airline cost route profitability system
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Route Profitability System
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Route Profitability Report – Challenges Cost Hierarchy System Dependability Types and models of RPS Advanced RP analysis and Cost
Management Suggestion
Topics
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Operating cost incurred at various locations across the globe in multicurrency, costs governed by 100-s of contracts with 100-s of service providers
Significant delays in cost reporting due to lack of real time access
Difficulty in having centralized control on Direct Operating Cost
Difficult in getting real time revenue/ flown reports Dependencies on other feeder systems Accuracy of allocations and accruals Interpretation of statistics Reconciliation/match with financial reports Comparison with competitors or Benchmarking
Challenges
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Cost hierarchy of Airline operations (Cost side)
Total Operating Cost
Direct Operating Cost
In-direct Operating Cost (Fixed Cost)
Direct Variable
Cost
Direct Fixed Cost
Flight related Variable Cost
Passenger related
Variable Cost• Catering• Pass Insurance• Other Pass related Exp• Direct Pass related Station Costs
• Handling Cost• Landing and Parking Fees• Fuel Costs• Variable Crew Cost• Variable Maintenance
• Crew and Training• Aircraft Ownership• Aircraft Insurance• Fixed Maintenance Costs
Station Cost
Sales & Marketing
CostAdmin Cost
This may vary based on the accounting/ reporting set up of
each airlinePrivate Document, Confidential
RPSFlight
Planning Sys
ERP/Accounting
Revenue System
MRO System
Operating Cost Sys
Crew Roaster Sys
Budgeting/ forecasting
sysCargo/Freighter
Mgmt
Aircraft & Engine Master
Other System Dependencies
May vary based on the capabilities of
the systemsPrivate Document, Confidential
Route Profitability System (Traditional)
Features• RPR made available
after book closure• Less dependability on
other systems• Cost effective model
Issues• Chances of mismatch with Financial Reports
• Available only after month close hence corrective actions will get delayed.
• Always working on averages, keeping best average will be a challenge
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Route Profitability Sys( Standard Cost Model)
Features
• RPR made available after book closure
• No dependability on other systems
Issues• Chances of mismatch
with Financial Reports• Available only after
month close hence corrective actions will get delayed.
• Always working on averages, keeping best average will be a challenge
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Route Profitability System (Advanced)
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Features- Enables Activity Based Cost Model- 100% match with Financial Reports- Real Time Report- DOC invoice checking and processing- Station get real time information on the flight cost- Cost control made possible
Advantage
s
* 100% match with Financials* Real Time Cost Report can take on time decision* Many statistical reports can be made possible ( E.g. OTP report, Daily Flight Cost Report, Upgrade/Downgrade report, Delay & disruption reports etc)* Invoice matching with accruals made easy.* Joint responsibility between station and HQ in managing cost* New Route Costing* Internal bench marking * Far a head than traditional Route Profitability System Reports* Self Invoicing for self handling* Support E-Invoicing
RPS- Advanced Model
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LEVEL- 1
PROFIT
LEVEL- 2
PROFIT
LEVEL- 3
PROFIT
LEVEL- 4
PROFIT
LEVEL- 5
PROFIT
For Next Day Decisions
For Next Season Decisions
For 2+ Year Decisions
For 3+ Year Decisions
Reconciliation to P&L Statement
RPS
Syst
em
Logics
Logics
Logics
Logics
Logics
Advanced RPS for Strategic, Operational and Managerial decisions
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Profit Contribution (PC) calculation in Advanced RPS
LEVEL- 1 PROFITPass + Flight
related costLEVEL- 2 PROFIT Direct Fixed cost
LEVEL- 3 PROFIT Fixed Station costLEVEL- 4 PROFIT Sales & Marketing
cost
LEVEL- 5 PROFIT Administrative cost
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Always better to have a system which matches 100% with Financial Reports
RPS should not be a post mortem report, it should be real time
Should have options to get the analytical for a route cause analysis
Should support activity based costing model Should support planning and budgeting Should be simple and highly customizable
Suggestion for selecting a right RPS Solution
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Sam IssacAirline Finance & Systems ExpertEmail: [email protected]
About Me:
Having 18 years of working experience with various successful airlines in the Middle East, Asia & African Region. A Certified Management Accountant by profession, presented many aviation related subjects on Cost Reduction, Performance, Profitability Analysis, Airline Management etc in various international airline forums. I have also designed various cost management systems for airlines.
Author Contact
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