Analysis of direct operating cost of wide-body passenger aircraft:A parametric study based on Hong Kong

Minwoo LEE ,Lrry K.B.LI ,Wenin SONG

a Department of Mechanical and Aerospace Engineering,The Hong Kong University of Science and Technology,Hong Kong SAR,China

b School of Aeronautics and Astronautics,Shanghai Jiao Tong University,Shanghai 200240,China

KEYWORDS Association of European Airlines(AEA)method;Aviation economics;Cost efficiency;Direct Operating Cost;Wide-body aircraft

Abstract Analysis of the Direct Operating Cost(DOC)of aircraft is an important step towards achieving financially sustainable aviation operations.However,the value of the DOC for different aircraft types and flight scenarios is not widely available.In this study,we perform a systematic analysis of the DOC of every wide-body passenger aircraft currently in production,using the method of the Association of European Airlines(AEA).The elements of the DOC,e.g.financial costs,maintenance costs,and flight costs,are evaluated individually.Several realistic flight scenarios are considered,each with differences in route distance,fuel price,passenger number,and seating arrangement.For each flight scenario,the most cost-efficient aircraft type is identified and evaluated in the context of operations from Hong Kong International Airport.The information provided in this study could be useful to airline operators and policy makers.

1.Introduction

Demand for air travel is growing rapidly worldwide,with air traffic projected to double every 15 years and with the total number of passenger aircraft estimated to reach 45265 by 2037.1Among these,36563 aircraft will be newly purchased,of which 8011 aircraft will be of the wide-body type,representing a total value of around 2.43 trillion USD.1When purchasing a new aircraft,the amount that an airline is willing to spend is equal to the future economic contribution to profit in present value terms minus the marginal cost of funds.2Fig.1 shows the structure of modern commercial aircraft economics.Profitability in airline economics depends on the specific route, traffic density, passenger demand, and aircraft performance.3Therefore,it is necessary to consider the Life Cycle Cost(LCC)of an aircraft.Apart from the acquisition cost(the aircraft price),the Direct Operating Cost(DOC)and Indirect Operating Cost(IOC)are two major components making up the LCC.4Among these,the DOC is directly related to the aircraft type,while the IOC is more dependent on an airline's specific strategy.Thus,an accurate evaluation of the DOC is one of the most significant considerations for airlines when adopting new aircraft.

Fig.1 Economics of commercial aircraft by U.S.Department of Commerce.2

Analyzing the DOC of wide-body aircraft is more important than other types of aircraft because,despite being relatively few in number,wide-body aircraft make up more than half(54%1)of the total value of the overall aviation economy.A passengertype wide-body aircraft is an aircraft with two aisles,typically equipped with seven or more seats abreast.5It is designed for maximum efficiency,passenger comfort,revenue and profit.6Wide-body aircraft are most efficient in the hub-and-spoke system,in which flights from multiple different origins converge to a single hub airport and then depart from that hub airport,bound for other destinations.7In a typical hub-and-spoke system,the average number of passengers tends to increase significantly,8reducing the average cost incurred by airlines.

Because the unit price of wide-body aircraft is considerably higher than that of other aircraft types,it is of greater importance for airlines to evaluate the DOC of wide-body aircraft.However,to the best of our knowledge,DOC data for such aircraft is not available in the open literature.Therefore,the provision of accessible DOC data for modern wide-body aircraft would be valuable to aircraft manufacturers,airlines,aircraft leasing companies,aircraft insurance companies,and their related financial institutions.In this study,we analyze the DOC of every wide-body aircraft in production today that has been delivered to at least one customer.We consider a wide range of representative flight scenarios,each with differences in route distance, fuel price, passenger number, and seating arrangement.The most cost-efficient aircraft type for each flight scenario is identified and evaluated in the context of operations from Hong Kong International Airport.In the Appendix A,pie charts showing the DOC elements of each flight scenario are included for reference purposes.

2.Parameters of DOC analysis

2.1.Flight distance

The economic viability of a flight route depends on its distance.Different organizations,airlines and airports have different ways of defining flight distance.Eurocontrol uses the following classification:short-haul(routes shorter than 1500 km),medium-haul(routes between 1500 and 4000 km)and long-haul (routes longer than 4000 km).9Air France defines short haul as a domestic flight,medium haul as a flight to Europe or North Africa,and long haul as a flight to all other destinations.10American Airlines defines short/medium-range flights as being less than 3000 miles and longrange flights as being longer than a JFK-SFO flight(approximately 2500 miles).11Hong Kong International Airport has a simple two-tier classification:long haul refers to flights to North/South America, Europe, the Middle East, Africa,Southwest Pacific and the Indian Subcontinent,whereas short haul refers to flights to all other destinations.12

For our study,we define the flight distance as that measured from Hong Kong International Airport,but with a slightly more detailed classification.Table 1 shows the distances of world airports from Hong Kong International Airport,as provided by Cathay Pacific.13We define four classes of flight according to these distances.Short range refers to flights shorter than 1000 n mile(1 n mile=1.852 km),medium range refers to flights between 1000 and 2000 n mile,long range refers to flights between 2000 and 6000 n mile,and very long range refers to flights longer than 6000 n mile.This distance classification was chosen for its simplicity,its wide range of flight distances,and its ability to capture the most commonly flown routes out of Hong Kong International Airport.Within this classification,the hub airports considered in our DOC analysis are indicated in bold text in Table 1.According to this classification,Hong Kong to Taipei(HKG ?TPE,435 n mile)is a Short range flight,Hong Kong to Seoul(HKG ?ICN,1117 n mile)is a medium range flight,Hong Kong to Sydney (HKG ?SYD, 3990 n mile) is a Long-Range flight, and Hong Kong to San Francisco(HKG ?SFO,6008 n mile)is a very long range flight.

2.2.Aircraft model and engine type

If we focus on wide-body passenger aircraft currently in production,there are just two manufacturers to consider:Boeing and Airbus.Wide-body aircraft from other manufacturers such as Ilyushin are either retired from civil aviation(IL-86)or in freighter service only(IL-96).The aircraft families considered here are listed in Table 2.Wide-body aircraft from Boeing and Airbus that are currently operated by airlines but are out of production(for example,the Boeing 747-400)are excluded from our analysis.Aircraft that are still in development,ordered by airlines,but have yet to be delivered(for example,the Boeing 777X)are also excluded owing to a lack of reliable technical data.All other wide-body passenger aircraft are included in our analysis(see Table 2).

Most of the wide-body aircraft listed in Table 2 have multiple engine choices.To simplify the analysis,we choose a single type of engine for each aircraft,by selecting the engine type with the highest thrust rating,as reported by the respective engine manufacturer.

2.3.Fuel price

The price of jet fuel has a significant influence on the operating costs of an aircraft,but is notoriously difficult to forecast.Various factors, such as unpredictable geopolitical trends around the world,especially in the Middle East where oil production is concentrated,can influence the price of jet fuel.Fluctuations in the price of jet fuel can sometimes lead to managerial decisions over whether to enter or leave a given market or route.8Therefore,it is necessary to analyze the DOC under different fuel-price scenarios.Fig.2 shows the jet fuel price for the last ten years.14It can be seen that the fuel price fluctuates significantly over time.It is therefore crucial to account for fuel-price variations in our DOC analysis.From the 10-year historical data shown in Fig.2,we extract three fuel-price scenarios.The highest jet-fuel price over the last 10 years is 3.89 U.S.Dollars(USD)per gallon(July 2008),which we use for our high-fuel-price scenario.By contrast,the lowest fuel price in the same period is 0.93 USD per gallon(January 2016),which we use for our low-fuel-price scenario.In addition,we use a jet-fuel price of 1.74 USD per gallon(September 2017)for our normal-fuel-price scenario.

Table 1 Airport distances from Hong Kong International Airport.13

Table 2 Aircraft model and engine type.

2.4.Number of passengers

Fig.2 Jet fuel price in 2008-2017 from U.S.Energy Information Administration.14

The maximum number of passengers that wide-body aircraft can carry ranges from 242 to 868,depending on the aircraft size and seating arrangement.The seating arrangement varies from single class(all economy)to three class(first-businesseconomy).For each aircraft,the DOC per passenger decreases as the number of passengers increases.However,because the number of passengers is not proportional to revenue,different airlines may choose to adopt different seating arrangements when configuring the cabin.The maximum number of passengers carried by an aircraft can be defined in two ways:(A)using the standard seating arrangement recommended by the aircraft manufacturer or(B)using the maximum certified number of passengers that the aircraft can legally carry.Table 3 shows the maximum number of passengers for each aircraft type and seating arrangement;the data are compiled from Refs.15-22.

3.Methodology

The DOC of an aircraft can be calculated in several different ways.23-27For this study,we use the method proposed by the Association of European Airlines(AEA)to evaluate the DOC.Introduced in 1990,the AEA method has been widely used for DOC analysis and is well established.27-29Studies have shown that the various DOC evaluation methods proposed over the last few decades are still useful today as a decision-making tool.26This section describes the methodology used to evaluate the DOC within the AEA framework.27All units for cost are in USD.

3.1.Utilization

Utilization(U)is calculated by dividing the available hours per year(tavailable)by the sum of the block time(tblock)and the TurnAround Time(TAT).The available hours per year and TAT are fixed values subject to the route distance,as listed in Table 4.

where tblockis calculated by averaging the official scheduled flight time between the departure airport and the destination airport.Here,flight schedule information provided by Cathay Pacific is used.30The results are shown in Table 5.

3.2.Financial cost

To evaluate the financial cost,we first calculate the Total Investment(TI),which is the cost of aircraft and initial spares and is calculated with Eq.(2).The cost of AirFrame Spares(AFS)is estimated to be 10 percent of the airframe price,while the cost of Spare Propulsion Units(SPU)is estimated to be 30 percent of the total engine price,as given by the manufacturer.Eqs.(3)and(4)are used to calculate the costs of airframe spares and spare propulsion units:

where MSP is the manufacturer's study price,ENP is the engine price and neis the number of engines.Because the MSP is difficult to determine,it is replaced with the list price of the aircraft,as quoted by Boeing and Airbus.31-33The price of engines is taken from databases.34-41The total financial cost is expressed as the sum of the costs of DEPreciation(DEP),INTerest (INT) and INSurance (INS). Eqs. (5)-(8) show how each of these financial components is calculated.

Table 3 Maximum number of passengers.15-22

Table 4 tavailable and TAT.

Table 5 Block time.

3.3.Crew cost

The total crew cost consists of the costs of the current and reserve crews.It is the sum of the CockPit crew Cost(CPC)and the CAbin crew Cost(CAC),which are calculated with Eqs.(9)-(11).The crew cost equations can be adapted to the actual crew rate.The number of cabin crew(ncab),which is a function of the target comfort level,is calculated by dividing the total number of passengers by 35(and then rounding up to the nearest integer).

3.4.Charges and fees

Charges and fees are levied by governmental and airport authorities,and consist of two major components:NAVigation charges(NAV)and LAnding Fees(LAF).Eqs.(12)-(14)show how these are calculated in our analysis.Here,the study length is measured in kilometers and the Maximum TakeOff Weight(MTOW)is measured in tonnes.For each aircraft,MTOW data are compiled from Refs.15-22.

3.5.Airframe maintenance cost

The Airframe Maintenance Cost(AMC)is the sum of the cost of AirFrame Labor(AFL)and airframe materials(AFM):

where tfis the flight time,AFW is the airframe weight,Rlaboris the labor rate(USD66 as per Ref.42),and MWE is the manufacturer's weight empty.AFP is the airframe price,which is equal to the MSP less the price of engines.The flight time is 0.25 hours less than the block time(tf=tblock-0.25)and AFW is defined as MWE less the weight of engines.The relevant data are collected from Refs.15-22.

3.6.Engine maintenance cost

The Engine Maintenance Cost(EMC)is defined as the sum of cost of Engine Maintenance Labor(EML)and Engine Maintenance Material(EMM),as calculated with Eqs.(18)-(20):

where Tslis the engine thrust at sea level,and C1,C2and C3are constants defined by the engine specification:

where BPR is the bypass ratio,OPR is the overall pressure ratio,and ncis the number of compressor stages.Data on the engine specifications are collected from Refs.43-46.It is worth mentioning that,perhaps counterintuitively,increasing the number of engines on an aircraft does not necessarily lead to a significant increase in the EMC as a percentage of the total DOC,because this effect is partially offset by a decrease in Tslper engine.

3.7.Fuel cost

As mentioned above,the cost of jet fuel fluctuates over time.The fuel cost is represented by Eq.(24),where Fblockis the block fuel:

It is worth noting that the fuel price in this equation varies as per Section 2.3 and is in units of USD per Gallon.The block fuel,Fblock,is calculated by multiplying the average fuel burn per seat-nm(see Table 1)and the seat number(see Table 3).While it is recognized that the actual fuel burn per seat-nm varies depending on the flight conditions(e.g.altitude and speed),aircraft configuration (e.g. standard or maximum seating arrangement)and passenger load factor,we use an average value for the fuel burn per seat-nm,partly to simplify the analysis and partly to be consistent with the AEA method of calculating the DOC.27-29In this study,the average fuel burn per seat-nm for each aircraft is calculated from data provided by Boeing and Airbus.47-53The contribution of fuel price to the DOC for different flight scenarios is shown in pie charts in the Appendix A.

3.8.Overall DOC

Having considered all of the key factors making up the DOC,we consolidate that information by expressing the DOC of each aircraft as follows:

where the extra costs are neglected in this study for simplicity.

4.Results of DOC analysis

In this section,we present the results of our DOC analysis.The section is divided into four subsections,each examining a different flight range:short range,medium range,long range and very long range.The six graphs presented in each subsection show the DOC per n mile-pax,for both the standard and maximum seating arrangements.These graphs are used to identify the most cost-efficient wide-body aircraft type when a given number of passengers is to be expected.In these graphs,the most cost-efficient wide-body aircraft type is highlighted with colored shading.

4.1.Short range

The short range flight analyzed in this study is that between Hong Kong and Taipei.Figs.3-5 show the DOC per n milepax for normal,high and low fuel prices,respectively.The plots on the left are for the standard seating arrangement,while the plots on the right are for the maximum seating arrangement.For example,in Fig.3(a),where the fuel price is normal and the seating arrangement is standard,if we assume that the expected load is 350 passengers,the DOC per n mile-pax is the lowest for the Boeing 777-300ER,making it a competitive aircraft for this particular flight scenario.Notably,it is more cost-efficient than the Boeing 747-8,albeit at the expense of a slightly lower seating capacity,which is perhaps why many airline fleets,such as Cathay Pacific's,are dominated by the Boeing 777-300ER,with very few Boeing 747-8S in passenger service.However,it is worth noting that,according to our analysis,the relatively new Airbus A350-900 is also competitive,although it offers a lower seating capacity than the Boeing 777-300ER(see Table 3).A larger version of the Airbus A350-900, marketed as the Airbus A350-1000,is due to enter commercial service in September 2018.It remains to be determined how this aircraft will compare against the Boeing 777-300ER with an expected load of 350 passengers in the standard seating arrangement. For greater passenger numbers(for example,more than 410 passengers), the aircraft with the lowest DOC is the Airbus A380-800,simply by virtue of there being no other aircraft capable of carrying this many passengers.As expected,the DOC increases as the fuel price increases,but the qualitative trends of the aircraft rankings in terms of their DOC remain unchanged.Switching from the standard seating arrangement(see Fig. 3(a)) to the maximum seating arrangement (see Fig.3(b))reveals that the Airbus A330 and Boeing 787 families come out on top.Nevertheless,when configured in the standard seating arrangement,the most cost-efficient wide-body aircraft is the Airbus A350-900 when the expected load is 313-325 passengers,and is the Boeing 777-300ER when the expected load is 326-396 passengers.

Fig.3 DOC per n mile-pax(short range,normal fuel price).

Fig.4 DOC per n mile-pax(short range,high fuel price).

Fig.5 DOC per n mile-pax(short range,low fuel price).

Fig.6 DOC per n mile-pax(medium range,normal fuel price).

Fig.7 DOC per n mile-pax(medium range,high fuel price).

Fig.8 DOC per n mile-pax(medium range,low fuel price).

Fig.9 DOC per n mile-pax(long range,normal fuel price).

Fig.10 DOC per n mile-pax(long range,high fuel price).

Fig.11 DOC per n mile-pax(long range,low fuel price).

Fig.12 DOC per n mile-pax(very long range,normal fuel price).

4.2.Medium range

The medium range flight analyzed in this study is that between Hong Kong and Seoul.Figs.6-8 show the DOC per n milepax for normal,high and low fuel prices,respectively.The plots on the left are for the standard seating arrangement,while the plots on the right are for the maximum seating arrangement.The overall trends are qualitatively similar to those seen in Section 4.1 for short-range flights.When configured in the standard seating arrangement,the Boeing 777-300ER is again the most cost-efficient wide-body aircraft in the 350-passenger market,regardless of fuel price.When configured in the maximum seating arrangement,the Airbus A330 and Boeing 787 families again come out on top.Similarly,the Boeing 767-300ER also becomes less suitable when configured in the maximum seating arrangement,but only when the fuel price is high,because that is when the Boeing 787 family offers a lower DOC,even for an expected load as low as 300 passengers.

4.3.Long range

The long range flight analyzed in this study is that between Hong Kong and Sydney.Figs.9-11 show the DOC per n mile-pax for normal,high and low fuel prices,respectively.The plots on the left are for the standard seating arrangement,while the plots on the right are for the maximum seating arrangement. When configured in the standard seating arrangement,the Boeing 777-300ER once again comes out on top,with the lowest DOC at the 350-passenger point.In contrast to the short-range and medium-range flights analyzed earlier,when the expected load drops below 300 passengers for the standard seating arrangement at a high fuel price,the Boeing 787 family is nearly always the most cost-efficient aircraft,except for a narrow window within the 240-260 passenger market,where the Boeing 767-300ER is slightly more costefficient.For the maximum seating arrangement,the overall trends are qualitatively similar to those seen in Section 4.1(short range flights)and Section 4.2(medium range flights)except for a few specific flight conditions.For low passenger numbers and a normal fuel price,the Boeing 787 family is more cost-efficient than the Boeing 767-300ER.When the fuel price is high, the best performer in the standard seating arrangement,the Boeing 777-300ER,is marginally surpassed by the Boeing 747-8,which is perhaps why some airlines(for example,Air China,Korean Air and Lufthansa)have taken a more financially conservative approach by deploying the Boeing 747-8 on long-haul routes and for freighter service where maximum cargo capacity is needed.It is worth noting that when the fuel price is normal or low, the Boeing 777-300ER returns to being the most cost-efficient aircraft,with a DOC slightly lower than that of the Boeing 747-8.

Fig.13 DOC per n mile-pax(very long range,high fuel price).

Fig.14 DOC per n mile-pax(very long range,low fuel price).

4.4.Very long range

The very-long-range flight analyzed in this study is that between Hong Kong and San Francisco.Figs.12-14 show the DOC per n mile-pax for normal,high and low fuel prices,respectively.The plots on the left are for the standard seating arrangement,while the plots on the right are for the maximum seating arrangement.The general trends are qualitatively similar to those seen in Section 4.3(long range flights)with the most notable exception being that the Boeing 767-300ER has been excluded from the analysis because its range does not qualify it for very long range operation(more than 6000 n mile)with a sufficient fuel reserve.

5.Conclusions

The DOC per n mile-pax of every wide-body passenger aircraft in production today has been analyzed using the method of the AEA.Several realistic flight scenarios were considered,each with differences in route distance,fuel price,seating arrangement,and passenger number.The most cost-efficient widebody aircraft for each flight scenario was identified and evaluated in the context of operations from Hong Kong International Airport. When configured in the standard seating arrangement,the most cost-efficient wide-body aircraft,as measured in terms of the lowest DOC per n mile-pax under the specific assumptions of this study,was found to be(A)Boeing 777-200ER for 290-312 passengers, (B) Airbus A350-900 for 313-325 passengers,(C)Boeing 777-300ER for 326-396 passengers,(D)Boeing 747-8 for 397-410 passengers,and(E)Airbus A380-800 for 411-555 passengers.These results were found to be fairly insensitive to fuel price and to whether the route distance is short(less than 1000 n mile),medium(between 1000 and 2000 n mile), long(between 2000 and 6000 n mile)or very long(more than 6000 n mile).In the popular 350-passenger market,it remains to be seen how the extended version of the Airbus A350-900,the Airbus A350-1000,which is due to be rolled out into commercial service shortly,will compare against the current Boeing 777 family and the next generation Boeing 777X.

Regarding areas for future improvement,we would like to point out that,in this study,we used the manufacturer's list price in our DOC analysis.However,industry precedents suggest that the MSP should be lower than the list price as the latter does not include discounts typically given out to bulk buyers.In future work,it remains to be seen what effects using the adjusted values of MSP(instead of the list price)would have on the results of the DOC analysis.

Appendix A.

The individual DOC components for each aircraft type are shown as pie charts in Figs.A1-A11.

Fig.A1 DOC components of Boeing 747-8.

Fig.A2 DOC components of Boeing 767-300ER.

Fig.A3 DOC components of Boeing 777-200ER.

Fig.A4 DOC components of Boeing 777-200LR.

Fig.A5 DOC components of Boeing 777-300ER.

Fig.A6 DOC components of Boeing 787-8.

Fig.A7 DOC components of Boeing 787-9.

Fig.A8 DOC components of Airbus 330-200.

Fig.A9 DOC components of Airbus 330-300.

Fig.A10 DOC components of Airbus 350-900.

Fig.A11 DOC components of Airbus 380-800.