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cba
Topic Author
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MD-80 Economics

Thu Sep 21, 2006 6:31 am

The older MD-80's are approaching 20+ years old. Several airlines, mainly DL and AA maintain very large fleets of these aircraft. Although both have ordered the 738, it seems that they plan to keep these MD-80's around for a while.

My question is, how do the economics of operating an MD-80 compare to those of a 73G or 738 (or even A319, A320 for that matter)? I'm not talking about those longer segments that the MD-80's can't do, such as transcons, but more like flights under 4 hours.
 
sk909
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RE: MD-80 Economics

Thu Sep 21, 2006 7:00 am

The economics are very difficult in such a matter. You have to look at the TCO (Total Cost of Ownership) and ROI (Return of Investment).

Most of the MD80's around are paid for. Especially AA and DL. They don't have to pay a monthly leasing fee or finansing fee. That means that the companies only have to pay for fuel, insurance, and maintenance. With the new aircrafts (737NG, 320) they have to finance them, and pay there monthly fee. On top of that there is an insurance, which is slightly higher. On top of that there is the insurance and fuel. Furthermore there is the whole reeducating the pilots, C/A, and maintenance staff.

So it is really a very diffuse equation. But eventually, the cost of maintance and fuel will surpasse the cost of financing the new jets.

I hope this answered some of your questions?  Smile
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worldtraveler
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RE: MD-80 Economics

Thu Sep 21, 2006 7:05 am

DL's MD80s are considerably younger than AA's and DL's are not necessarily paid for.

Fuel burn is about 20% less for the 738 when compared with the MD80 but the cost of ownership is a big difference.

I personally doubt if either DL or AA will move to replace their MD80 fleets until a new generation narrowbody aircraft is available. Even $2 a gallon jet fuel doesn't provide a compelling case for spending billions of dollars on new airplanes that will themselves be surpassed by new models with a 15-20% cost advantage. Since aircraft last 20 years or more, waiting 5-8 years is prudent.
 
sllevin
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RE: MD-80 Economics

Thu Sep 21, 2006 7:11 am

The other thing you have to factor in is that there's simply nowhere to dump the MD-80's right now. AA and DL combined represent over 400 MD-80's. Heck, DL's MD-80 fleet is larger than TK's entire operations! (by a few airplanes only, but still).

Once Stage IV is formalized and in place as a requirement, secondary operators will start looking for MD-80's as DC-9's and 737-200's cannot effectively be made Stage IV compliant (i.e., without significant payload hits).

Steve
 
sk909
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RE: MD-80 Economics

Thu Sep 21, 2006 7:17 am

Quoting WorldTraveler (Reply 2):
DL's MD80s are considerably younger than AA's and DL's are not necessarily paid for.

But they are also considerably "cheaper". They have been financed for a lower price, plus they are near the end of the financing period.

Quoting WorldTraveler (Reply 2):
Fuel burn is about 20% less for the 738 when compared with the MD80

This is considerable when on longer flights. But with short flights it is less of an issue. Mainly due to the reason that it is in cruise the highest difference occurs.
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cba
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RE: MD-80 Economics

Thu Sep 21, 2006 7:18 am

Both points make a lot of sense. When looking at airlines, such as CO, that have ordered considerably large 737NG fleets, they are adding these to augment or replace older 737's.

Before the 738, neither DL or AA were big 737 customers, and ordered the 738 to replace the aging 727. I'm very to happy to see that their MD-80's will be around for a while, as it is my favorite narrowbody in service today. The 3-2 configuration is great, granted you get on the 2 seats side. It is also a much queiter ride, IMO, unless you're in the back. Ahh I miss the days of MD aircraft.
 
sk909
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RE: MD-80 Economics

Thu Sep 21, 2006 7:20 am

Quoting Sllevin (Reply 3):
simply nowhere to dump the MD-80's right now

I didn't know. But nice info.
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worldtraveler
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RE: MD-80 Economics

Thu Sep 21, 2006 8:05 am

Quoting SK909 (Reply 4):
But they are also considerably "cheaper". They have been financed for a lower price, plus they are near the end of the financing period.

Yes, leases have come down considerably but we don't know how long the new leases have been signed for. But the financing period is probably moot because the MD80 fleets for AA and DL are likely to be narrowed through industry consolidation and placement of a competitive 100 seat airplane than through natural aging processes.
 
sk909
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RE: MD-80 Economics

Thu Sep 21, 2006 9:39 am

Quoting WorldTraveler (Reply 7):
But the financing period is probably moot because the MD80 fleets for AA and DL are likely to be narrowed through industry consolidation and placement of a competitive 100 seat airplane than through natural aging processes.

Yes probably. Yet it also complicates the TCO and eventually ROI of new airplanes.
No doubt that it times of high fuel prices, the new planes are cheaper to operate. And of course AA and DL will consolidate leaving many MD80 in the desert or with other airlines.

Quoting WorldTraveler (Reply 7):
competitive 100 seat airplan

I doubt that we will see that many 100 seat planes, as we predict. Looking at the marked, there is a tendency towards the 150 mark, and even larger. Though if one was long-sighted, the 100 seat would be a good, competitive choice.
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steeler83
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RE: MD-80 Economics

Thu Sep 21, 2006 9:44 am

hmmmm... google search on "md80" and "economics"

Result: nothing found...  Wink

Probably because the MD80 isn't very economical anymore???
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sk909
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RE: MD-80 Economics

Thu Sep 21, 2006 9:52 am

Quoting Steeler83 (Reply 9):
isn't very economical anymore???

No isolated it might not be that economical. But for a company having to replace 100 airplanes and spend 2 - 3 billion dollars, it might actually be economical.

But try google "Bush is intelligent" and you'll find nothing... Maybe that's because he is not intelligent? You figure it out.
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steeler83
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RE: MD-80 Economics

Thu Sep 21, 2006 9:55 am

Quoting SK909 (Reply 10):
No isolated it might not be that economical. But for a company having to replace 100 airplanes and spend 2 - 3 billion dollars, it might actually be economical.

True, do a complete cost-benefit analsyis of these options and find out which one will bring more profits... it was really supposed to be a [email protected]$$ post, but whatever...  Smile

Quoting SK909 (Reply 10):
But try google "Bush is intelligent" and you'll find nothing... Maybe that's because he is not intelligent? You figure it out.

now that one IS funny!  laughing 
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yyz717
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RE: MD-80 Economics

Thu Sep 21, 2006 10:07 am

AA is playing a dangerous game by not slowly replacing their M80 fleet already, regardless of the current operating cost/benefit of the M80.

The problem is that the 360 or so M80 fleet is aging and replacing it at the rate of 30/year (say 2.5 new aircraft/month) will still take 12+ years! So, if a decision is made tomorrow on an M80 replacement (with 30 new aircraft/year -- 738 say, or whatever), AA will still be operating the M80 until 2021 if the new ordered aircraft are delivered beginning in 2009! With a still sizable M80 fleet of 180 aircraft or so in 2015. Of course we know that AA is not planning any M80 order replacements so it looks clearly as though the M80 will remain in AA service (perhaps in small numbers) until well after 2020.

With such a large fleet, there is a strong argument for AA (and other large airlines) to be CONSTANTLY renewing their fleet (regardless of short-term financial issues) to ensure a steady capital outlay eeach year without unduly burdening the balance sheet in any 3-5 year period with massive capital expenditures.
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sk909
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RE: MD-80 Economics

Thu Sep 21, 2006 10:16 am

Quoting Steeler83 (Reply 11):
Quoting SK909 (Reply 10):
But try google "Bush is intelligent" and you'll find nothing... Maybe that's because he is not intelligent? You figure it out.

now that one IS funny! laughing

Though so to. Just had to come up with a [email protected] reply to your [email protected] post... Big grin

Quoting Yyz717 (Reply 12):
With such a large fleet, there is a strong argument for AA (and other large airlines) to be CONSTANTLY renewing their fleet (regardless of short-term financial issues) to ensure a steady capital outlay eeach year without unduly burdening the balance sheet in any 3-5 year period with massive capital expenditures.

We can only agree on that. The problem might have been that the airline for a lot of years have had some difficult periods. And the last 5 years have been really hard on the airline business... So I don't think it is just a thing they could do. But the thought is right.
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futurecaptain
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RE: MD-80 Economics

Thu Sep 21, 2006 10:40 am

Quoting Steeler83 (Reply 11):
do a complete cost-benefit analsyis of these options and find out which one will bring more profits...

Ok, now everyone realize this is just hypothetical using numbers from the internet.

Route: DFW-ORD 1290 km

737-800
Fuel Burn: 850 gal/hr
Speed: 836 km/hr
2 pilots: Pay taken from airlinepilotpay.com, from AA. Say a 5 year crew is flying this route.
Captain: $152/hr
Co-pilot: $94/hr
F/A (4) @ $25/hr
Fuel: say $3/gal
Leasing costs, insurance, and maintanance unknown

Time enroute: 1 hr 32 min (1.54 hrs)
Fuel: 1309 gal ($3927)
Crew: $532.84


MD-83
Fuel Burn: 1000 gal/hr
Speed: 815 km/hr
2 pilots: Pay taken from airlinepilotpay.com, from AA. Say a 5 year crew is flying this route.
Captain: $148/hr
Co-pilot: $92/hr
F/A (4) @ $25/hr
Fuel: say $3/gal
Leasing costs, insurance, and maintanance unknown

Time enroute: 1 hr 35 min (1.58 hrs)
Fuel: 1580 gal ($4740)
Crew: $537.20

So, simply looking at fuel and crew to operate a 738 DFW-ORD costs $4459.84. To operate an MD-83 on the same route costs $5277.20. Not a huge difference, but multiply it be 2X a day over the course of a year and you save nearly $600,000 by switching to a 738. (Or nearly $50,000 a month)

So, unless the extra 17 seats on the 738 really generate alot of revenue, first class seats, in my opinion it doesn't make sense to change.
After buying the new a/c you have a lease to pay.
Insurance premiums go up compared to an old, used MD-80
Maintanance falls short term due to having a new a/c
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sk909
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RE: MD-80 Economics

Thu Sep 21, 2006 10:51 am

Quoting Futurecaptain (Reply 14):

Nice to see such an analysis. $600.000 isn't a lot. Especially thinking of additional insurance fees and leasing fees.
Good job. Big grin
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flamant15
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RE: MD-80 Economics

Thu Sep 21, 2006 11:47 am

Why do people make the assumption that all planes must be replaced by an identical number. AA could make a combination of orders to replace the MD80 fleet (360 planes):

50 B787s could replace 100 MD80s
80 - 100 FG737s* could replace 100 MD80s
50 E190s could replace 50 MD80s
180 - 200 could easily replace 360 MD80s with the remaining MD80s just being retired and second hand planes being added on a needed basis.

*FG stands for Future Generation not current NG737

If you recall AA retired 87 F100s without a problem. AA does a good job of slowly moving planes into and out of their fleet so that can not just make the carrier profitable but also the maintanence facilities.

Lastly remember they are still taking 777 and 738 deliveries right now. Also they are putting winglets on their 757s. They could go into the second hand market to get more of all those models if necessary.
 
steeler83
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RE: MD-80 Economics

Thu Sep 21, 2006 12:00 pm

Quoting SK909 (Reply 15):

Damn you vile... sir. You beat me to it! Big grin

I do agree with the good analysis bit though; it was... $600k per plane does seem like no big deal. If this figure were at least double, then it would be something to consider I think, which is where I think the gentleman was getting towards...
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SESGDL
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RE: MD-80 Economics

Thu Sep 21, 2006 12:31 pm

Quoting Flamant15 (Reply 16):

If you recall AA retired 87 F100s without a problem.

Not to be picky, but AA operated 75 Fokker 100s. They weren't replaced. They were simply retired and AA increased aircraft utilization and downsized.

Quoting Flamant15 (Reply 16):

Lastly remember they are still taking 777 and 738 deliveries right now.

AA's next new aircraft deliveries aren't scheduled until 2011-2012. This could of course be amended, and it will. AA did/will (not sure) receive 2 777s this year, however.

Jeremy
 
futurecaptain
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RE: MD-80 Economics

Thu Sep 21, 2006 3:16 pm

Quoting SK909 (Reply 15):
Nice to see such an analysis

Well then lets take it one step further and examine seating and cargo.
We'll use AA seating since I cited them earlier.

737-800
148 seats 16F, 132 Y
20540 kg cargo

Say every passenger brings 23 kg or luggage, or approximately 50 lbs.

So, 189 seats at 90% average load factor, I'll throw them a bone since it is a hub to hub route. This fills 14 seats in F and 119 Y. Lets assume every passenger paid an advance fare of $200 Y and $900 F, taken from AA.com for next March flights.

This means every flight brings in
$36400 in pax revenue
and leaves 17481 kg open for cargo.

MD-83
136 seats 16F, 120Y
16400 kg cargo

Same Characteristics as above.

Means every MD-83 brings in
$34200 in pax revenue
and leaves 13272 kg open for cargo

The 738 beats the MD-83 by a mere $2200 per flight, over a year at 2 flights daily (like above) this means the 738 will make an additional $1.6 million in pax revenue.

Also the 738 has an additional 4209 kg of cargo space open on each flight. Or 3,072,570 kg for 2 flights a day for a year.
Let's assume a rate of $1 per pound of cargo. I don't know this, just a number I picked out of the air. $1 per pound equals $2.20 per kg. This means the 738 makes an additonal $9259.80 over the MD-83 on every flight in cargo sales, assuming a 100% full hold every flight. Over the course of our now standard 2 daily flights for a year this equals an additional $6.759,654 that the 738 will make.

So, in conclusion, to bring this all together....

2 daily flights,for 1 year, disregarding leasing costs, maintanance, and insurance.

738:
PAX revenue: $26,572,000
Cargo revenue: $28,074,486
Cost to run flight: $3,255,683.20

Profit: $51,390,802.80



MD-83:
PAX revenue: $24,966,000
Cargo revenue: $21,314,832
Cost to run flight: $3,852,356

Profit: $42,428,476

So, the 738 brings in an additional $8,962,326.80 every year.
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planemaker
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RE: MD-80 Economics

Thu Sep 21, 2006 4:44 pm

Interesting that an article referencing the MD80 appeared in the NYT today:

Gas guzzling and noisy, the MD-80 is the aging, seemingly indestructible jalopy of the skies.

“They fly forever,” said Roger King, an aviation analyst at the research firm CreditSights. But with newer jetliners offering better fuel efficiency, a quieter ride and more comfort, the MD-80 is increasingly unloved by airlines. “Everyone wants to get rid of them,” Mr. King said.

Everyone, that is, but Allegiant Air, an upstart low-cost carrier based in Las Vegas that has built a quirky but profitable strategy around the MD-80.

Allegiant’s fleet of 21 planes would have cost about $1 billion if it had bought new Boeing 737-700’s, the plane favored by Southwest Airlines, with a list price around $54 million each. But with used MD-80’s selling for about $4 million each, the Allegiant fleet, averaging 16 years old, costs less than a tenth that.


http://www.nytimes.com/2006/09/21/business/21air.html?pagewanted=1
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jeb94
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RE: MD-80 Economics

Thu Sep 21, 2006 8:44 pm

Lets look at price of the aircraft. The 738 costs around $54 million per copy. The MD80 currently costs around $6 million per copy. Now you can plug in the revenue numbers above. The 738 doesn't pay for itself until its over a year old based off of those numbers above. The MD80 is payed for already in most cases but if not its easy to see that the MD80 pays for itself in a few months. After that its pure profit.
 
worldtraveler
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RE: MD-80 Economics

Thu Sep 21, 2006 9:46 pm

Future captain,
Your revenue numbers are vastly inflated. By number of seats, average fare that could be obtained, load factors, and the failure to recognize that AA has other aircraft like the 757 that could be moved onto the route to meet demand… AA is a network carrier and there are always routes in any airlines’ network that do not consistently justify the type of aircraft used on it.

Bottom line is that there is still way too much turmoil in the industry and at AA; they simply aren't going to commit to billions of dollars of new airplanes until there is more certainty and the new technology is more compelling than what they have today.
 
mandala499
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RE: MD-80 Economics

Thu Sep 21, 2006 10:08 pm

Cost of ownership at the moment these MD80s are cheap on a per seat basis.
Maintenance costs will rise as the plane gets older,
And as the maintenance cost gets higher and parts life or time between maintenance intervals get shorter... the downtime will rise... adding to the ownership cost...

After that, they have to consider the cost of disposal AND replacements... If the market price or the scrapping price gives them an unworthy "disposal returns', then they'll keep it for a bit longer.

It's all in the equation... it's all in the equation..

Futurecaptain,

You should add the cost of ownership/leasing into that...
1.54hrs (decimal)...

On an MD80 (say not a very good one) it can cost about US$500-510 for that flight (US$80k a month / 250hrs)
On a brand new 738, that aircraft will cost about $1925
(50m * 0.75% = 375k USD / month... Divide 300hrs for the per hour)

So, Aircraft, Crew, Fuel for DFW-ORD can be as follows:
738 = 3927+532.84+1925 = $6384.84
MD80 = 4740+537.2+510 = $5787.2

You calculate the perseat cost basis yourself...

So, in this calculation, it's $597 cheaper... So, to operate an MD80 for the route @ 2x return a day will be: $597 * 4 * 354 = $845,352 cheaper! (forgot the number of days in a YEAR)

But when you put in maintenance & insurance costs it'll be pretty close...

So, let's develop it further with your revenue calculation...
Gross margin per flight (ACF only, no M, no I)
738 = circa $28.2k
MD80 = circa $28.4k...

Doesn't look that good now...

Divide that by the number of available seat =
B738 = $190.6 gross yield per available seat (ACF, no M, no I)
MD80 = $208.8 gross yield per available seat (ACF, no M, no I)

Route is 1290km...
So, your yield (gross margin) per available seat km is:
B738 = 14.7 cents...
MD80 = 16.2 cents...

This is a per available seat km only... It looks like the MD83 is WAYYY better... But hang on, didn't we miss out the maintenance costs? Just using rough indicated costs on a power by the hour basis (contract revisable every 3 - 5 years), to include line and overhaul...

738 = US$500 per flight hr = $770 for the trip
MD80 = US$800 per flight hr = $1344 for the trip...

Now we have the trip margins at:
738 = $27.5k
MD80 = $27.1k

Ah, it looks better...
On a per available seat km, the margin is then...
738 = 14.4 cents per ASK
MD80 = 15.4 cents per ASK

Looks close doesn't it? *grin*

So, let's say the planes fly that route 4x return, giving it 8 flights and 12 - 13hrs a day each type roughly...
So, over the year, the margin will be=
27.5k * 8 * 354 = 77.88m USD
27.1k * 8 * 354 = 76.74m USD

Now, how about your return on investment?

If you decide to own the aircraft, the the ownership cost stated will be the depreciation... Hence:
738 = 77.88m / 50m = 155.8%
MD83 = 76.74m / 8m = 959.25%

Which one would you go for?
For 50m, I could have 6 MD80s... So, I'll earn 460.44m on the MD80 comparing with 77.88m on the 738...

Oh hang on, let's lease it...
Initial capital cost = 6 months lease deposit...
375k * 6 = 2.25m for the 738
89k * 6 = 0.48m

Need I go on?

But anyways, these are just crazy numbers, but I hope it shows why older aircraft are kept...

Mandala499
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futurecaptain
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RE: MD-80 Economics

Fri Sep 22, 2006 1:27 am

Quoting WorldTraveler (Reply 22):
Your revenue numbers are vastly inflated. By number of seats, average fare that could be obtained, load factors,

Seat numbers are taken from AA's aircraft layout.
Fare I used was from booking an AA flight next March, so I could get low advance fares. Most people will be paying more and I'm sure on a route like this there will be walk up business travellers too, revenue would actually be more.
load factors was an estimate based on the assumption it is a hub to hub route and overall airlines are at 80% + nowadays.

Quoting Mandala499 (Reply 23):

Thanks for that ananysis.
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Dalmd88
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RE: MD-80 Economics

Fri Sep 22, 2006 5:29 am

Everyone talks about maintenace cost rising considerably over the age of the aircraft. I wonder if that is really true for the MD80. The cost differance between an HMV2 visit and an HMV3 visit at DL was very small. From a structures standpoint there were very few, "Wow never seen that before" moments. There was a little more corrosion damage in The aft bag bin area, but not much.

Now the younger 737-200 fleet we just retired is another story. I hated working overhaul on those pigs. Even out of overhaul they had way too many time controlled structral inspections. The fuselage skins on those suck. It seemed we were always doing the Fillet panel area inspections, and finding cracks.

The MD80 might burn more fuel, but it just goes out the door and flys. The word at DL is we might be picking up some more used ones. I think from Iberia.
 
worldtraveler
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RE: MD-80 Economics

Fri Sep 22, 2006 6:12 am

Quoting Futurecaptain (Reply 24):
Seat numbers are taken from AA's aircraft layout.
Fare I used was from booking an AA flight next March, so I could get low advance fares. Most people will be paying more and I'm sure on a route like this there will be walk up business travellers too, revenue would actually be more.
load factors was an estimate based on the assumption it is a hub to hub route and overall airlines are at 80% + nowadays.

I’ll not belabor the point but your assumptions are not based on reality. There is plenty of available DOT data you could use that is much closer to reality. Mandala got closer to reality and showed it isn’t the slam dunk you made it out to be.

Remember also that a lot of heavy maintenance is being subcontracted out and those costs are not at all certain. Remember also that the MD80s are establishing themselves as being long-lived reliable airplanes like their DC9 parents. As a previous post says, they are quick in/quick back to work as it applies to maintenance.

I’m not knocking your effort… just saying that if you’re going to post calculations, you should expect that people will challenge them if they’re not right. Hopefully, you’ll be willing to learn.

The point is that neither DL or AA show any inclination to replace their MD80s and since they write the checks, they will do so when they are good and ready to do it.
 
LMP737
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RE: MD-80 Economics

Fri Sep 22, 2006 6:15 am

Quoting DALMD88 (Reply 25):
From a structures standpoint there were very few, "Wow never seen that before" moments. There was a little more corrosion damage in The aft bag bin area, but not much.

When I worked in Long Beach that's one of the things customers said about Douglas aircraft. From a structural stanpoint they are probably the toughest aircraft out there.
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flydreamliner
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RE: MD-80 Economics

Fri Sep 22, 2006 6:28 am

Quoting Cba (Thread starter):
My question is, how do the economics of operating an MD-80 compare to those of a 73G or 738 (or even A319, A320 for that matter)? I'm not talking about those longer segments that the MD-80's can't do, such as transcons, but more like flights under 4 hours.

Too much is made of the MD-80s efficiency. With AA reducing capacity, the extra seats of a 738 aren't needed on many routes, and on short hops, the MD-80 is still a very competitively efficient aircraft.

That said, on routes like ORD-SAN, it's lesser efficiency becomes more pronounced.

Quoting Sllevin (Reply 3):
The other thing you have to factor in is that there's simply nowhere to dump the MD-80's right now.

If AA has a garage sale, I'll take one.
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futurecaptain
Posts: 1918
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RE: MD-80 Economics

Fri Sep 22, 2006 7:02 am

Quoting WorldTraveler (Reply 26):
There is plenty of available DOT data you could use that is much closer to reality.

Probably. I have alot of personally collected data that is closer too, I don't feel like digging it up though. But I figure as long as it's all from the same internet source it'll all be wrong by a similar amount.

Quoting WorldTraveler (Reply 26):
Mandala got closer to reality and showed it isn’t the slam dunk you made it out to be.



Quoting Futurecaptain (Reply 19):
disregarding leasing costs, maintanance, and insurance.



Quoting Futurecaptain (Reply 14):
Ok, now everyone realize this is just hypothetical using numbers from the internet.



Quoting Futurecaptain (Reply 14):
Leasing costs, insurance, and maintanance unknown

 checkmark   Cool
Crew and fuel are always said to be the two biggest costs for an airline. By simply looking at this the 738 wins hands down.

Quoting WorldTraveler (Reply 26):
I’m not knocking your effort… just saying that if you’re going to post calculations, you should expect that people will challenge them if they’re not right. Hopefully, you’ll be willing to learn.

Always up for a challenge and willing to learn.

Quoting WorldTraveler (Reply 26):
The point is that neither DL or AA show any inclination to replace their MD80s and since they write the checks, they will do so when they are good and ready to do it.

Very true.
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AADC10
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RE: MD-80 Economics

Fri Sep 22, 2006 7:31 am

It looks to me like AA will simply retire the MD-80 over the next two decades and replace them with Eagle flights. UA did the same thing, retiring the entire 727 fleet along with a good chunk of the 737 fleet, replacing many mainline flights with United Express.

The economics of the MD-80 are not really that bad. The real problem is that it is too difficult to keep them all filled. In a couple of years, the oldest MD-80s will be 25 years old, around the projected service life the aircraft. Those plans passing the 25 year mark and in need of a D check will probably be retired.
 
planemaker
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RE: MD-80 Economics

Fri Sep 22, 2006 7:56 am

Quoting AADC10 (Reply 30):
It looks to me like AA will simply retire the MD-80 over the next two decades and replace them with Eagle flights. UA did the same thing, retiring the entire 727 fleet along with a good chunk of the 737 fleet, replacing many mainline flights with United Express.

Yes, that is a good point you brought up - Eagle flights could replace retiring MD80 flights, especially if there were some movement on the upper limits on Scope.

Another point that I believe should be considered is industry consolidation. There are a lot of people in denial over this but it will happen - the airline industry can't buck global economics for ever. As witnessed by airline CEO's, ATA and IATA, they believe that it will happen, too... it is just a matter of when. I believe that this will be the factor that will largely shape the retirement of the MD80s.
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
worldtraveler
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RE: MD-80 Economics

Fri Sep 22, 2006 9:42 am

Quoting Futurecaptain (Reply 29):
Always up for a challenge and willing to learn.

great to hear... glad to have a friendly, educational exchange of information.

Consolidation will play a role but remember also that AA wanted to move its MD80s to Eagle not too many years ago. They are trying to move the bar for contracted flying higher and higher.

AA is adding seats to the MD80s by removing a galley so they are making the planes more efficient by adding seats.

Until AA begins to reduce the huge amount of cash they have on hand, I would not consider AA in a business as usual frame of mind. They clearly have enough money to do just about anything they want when compared with their competitors. They could have ordered planes by now if they wanted to. They either are ready for a major strategic decision or are going to pay down significant amounts of debt in the near future - and they do have some large payments coming up. With AA having the highest uni labor costs in the industry, it is not likely they are going to commit to any plan that increases the size of its operations unti its costs become competitive.
 
planemaker
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RE: MD-80 Economics

Fri Sep 22, 2006 9:51 am

Quoting WorldTraveler (Reply 32):
They could have ordered planes by now if they wanted to.

Which bolsters my belief that they are waiting to see how the industry shakes out before commiting to buying any new aircraft (unless absolutely necessary).
Nationalism is an infantile disease. It is the measles of mankind. - A. Einstein
 
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TVNWZ
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RE: MD-80 Economics

Fri Sep 22, 2006 10:56 am

Quoting Mandala499 (Reply 23):
Route is 1290km...
So, your yield (gross margin) per available seat km is:
B738 = 14.7 cents...
MD80 = 16.2 cents...

This is a per available seat km only... It looks like the MD83 is WAYYY better... But hang on, didn't we miss out the maintenance costs?

From this Boeing should start building new MD-83s. Better engines and it would be even a bigger spread.  Smile And, yes I know, that will never happen. Just pointing out how good the 80's are.
 
Pope
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RE: MD-80 Economics

Fri Sep 22, 2006 11:18 am

you guys are missing a whole bunch of analysis. You need to consider not just financial statement income but also cash flow. A plane that has been paid for may still be incurring depreciation on the financial statements OR vice versa. Similarly disposing of an asset may incur a financial statement loss that cause a violation of a debt covenant. Similarly, debt agreements may prohibit the incurrance of new debt or the encumbarance of existing assets without lender consents.

Furthermore, changing types requires crew retraining expenses and down time.

Don't forget to analyze the tax consequences on the impact of these decisions. Companies operating with huge net operating loss carryovers may not benefit from additional tax losses through accelerated depreciation or lease expenses. Alternatively, profitable enterprises might benefit from some non-cash tax losses because it allows them to reduce current period tax payments.

Finally, you can't ignore the impact of immediately flooding the market with second hand airframes that would drive down the residuals on you other aircrafts.

In any case, the point I'm trying to make is that there are whole departments of organizations who do nothing other than look at these questions - therefore, we're probably not going to answer the question on an internet message forum whose membership is comprised of a lot of teenagers who haven't yet purchased a car let alone studied the complex financial and operational issued involved.
Hypocrisy. It's the new black for liberals.
 
worldtraveler
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Joined: Tue Aug 05, 2003 6:18 am

RE: MD-80 Economics

Fri Sep 22, 2006 11:22 am

and most airlines do not have spectacularly great debt ratings so the interest costs are not insignfiicant.

I haven't received a flyer in the mail from Boeing or Airbus touting 60 month no interest financing as the US car manufacturers regularly offer.

[Edited 2006-09-22 04:23:09]

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