depreciate an asset so that it's residual value is less than market value?

Happens all the time. Depreciation is actually just a way of spreading the cost of purchase over many years instead of taking the full charge at time of purchase and thus making the result of that year look really bad.

A lot of companies have extended depreciation to "fool" shareholder in to thinking the result are better than it would under rules used at earlier times.
Don’t repeat earlier generations mistakes. Learn history for a better future.

OldAeroGuy
Topic Author
Posts: 3304
Joined: Sun Dec 05, 2004 6:50 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting zeke (Reply 3):Good topic for someone who is retired and no longer has their pulse on what is happening in the real world.
 Quoting zeke (Reply 3):An A380 costs around 375 million, the 77W around 300 million on lists prices. The A380 carries around 70% more passengers, however only costs 25% more to purchase.

My understanding of the real world is still firm enough to know that airliner list prices have little to do with what airlines actually pay for them or their value on the open market.

 Quoting WingedMigrator (Reply 4):Depreciation is very much an operating cost. It didn't show up on OldAeroGuy's list.

The 12 posts below yours (and Zeke's) show why I didn't include Depreciation in my cash operating cost comparison analysis. There are far too many variables and assumptions when trying to account for Depreciation. Besides, Depreciation has little to do with the cash required for day-to-day airliner operation.

After all, flights aren't delayed because someone couldn't pay the Depreciation bill.

Still looking for a link to an airline created operating cost comparison between the A380 and t.he 777-300ER
Airplane design is easy, the difficulty is getting them to fly - Barnes Wallis

rwessel
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Joined: Tue Jan 16, 2007 3:47 pm

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting zeke (Reply 8):Its is very much dependant on where the aircraft are registered, and what tax rules they fall under. Depreciation is cost allocation, it is not a measure of the assets market value at any period of time. In this article you can see that SQ depreciates their aircraft over 3 years, whilst QF does it over 10.

There are fundamental difference between “real” accounting and tax accounting. Real accounting is about presenting an accurate picture of the company. Tax accounting is about paying the tax man, according to whatever (often absurd) rules the tax man has set.

Quoting from my “Fundamental Accounting Principles” (Irwin):

“Since plant assets* are purchased for use, you may think of a plant asset as a quantity of usefulness that will contribute to the operations of the business throughout the service life of the asset. However, since the life of any plant asset* (other than land) is limited, this quantity of usefulness expires as the asset is used. This expiration of a plant asset’s quantity of usefulness is generally described as depreciation; and in accounting** the term is used to describe the process of allocating and charging the costs of this usefulness to the accounting periods that will benefit from the asset’s use.”

“The service life of a plant asset is the length of time it will be used in the operation of the business. This may not be the same as the asset’s potential life. For example, although typewriters*** have a potential life of six to eight years, a company may plan to trade in its old typewriters on new ones every three years. In this case, the typewriters have a three year service life. Furthermore, in this company, the cost of the typewriters, less their expected trade-in value, should be charged to depreciation expense over this three year period.”

If you prefer the actual prose from the accounting standards (OK, from the same text book, so a bit dated, but they haven’t changed materially for this):

“…This procedure is known as depreciation accounting, a system of accounting that aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit”

(Apologies for any typos in the above).

*aka fixed assets or capital assets

*and here we’re talking actual GAAP-style accounting, *not* tax “accounting”

***yeah, yeah, yeah - the textbook is old enough that they’re discussing the value of a typewriter - showing my age

The real point of accounting is to understand the entity in question. Owning a 10 year old 777-300ER adds \$200m**** to your bottom line in any sane accounting. If you bought that 777 for \$300m, and are planning on selling it tomorrow, done correctly, you would have spread \$100m of depreciation over the past ten years. If the 777 didn’t depreciate at all (IOW, you could sell it for \$300m), you could not claim *any* depreciation. And yes, inflation adds some interesting wrinkles to the process.

Exactly how you allocate the depreciation over the service life is a very interesting question – probably the most common method is straight-line (which has the major advantage of simplicity), but many other schemes exist. For example, if an asset is used irregularly “units of production” is often used to allocation the consumption of the useful life of the asset to the actual use (let’s say an airplane***** is good for 10,000 cycles, if you fly it 1000 cycles this year, and 500 cycles next, you’d depreciate 10% of the cost – less salvage - of the aircraft this year, and 5% next). Various accelerated schedules are used, but care must be taken to not generate an incorrect assessment of the business.

And depreciation is fundamentally scheduled over the expected service life – if an airline is expecting to sell their airplanes after five years, they would allocate the cost, less salvage, to depreciation over those five years. If they were planning on keeping the aircraft 20 years, they’d do it over 20 (presumable with a rather different salvage value). While the expected service life can be fudged somewhat (it is, after all, something of a judgment call, especially for very long lived assets), there are basically no cases where you can, for GAAP-type purposes, depreciate a 20 year asset over three years, or vice versa.

And this has *nothing* to do with tax depreciation (except, of course, indirectly, that tax is an expense). MACRS in particular presents a distorted picture of a companies assets (first it disregards salvage value, then the schedules are extremely rigid – the under 20 year schedules are all declining balance switching to straight line, while the longer ones are all straight line, and are all typically substantially faster than the real life of the asset). Worse, if an asset *does* have salvage value, you record that as income for tax purposes when you actually sell it, which is absurd from a real accounting perspective, since the company just got money for something that was supposed to have no value. IOW, would you a value a company that owns a fully (tax) depreciated airplane that has a market value of \$100m more than an otherwise identical company that didn’t? Of course you would (but the tax man basically doesn’t).

****made up valuation of a 10 year old 777-300ER for purposes of discussion

*****just an example, I really don’t know what depreciation scheme most airlines use for airliners, or even if they’re particularly consistent

cmf
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting rwessel (Reply 19):I really don’t know what depreciation scheme most airlines use for airliners, or even if they’re particularly consistent

Most are straight. IIRC LH and QF didn't for a couple of years but changed back.
Don’t repeat earlier generations mistakes. Learn history for a better future.

zeke
Posts: 11202
Joined: Thu Dec 14, 2006 1:42 pm

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting OldAeroGuy (Reply 18): My understanding of the real world is still firm enough to know that airliner list prices have little to do with what airlines actually pay for them or their value on the open market.

That is correct, as a lot of airline never actually buy aircraft. However there are a number of aircraft finance trade journals available to those in the industry that show a strong correlation between list price minus standard industry discounts. The sort of discounts made available to large 77W operators is similar to what is extended to large A380 operators, neither pays full list price, however the ratios are still a valid comparison for this discussion.

 Quoting OldAeroGuy (Reply 18): The 12 posts below yours (and Zeke's) show why I didn't include Depreciation in my cash operating cost comparison analysis. There are far too many variables and assumptions when trying to account for Depreciation. Besides, Depreciation has little to do with the cash required for day-to-day airliner operation.

The standard ATA method used for comparing direct operating costs between different airframes does include depreciation,

Depreciation (Total Aircraft Including Spares)
Cam = (Ct + 0.10 (Ct – Ne Ce) + 0.40 Ne Ce ) / (Da U Vb)

Where:
Ct = Total airplane cost including engines (dollars)
Ce = Cost of one engine (dollars)
Ne = Number of engines
Da = Depreciation period (years)
U = Annual utilization - block hours/year
Vb = Block speed

I am not sure what you are trying to prove here, everyone understands that a larger aircraft has a higher direct operating cost than a smaller one. And the larger aircraft normally has a lower per seat operating cost due to the economies of scale.

 Quoting OldAeroGuy (Reply 18):After all, flights aren't delayed because someone couldn't pay the Depreciation bill.

They can be, depreciation process of allocating the cost of airframe. If an airline does not allocate costs correctly, they may not be extended credit. An airframe sitting on the ground still costs an airline money, that is why parking airframes is not “free”, or long periods of downtime for maintenance is not “free”.

 Quoting rwessel (Reply 19):Real accounting is about presenting an accurate picture of the company. Tax accounting is about paying the tax man, according to whatever (often absurd) rules the tax man has set.

The two are not disconnected, you need to account for the cost of the asset to the tax man and to the shareholder. This came up recently when QF said its long haul international operations were a loss making venture, despite producing a profit. While the operations were profitable, the allocation of high value assets, and the amount of return they were getting from those assets was below what they could have received by putting an equivalent amount of cash in the bank. One of the major reasons for this is the taxation treatment of its costs, which is less competitive in Australia than countries in the middle and say Singapore.

 Quoting rwessel (Reply 19): “…This procedure is known as depreciation accounting, a system of accounting that aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit”

I agree with that, however that has nothing to do with market value, it is using a book value. The tax man also works on book values, not market values.

 Quoting rwessel (Reply 19):Owning a 10 year old 777-300ER adds \$200m**** to your bottom line in any sane accounting. If you bought that 777 for \$300m, and are planning on selling it tomorrow, done correctly, you would have spread \$100m of depreciation over the past ten years.

Well not really, have a look at this for a detailed explanation http://faculty.cbpp.uaa.alaska.edu/a...t650/Depreciation%20at%20Delta.ppt

 Quoting rwessel (Reply 19): And yes, inflation adds some interesting wrinkles to the process.

Yes, 300 million 10 years ago is worth around 383 million today. The other wrinkle for non US\$ based airlines is the exchange rate variation over time.

 Quoting rwessel (Reply 19): Exactly how you allocate the depreciation over the service life is a very interesting question – probably the most common method is straight-line (which has the major advantage of simplicity), but many other schemes exist.

Actually it is normally a modified straight line, often with an overvaluation of the asset in the early years. This takes into account the high costs associated with operating an aircraft over a long period of time. If you have a low service life you may dodge some of the large mid life airframe, engine, and APU expenses. Power by the hour also adds complexity to the equation.

 Quoting rwessel (Reply 19): And this has *nothing* to do with tax depreciation (except, of course, indirectly, that tax is an expense).

Depreciation is also an expense.
Human rights lawyers are "ambulance chasers of the very worst kind.'" - Sky News

OldAeroGuy
Topic Author
Posts: 3304
Joined: Sun Dec 05, 2004 6:50 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting zeke (Reply 21):Quoting rwessel (Reply 19): Exactly how you allocate the depreciation over the service life is a very interesting question – probably the most common method is straight-line (which has the major advantage of simplicity), but many other schemes exist. Actually it is normally a modified straight line, often with an overvaluation of the asset in the early years. This takes into account the high costs associated with operating an aircraft over a long period of time.

But the standard ATA method is a straight line.

 Quoting zeke (Reply 21):The standard ATA method used for comparing direct operating costs between different airframes does include depreciation, Depreciation (Total Aircraft Including Spares) Cam = (Ct + 0.10 (Ct – Ne Ce) + 0.40 Ne Ce ) / (Da U Vb) Where: Ct = Total airplane cost including engines (dollars) Ce = Cost of one engine (dollars) Ne = Number of engines Da = Depreciation period (years) U = Annual utilization - block hours/year Vb = Block speed

You're suggesting yet another variation to Depreciation cost accounting.

If Airbus is using Depreciation in their A380 vs 773ER cost comparison, I wonder what method, write down period and airplane & engine values they are using.
Airplane design is easy, the difficulty is getting them to fly - Barnes Wallis

redflyer
Posts: 3886
Joined: Thu Feb 24, 2005 3:30 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting MoltenRock (Reply 16):You obviously don't understand depreciation and tax law.

Really?

 Quoting MoltenRock (Reply 16):Depreciation for tax purposes is a fixed schedule regardless if an asset is actually worth more or less over that fixed timeframe.

I know that. However, that schedule does in fact take into consideration the potential (estimated) residual value. And my original comment was in regards to Zeke's in Reply #6 --

 Quoting zeke (Reply 6):Depreciation is not based upon resale value, it is based upon purchase price.

-- that depreciation is based only on purchase price. That was only partially correct because residual (resale) values are a part of determining the schedule. If you have an asset that will hold a value after a period of time you can certainly depreciate it more, but then you will be ignoring any potential liabilities on the gain from the sale.

You obviously don't understand depreciation and tax law. And I would suggest certain members stick to giving advice in their areas of expertise, which I would assume for certain members is aviation. I don't pretend to be a professional commercial pilot and I would think a professional commercial pilot would not pretend to be a tax accountant.
My other home is in the sky inside my Piper Cherokee 180.

hal9213
Posts: 202
Joined: Mon May 04, 2009 6:03 pm

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting rwessel (Reply 7):But in an ideal world, if you bought a 777 ten years ago for \$300m, and you could sell it today for \$200m, the accumulated depreciation for that asset *should* be \$100m.
 Quoting zeke (Reply 8): EK does similar, however over 15 years.

To be precise, Emirates leases, so does not need to account for that. However, looking at the leasing groups, I can give you the following values:
Emirates 777-300ER A6-ECQ from mid 2009 has been bought for 163M USD and the prognosed sale value is:
Year 5: 109.620.000
Year 10: 89.750.000
Year 12: 81.930.000
Year 14: 72.290.000
Year 16: 66.520.000
Year 18: 62.710.000

Compared to Emirates A380 A6-EDW for mid 2012 will cost 234M USD and the value is prospected to be:
Year 5: 148.380.000
Year 10: 103.910.000
Year 12: 89.010.000
Year 15: 69.650.000

So YES, the prospected residual value of a 777-300ER is MUCH MUCH more than of an A380. In fact, after 15 years, they are basically worth nearly the same.
The figures can be found on the net if you google for DS Fonds, which is the leasing company. The figures are the prospected normal values, there are also "worst case" and "best case" scenario ranges.

Flighty
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting Arniepie (Reply 2):Doesn't the fact that the A380 simply has more seats put extra pressure on overall seatprice on the routes this plane is used for?

Yes. This is why knee-jerk comparisons between different size classes do not really mean much.

On revenue... The A380 fits all your 773ER passengers. In addition, it fits a bunch of _cheap_ passengers you rejected before from the 773. Or, it fits vacant chairs where the absent / nonexistent additional aspiring travelers can sit. What is the revenue gain from this... questionable and inconsistent.

On costs... CASM is one thing. Cost per _occupied_ seat mile is always going to be a bit more favorable to the 777, even tipping the balance, as the 777 has higher seat occupancy % than A380. The 777 always carries the first 300 pax. The pax counts from 300 to 480 might only fill on an extremely erratic basis -- perhaps as low as 20% of the time. Meanwhile, seat costs are incurred 100% of the time.

Big airplanes only make sense in very special situations. Much more commonly, you want the small jet.

OldAeroGuy
Topic Author
Posts: 3304
Joined: Sun Dec 05, 2004 6:50 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

Thanks to everyone for the good discussion and the additional information.

With the Depreciation data provided by hal9213, I'll try to include Depreciation in the operating costs. Bear with me since I'm not an accountant and it may take a couple of trys to get it right. I'm open to suggestions.

 Quoting hal9213 (Reply 24):Emirates 777-300ER A6-ECQ from mid 2009 has been bought for 163M USD and the prognosed sale value is: Year 5: 109.620.000 Year 10: 89.750.000 Year 12: 81.930.000 Year 14: 72.290.000 Year 16: 66.520.000 Year 18: 62.710.000 Compared to Emirates A380 A6-EDW for mid 2012 will cost 234M USD and the value is prospected to be: Year 5: 148.380.000 Year 10: 103.910.000 Year 12: 89.010.000 Year 15: 69.650.000

From these data, it appears the Depreciation charges over 15 years would be:

773ER: \$163M - \$69.4M = \$93.6M

A380: \$234M - \$69.7M = \$164.3M

If we assume each airplane flies 350 days per year for 15 years, the Depreciation daily charge would be:

773ER: \$93.6M / (350*15) = \$17.8K

A380: \$164.3M / (350*15) = \$31.3K

Now let's suppose the daily utilization of both aircraft was 16 hrs per day. This would roughly correspond to a 3000nm round trip and a 1500nm tag on trip. Using fuel in the \$3 per gal range and the relationships of the thread starter, the 7773ER daily Cash costs would be roughly:

773ER: 7500nm / (.03 nm/lb) = 250K lbs. / (6.7 lb/gal) = 37.3K gal * \$3/gal = \$111.9K / .60 = \$186.6K per trip

A380 Cash costs would be:

A380: \$186.6K * (471/278) * 84.9% = \$268.4K per trip

Adding Depreciation to the Cash costs:

773ER: \$186.6K + \$17.8K = \$204.4K

A380: \$268.4K + \$31.3K = \$299.7K

Daily Seat Costs:

773ER: \$204.4K / 278 = \$735 per seat

A380: \$299.7K / 471 = \$636 per seat

Using these data, the A380 would have a 15.6% per seat advantage.

 Quoting zeke (Reply 21):I am not sure what you are trying to prove here, everyone understands that a larger aircraft has a higher direct operating cost than a smaller one. And the larger aircraft normally has a lower per seat operating cost due to the economies of scale.

I'm trying to understand how Airbus arrives at the claim that the 773ER is 22% more expensive to operate on a per seat basis than the A380 when both are configured at the same comfort standard. So far, the available data do not appear to support that claim by a fairly wide margin of 6.4%. If other forum readers can bring additional information to the discussion, we can include it to see how it changes the answer.

I agree with other responders that there is risk in operating the larger airplane on a given route if there is not enough traffic to support it. This risk might be justified if there is sufficient operating cost per seat reduction to reward using the larger airplane.

[Edited 2011-12-04 07:41:26]
Airplane design is easy, the difficulty is getting them to fly - Barnes Wallis

redflyer
Posts: 3886
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting OldAeroGuy (Reply 26):Using these data, the A380 would have a 15.6% per seat advantage.

Frankly, we don't know what Airbus used to come up with its 22% cost advantage over the 77W. (I'll stand corrected if someone will show us the published data that Airbus used to come up with that figure.) There are so many variables, starting with the fact that depreciation schedules are highly subjective. Then there's also the fact that many airlines lease. And depending on whether the leases are operating or capital would determine if and how the depreciation is applied. (A lessor would certainly depreciate a capital asset, but then a lessor is not so much concerned about operating expenses since the lessee picks that up.)

In short, I think this discussion around depreciation is a red-herring. Perhaps Airbus did use it, but any airline that would make a real-world comparison would probably ignore Airbus' figures and use their own - which I think they would do anyway.

In the final analysis, I don't think depreciation plays into this figure because the article referenced in your original post states, "A key enabler for these figures is the A380’s step-change in cash operating costs, building on the fuel efficiency advantage mentioned above.[Emphasis added.]

Based on that statement, seems to me they are looking at the pure operating costs and not any accounting treatments.
My other home is in the sky inside my Piper Cherokee 180.

Stitch
Posts: 24402
Joined: Wed Jul 06, 2005 4:26 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting redflyer (Reply 27):Frankly, we don't know what Airbus used to come up with its 22% cost advantage over the 77W.

I believe it was data provided by SQ, who operate both models with similar cabin configurations - what Airbus refers to as "comfort standards".

Suites Class on the A380 is nicer than First on the 77W, but having sampled both, I can say F on the 77W is from a "comfort" standpoint comparable to R on the A388 and significantly better than F on SQ's 744s.

pu
Posts: 1364
Joined: Sat Dec 03, 2011 1:08 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting nomadd22 (Reply 11):Not that I'm likley to go see Brokeback Mountain with Zeke anytime soon

I'll send you a royalty everytime I use this phrase I like it so much. Thanks.

(Only, I might change it to, "Not that I'm likely to go to Brokeback Mountain with xxxxxx anytime soon.")

astuteman
Posts: 6582
Joined: Mon Jan 24, 2005 7:50 pm

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting OldAeroGuy (Thread starter):The A380 advantage, as analyzed by Airbus, is stated to be when both airplanes are configured to the same comfort standard. This would seem to mean that the SQ configurations for these two airplanes, seating 471 and 278 respectively, would be a good example of a common comfort standard.

SQ's replacement of 10x 773ER with 7x A380 to ZRH weekly would seem to be the perfect example.
When they did that, they described a 20% capacity increase coupled with a 3% reduction in operating cost - i.e. a 23% reduction in per-seat cost.
The number wasn't created by Airbus. It was created by SQ

 Quoting OldAeroGuy (Thread starter):I'd be happy to see a link on this topic performed by an airline rather than an OEM. I can't seem to find one.

I will dig one out when I've got more time

 Quoting Zkpilot (Reply 1):of course that all works out if the A380 is full or close to it... if it is only going out with 278 pax (or say 300) then the 773ER is going to kill it economically not to mention the extra hold space available on the 773ER for freight!

And if the 773ER is only going out with 60 pax, a Q400 might better serve.....

 Quoting Arniepie (Reply 2):Doesn't the fact that the A380 simply has more seats put extra pressure on overall seatprice on the routes this plane is used for?

Not necessarily. Replacing 12 x 773ER with 7 x A380 from Singapore to Zurich did not change the weekly seat count.

 Quoting redflyer (Reply 5):However, I'm curious: given that the 77W is in far more demand

Are you sure just how much you can judge the demand from sales, when supply is still constrained?
"Demand" measured by current sales means the market has completely turned its back on the 787.
Which of course it hasn't

 Quoting OldAeroGuy (Reply 18):Still looking for a link to an airline created operating cost comparison between the A380 and t.he 777-300ER

I will get you the link to SQ's comments later

 Quoting OldAeroGuy (Reply 26):I'm trying to understand how Airbus arrives at the claim that the 773ER is 22% more expensive to operate on a per seat basis than the A380 when both are configured at the same comfort standard

THEY didn't. SQ did

Rgds

astuteman
Posts: 6582
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting astuteman (Reply 30):I will dig one out when I've got more time

A holding response...

A380 21% More Economical P.seat Than 77W (by NA Jun 27 2009 in Civil Aviation)

Still doesn't give you a direct link, of course

Rgds

hal9213
Posts: 202
Joined: Mon May 04, 2009 6:03 pm

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting OldAeroGuy (Reply 26):With the Depreciation data provided by hal9213, I'll try to include Depreciation in the operating costs.

Cool, thanks for the calculations.
However, I must point out, that those depreciation values were from the leasing company. Emirates pays a static monthly rate (around 1.3 million per month for the 777) for 10 or 12 years, so accounting for the actual airline might look different.

 Quoting Stitch (Reply 28):Suites Class on the A380 is nicer than First on the 77W,

At EK, I would say the other way around. Since there are no overhead bins etc., the 77W has a huge ceiling and a "dome" feeling, helping against claustrophic feelings in a suite. And, the 77W is a hint wider than the A380 on the top floor.
Obivously, the aircraft-unrelated extras like shower and bar make the EK A380 more fun.

OldAeroGuy
Topic Author
Posts: 3304
Joined: Sun Dec 05, 2004 6:50 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting astuteman (Reply 30):Quoting OldAeroGuy (Reply 18):Still looking for a link to an airline created operating cost comparison between the A380 and t.he 777-300ER I will get you the link to SQ's comments later Quoting OldAeroGuy (Reply 26):I'm trying to understand how Airbus arrives at the claim that the 773ER is 22% more expensive to operate on a per seat basis than the A380 when both are configured at the same comfort standard THEY didn't. SQ did

I'll eagerly await a link that supports an Airline operating cost analysis between the two airplanes. The only ones I can find quote Airbus analyses of Airline data.
Airplane design is easy, the difficulty is getting them to fly - Barnes Wallis

OldAeroGuy
Topic Author
Posts: 3304
Joined: Sun Dec 05, 2004 6:50 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting OldAeroGuy (Reply 33):I'll eagerly await a link that supports an Airline operating cost analysis between the two airplanes. The only ones I can find quote Airbus analyses of Airline data.

Like this one.

http://www.theaustralian.com.au/busi...ccess/story-e6frg95x-1225714771859

Notice it quotes an Airbus analysis, not something that SQ said.

"Another Airbus calculation based on Singapore Airlines operations to Paris shows that replacing a 278-seat 77-300ER operating 10 flights a week with a 471-seat 380 operating daily flights, gives a 20 per cent increase in capacity with a 3 per cent fall in operating costs."
Airplane design is easy, the difficulty is getting them to fly - Barnes Wallis

redflyer
Posts: 3886
Joined: Thu Feb 24, 2005 3:30 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting astuteman (Reply 30):Are you sure just how much you can judge the demand from sales, when supply is still constrained? "Demand" measured by current sales means the market has completely turned its back on the 787. Which of course it hasn't

You bring up a valid point, and my initial thought is that, yes, you could. A lull in sales does not necessarily point to a drop in demand. One has to look at a longer period of time in an industry such as aviation. But, for the sake of argument, we could certainly conclude "demand" for the 777 far outstrips the A380 even based on your proposed analysis given that the 777 has had its best year in sales yet, and sales seem to be picking up speed over the past few years, while the A380's best year in sales was 10 years ago and sales have been at a relative trickle since (notwithstanding a single order from one airline in 2010 and that airline accounts for 40% of all A380 sales since its launch).
My other home is in the sky inside my Piper Cherokee 180.

Stitch
Posts: 24402
Joined: Wed Jul 06, 2005 4:26 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting OldAeroGuy (Reply 34):Notice it quotes an Airbus analysis, not something that SQ said.

But it's an analysis of actual SQ in-service data, not a computer model projection based on hypotheticals.

So consider it SQ saying it by proxy through Airbus.

OldAeroGuy
Topic Author
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting Stitch (Reply 36):But it's an analysis of actual SQ in-service data,

Is it? Or is it an Airbus prediction based on their cost model for SQ's operational choices?

I don't think we know without SQ actually saying so.

 Quoting Stitch (Reply 36):So consider it SQ saying it by proxy through Airbus.

I'd rather hear SQ say it rather than having it passed through the Airbus filter.
Airplane design is easy, the difficulty is getting them to fly - Barnes Wallis

flipdewaf
Posts: 1884
Joined: Thu Jul 20, 2006 6:28 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting cmf (Reply 17):SQ is 15 years for new airplanes. I think QF is 20 for new.

I'd heard that it was 14 for QF and 7 for SQ, just shows that what you hear isn't always true.

 Quoting Flighty (Reply 25):

I don't think that any A380's will be put on to routes where there os only 1 777 sized A/C currently on it.

For the sake of argument lets say that there is a SQ772 and a UA 772 scheduled on the same route at ~500 seats total ( I dont know the exact numbers) then SQ change the 772 for an A380 of ~450 seats then there is a seat increase on the route of ~40%. They are however, able to cut ticket prices to gain market share from UA. There may be a 20% increase in seats on the route and SQ may need to get an extra 30% on their flight to make it remain profitable but may be able to assume that half of that increase comes from poaching PAX from UA

 Quoting redflyer (Reply 35):and that airline accounts for 40% of all A380 sales since its launch).

Ah yes, the old assumption that dollars paid from dubai are worth less than the dollars paid from australia.

Fred

cmf
Posts: 3120
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting flipdewaf (Reply 38):I'd heard that it was 14 for QF and 7 for SQ, just shows that what you hear isn't always true.

Annual report is the bible
Don’t repeat earlier generations mistakes. Learn history for a better future.

redflyer
Posts: 3886
Joined: Thu Feb 24, 2005 3:30 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting flipdewaf (Reply 38):Quoting redflyer (Reply 35): and that airline accounts for 40% of all A380 sales since its launch). Ah yes, the old assumption that dollars paid from dubai are worth less than the dollars paid from australia.

Not sure what you're trying to imply. If it was intended as a one-up it failed miserably. The fact is, 40% of all A380's sold have been purchased by one airline. Doesn't matter where that airline is based, and I would make the same comment and draw the same conclusions had it been LH or SQ or even UA that purchased 40% of all A380's. The fact is that 40% of all A380's have been purchased by one airline and that, my friend, distorts the underlying market dynamics for the real demand for the A380.
My other home is in the sky inside my Piper Cherokee 180.

cmf
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting redflyer (Reply 40):The fact is that 40% of all A380's have been purchased by one airline and that, my friend, distorts the underlying market dynamics for the real demand for the A380.

You mean like the distortion from Lufthansa holding 55% of all 747-8i orders? Or Delta 55% of all 767-400ER orders. I don't think so.
Don’t repeat earlier generations mistakes. Learn history for a better future.

redflyer
Posts: 3886
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting cmf (Reply 41):You mean like the distortion from Lufthansa holding 55% of all 747-8i orders? Or Delta 55% of all 767-400ER orders.

You must think I'm a shill for Boeing and that I would have some excuse not to put your examples under the same analysis. Fact is, the examples you cite are indeed in the same boat as the A380. (And a good reason why the 764 is a dead-ender, and the 748i could be as well.)
My other home is in the sky inside my Piper Cherokee 180.

astuteman
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting OldAeroGuy (Reply 37):I'd rather hear SQ say it rather than having it passed through the Airbus filter.

Disbelieve all you want. The fact remains that these are the nearest to airline-based figures that we have

Unless you just want to pluck a shedload of figures out of the air based on nothing more than predjudice and declare them to be "more likely to be the truth"?

 Quoting redflyer (Reply 40):The fact is that 40% of all A380's have been purchased by one airline and that, my friend, distorts the underlying market dynamics for the real demand for the A380.

BS

The frames that EK have bought are an integral part of that market dynamic. Period.
They interract with the market around them. Period.
And if EK make shitloads of money flying them, then the market WAS there.
Period.

flipdewaf
Posts: 1884
Joined: Thu Jul 20, 2006 6:28 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting flipdewaf (Reply 38):I don't think that any A380's will be put on to routes where there os only 1 777 sized A/C currently on it. For the sake of argument lets say that there is a SQ772 and a UA 772 scheduled on the same route at ~500 seats total ( I dont know the exact numbers) then SQ change the 772 for an A380 of ~450 seats then there is a seat increase on the route of ~40%. They are however, able to cut ticket prices to gain market share from UA. There may be a 20% increase in seats on the route and SQ may need to get an extra 30% on their flight to make it remain profitable but may be able to assume that half of that increase comes from poaching PAX from UA

I did some quick analysis on this (don't know much about demand dynamics) but I stated that for every 4 pax gained from outside one was poached from the opposition that the cost per seat actually went up using a cheaper per seat plane

Fred

redflyer
Posts: 3886
Joined: Thu Feb 24, 2005 3:30 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting astuteman (Reply 43):The frames that EK have bought are an integral part of that market dynamic. Period. They interract with the market around them. Period.

Perhaps if 600 or more A380's had been ordered to date (over 10 years after it was launched and in line with Airbus' original projections) and EK held 40% of those orders then I'd say you had a valid point. But with a mere 243 ordered to date and EK holding 40% of those orders, it would appear that there is a very large elephant in a very small room.

 Quoting astuteman (Reply 43):And if EK make shitloads of money flying them, then the market WAS there. Period.

Correction: If EK makes shitloads of money flying them then the market WAS there - for EK.
My other home is in the sky inside my Piper Cherokee 180.

XaraB
Posts: 117
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting redflyer (Reply 45):Correction: If EK makes shitloads of money flying them then the market WAS there - for EK.

Markets aren't company specific. If EK makes money on their deployment of the A380 (all imaginable costs included), then the market for the A380 is definitely there, independent of which airline decided to use them. It can be argued, however, that EK have been much better positioned to EXPLOIT that market, but it is by no means locked to them.

It's the same way as some airlines are able to make money with A340s and 777s, while others are not on exactly the same routes. The market is equal to all, but the individual companies' overall cost and strategy structure is unique.
An open mind is not an empty one

OldAeroGuy
Topic Author
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting astuteman (Reply 43):Quoting OldAeroGuy (Reply 37):I'd rather hear SQ say it rather than having it passed through the Airbus filter. Disbelieve all you want. The fact remains that these are the nearest to airline-based figures that we have Unless you just want to pluck a shedload of figures out of the air based on nothing more than predjudice and declare them to be "more likely to be the truth"?

Quite the contrary. My thread opener post laid out a cash cost breakdown by cost category for the 773ER that I know to be based on fact. Using Airbus' own fuel burn per pax comparison between the A380 and 773ER, I then adjusted by cost category for the seat differences between the two airplanes n their SQ configurations. The A380 was given the benefit of the doubt in these adjustments by assuming that flight crew costs didn't change even though crews of larger airplanes typically earn more and that the larger size of the A380 would not entail higher ground charges. The result indicates that the 773ER would be 17.8% per seat more expensive to operate than the A380 for an SQ type configuration.

When a real world depreciation cost model is added to the cash cost model, the 773ER becomes 15.6% more expensive.

I fail to see where prejudice has been injected in this analysis. My main question is where the proposed cost models would need to change to achieve the Airbus quoted result of the 773ER being 22% more expensive. I'd be grateful for your comments.
Airplane design is easy, the difficulty is getting them to fly - Barnes Wallis

cmf
Posts: 3120
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### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting redflyer (Reply 42):You must think I'm a shill for Boeing and that I would have some excuse not to put your examples under the same analysis. Fact is, the examples you cite are indeed in the same boat as the A380. (And a good reason why the 764 is a dead-ender, and the 748i could be as well.)

I do not have enough experience in your posts to even consider the shill aspect. I just saw a very poor argument and hoped bringing up a couple of similar cases would highlight why having one customer holding a large percentage of orders isn't important.

Based on your comments the 737-800 where South West hold 1/3 is probably a better example as I do not think one customer with a large percentage of orders indicate a poor program.

From my perspective a delivery is a delivery. Doesn't matter if one customer gets 100 or 100 customers get 1 each, still 100 delivered. Risk management may dictate that one customer holding a large percentage of orders makes it dangerous but I think that is too simplified view. To judge risk you need to consider the customer too. So I judge the chances of Emirates taking all A380 (and 777) much more likely than American taking the 260 frames they ordered.

I do not think there is a problem with EK holding 40% of the A380 orders. If there is a problem then it is that the total order number isn't higher.
Don’t repeat earlier generations mistakes. Learn history for a better future.

redflyer
Posts: 3886
Joined: Thu Feb 24, 2005 3:30 am

### RE: A380 Operating Cost Per Pax Relative To The 773ER

 Quoting XaraB (Reply 46):Markets aren't company specific. If EK makes money on their deployment of the A380 (all imaginable costs included), then the market for the A380 is definitely there

When talking of markets, there are two parts to the analysis. The first part would be to determine if there is a market, and the second part would be to determine if that market is profitable. There is certainly a market where the A380 is concerned as evidenced by the 243 copies ordered thus far, so that would be a "yes" to the first part of the analysis. But then the key is part 2 of the analysis and whether that market is profitable for Airbus.

From an airline standpoint, I'm sure EK is thrilled to have access to the A380 and will turn a profit flying the planes. From an OEM standpoint, I doubt the same can be said for Airbus.

When Boeing's Sonic Cruiser was first being marketed AA said they would buy the first 3 years' worth of production. Did that make the Sonic Cruiser a potential market success? Looking back, we know where the Sonic Cruiser ended up.
My other home is in the sky inside my Piper Cherokee 180.

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Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos