Cost Index Savings

AirSavingsA perspective to get started with dignified Cost Index Values

Presented by:

Jean-Jacques SPEYERDirector Operational EvaluationHuman Factors and Communication

OLM FBW 2006 – Toulouse – 26-28 September 2006

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AirSavings OLM FBW 2006

1

5

Practical Methods & Tools for Flight Economy4

3 Practical ways & means toward Flight Economy

2 Strategic Markers of Airline Economics

Introduction

Contents

Conclusion and Discussion

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History

1927: Fuel saving - to increase range (Lindberg)

1940s: Fuel saving - to increase „payload“

1960s: Fly faster than the competition (Concorde)

Time = Money1970s: Oil crisis - save fuel to save money:

Fuel = Money1990: FMCs introduce balancing concept: Cost Index

Time = Fuel

Cost Index =Cost Index =Cost ofCost of

Cost ofCost of[kg/min]

[lbs/0,01hr]

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The Cost Index governs the optimisation of your flight plan

COST INDEXis the driver of

the FMS flight planoptimisation.

AirSavingscalculates it

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An Airbus / fwz initiative to compute the cost index

AirSavingsWeb-based Software

JV with fwz:Sold by Airbus & f:wzROI within first monthBased on YOUR data!

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1

5

4 Tactical Levers for effective Flight Economy



Contents


Introduction

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Oil price will stay high in the short term but not forever

• Energy demand remain robust in spite of record prices

• Modest increased investment in exploration and drilling

• Supply disruption (emerging economies, war threats, terrorism, rebellions)

20

25

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Base case

High-price scenario

Low-price scenario

History Forecast

2002 2003 2004 2005 2006

US$ per barrel (WTI)

Source : Airbus

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Oil price anticipated to trend downward in the longer term

Below $30/bbl unlikely, above 80$/bbl not unlikely at all

• Restored production capacity, increased refining capacity, slowerdemand in emerging economies, oil reserve back to adequate level

0

10

20

30

40

50

60

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Real $2005

Nominal

History Forecast

Brent $ / bbl

Source : Airbus

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The advent of Low Cost Carriers (LCC) has initiated a need to engageinto creative cost management in the battle for economies of scale

There is ample room for Flight Operations to contribute with regard to this

Whether fuel costs increase or decrease, it is important to track theirchanges to cipher out better cost indices for the FMS and for the CFP

FMS functionality still the same since advent of Glass Cockpits

Very few airlines utilize the Ci to its full extent which is perplexing

Widely varying ideas about what the cost index is and time-dependent cost

Many haven‘t a clue on economics and on how to account for delay costs

In the meantime Damocles’ sword is still over our heads

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1

5




Contents


Introduction

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Predictions for 2006 call for steady traffic growth (4.5 to 6.5%)with fragile profitability and lower yields as facts of life

striving for structurally lower costs must hence persist all the time

some of the most intense cost cutting ever happened in 2001-2004

labour, distribution, airport fees being tackled, flight operational costshave just as well to decrease to spread the overall collective effort

Fuel hedging was possible thanks to a carrier’s strong financialcondition

enabling it to dedicate resources towards insuring itself against fuel hikes

fuel hedging contracts beginning to expire, record prices now bite, taking a toll

Airlines are nowtackling their Cost BasesAirlines are really tackling their Cost Bases

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Strong improvement of Efficiency Markers

Source : IATA

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Lower Unit Costs all along Oil Shock

Source : IATA

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Airlines are tackling their Cost BasesAirlines are really tackling their Cost BasesUnit cost, capacity and expe nses change 2001-2004

-1.90%

64.64%

1.90%

31.54%

2.20%

9.11%

-7.33%

41.93%

-4.20%

16.24%

-4.98%

-0.20%

-5.54%

-13.79%

-6.00%

-11.63%

-7.02%

-8.53%

US Majors

Low -cos t

Mainline

Rest of the w orld

North American airlines

All airlines in sampleUnit cost

Operating Expenses

Capacity

Source : ATA

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1

5


3

2

Contents


Introduction

Practical ways & means toward Flight Economy

Strategic Markers of Airline Economics

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Examples of New Practices / Innovative AirSavings ~ 1

Consider Direct Operating Cost more critically and more closely:

Critical review of its real ingredients and seasonality/periodicity

Work collegially with all involved around a « key accountable » manager

– Flight Operations,

– Ground Operations incl. Dispatch and Passenger/ Cargo Service,

– Engineering/Maintenance,

– Finance & Accounting

AirSavings software to determine the (Flight) Cost Index to be fieldtested and improved through dedicated airline consulting :

Review and refresh costs periodically (AirSavings)

Introduce the cost of delays with Cost Benefit Analyses

– spend as an insurance to avoid even more eventual spending

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Data from SWA , LCC and legacy carriers out of / in Ch 11

2000 2001 2002 2003 2004 2005GALLONS/TOTAL BLOCK HOUR 785.73 757.51 796.59 800.53 847.15 804.49($OPERATING-FUEL EXPENSES)/ASM 13.03 13.89 14.23 14.37 13.97 13.08SCHEDULED YIELD (CENTS/RPM) 17.37 15.52 14.15 14.34 13.38 13.28FUEL COST ($ PER GALLON) 0.94 0.81 0.73 0.86 1.07 1.61AVERAGE STAGE LENGTH (SM) 594 610 614 667 679 680$COST PER HOUR (CREW+MAINT) 1,013.4 893.1 982.3 693.4 684.6 653.6$FUEL COST in kg/min 12.34 10.17 9.7 11.43 15.13 11.43OVERALL COST INDEX 82 88 86 46 45 57

Cost of TimeCost of Fuel

Overal Cost Index

Since it works for DOT Form 41 airlines could do better with their owninternal cost data and city pair by city pair if they decided to go for it :

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Examples of Optimized Flight Planning & Procedures ~ 2

Selection of Flight Plan providers (not all give the same result)Dynamic Cost Index : include impact on flight planning for reasonableness

Fuel tankering : How to do it to optimize costs (included in Airsavings)

Inefficient air traffic control (ATC) systems are the “single largest cause offuel wastage” for which creative solutions are now steadily underway :

– FANS (CNS-ATM), RNP RNAV / RVSM (capacity increase)

– Reduced Lateral Separations (overflight charges), Datalink ( ATC charges)

In Flight ProceduresImprove the use of FMS (insertion of proper Cost Index i.e.Basic Default ,

Route Specific, Tactical Delay, performance / idle factor, step climbs,tropopause altitude, temperatures/ wind profile...)

Wind-Altitude Trade-Offs in flight for “Off-Optimum Altitudes”

Cost of flex versus cost of fuel also in the climb phase

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Examples of Flight Follow Up Analysis for Economics ~ 3

Specifying Flight Follow Up Analysis Flight plan recomputation after flight to look for possible savings

– No longer manual written flight logs but numeric ones, so let’s do somethingwith it to improve our Flight Cost Economics and learn from experience

Similar to post flight FOQA report, why not define a Flight Efficiency Index?– Assessing the energetic/ economic performance of a flight (an Econometer!)

Per season to aggregate big numbers over extended time periods :– Explain gross differences to explain delta’s due to gross stack ups :

Flight Techniques, ATC, Flight Planning, Weather Forecasting

– Adjusted / Weighted for factors, geared for airline decision-making

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Examples of New Practices / Flight Follow Up Analysis ~ 3

Source :Airbus

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Examples of New Practices / Flight Follow Up Analysis ~ 3

Source :Airbus

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1

5


4

3


Introduction

Contents

AirSavings


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AirSavings « is » available, ready for use now

Fuel costs money

Time costs money

Solution:

expresstime cost interms of fuel

time = fuel

Example:

Fuel cost = 0.5 USD / kg (1.5USD/USG), Time cost = 5 USD / minute (300USD/fh)

equivalent to a Time cost of 10 kg / minute ! (5 / 0.5) => Costindex equals 10

FMC doesn‘tunderstandmoney

PLEASE WAIT...

Comparing apples with apples when trading of Ct vs Cf

Source : Airbus/fwz:

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Fuel as a currency

The Cost Index concept

treats fuel as a currency

with the

fuel price being the exchange rate

From now on, we can deal with

kg / min instead of USD / min

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Fuel as a currency

Simply add up fuel and time to get total costexpressed in fuel quantity:

Example:Trip fuel = 40000kgFlight time = 9:10 (550 minutes)CI = 10 kg/minTotal cost = 45500kg (40000 + 550*10)

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Comparing Solutions

Example:Solution 1 (low speed)Trip fuel = 40000kgFlight time = 9:10 (550 minutes)CI = 10 kg/minTotal cost = 45500kg (40000 + 550*10)

Solution 2 (high speed)Trip fuel = 40500kgFlight time = 8:50 (530 minutes)CI = 10 kg/minTotal cost = 45800kg (40500 + 530*10)

In this example, the low speed solution is optimal for cost index 10 !(with a fuel price of 0.5 USD / kg we can convert the 300kg saving to 150USD)

Fuel40000

Time5500

Total45500

Fuel40500

Time5300

Total45800

300

Sa

ving

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Changing the Cost Index

Example:Solution 1 (low speed)Trip fuel = 40000kgFlight time = 9:10 (550 minutes)CI = 50 kg/minTotal cost = 67500kg (40000 + 550*50)

Solution 2 (high speed)Trip fuel = 40500kgFlight time = 8:50 (530 minutes)CI = 50 kg/minTotal cost = 67000kg (40500 + 530*50)

In this example we assume a higher cost of time, increasing the Cost Indexto 50.Now the high speed solution becomes more optimal.(with a fuel price of 0.5 USD / kg we can convert the 500kg saving to 250USD)

Fuel40000

Time27500

Total67500

Fuel40500

Time26500

Total67000

500

Sa

ving

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AirS@vings enables a Dynamic Cost Index

Tailored CI for every flight with Tankering recommendation

AirSavings is a first step towards integrated Flight Cost Managementfor MinimumCost (typicalCI=82)

78,00%

83,00%

88,00%

93,00%

98,00%

0,720 0,740 0,760 0,780 0,800 0,820 0,840 0,860

Mach

Fuel Flow(kg/FH)

SFC (kg/NM)

Total Spec. Cost(USD/NM)

Cost of Time(USD/FH)

MaximumRange

MinimumCost

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Data Flow to database and to Flight Planning Programme

DatabaseCost Index

per Flight

Flight

Planning

FMC

Database

Cost Index

Administra

tion

AirSavings

Manual InputsCost Indexper Flight

Cost Indexper Flight

Flight

Planning

Flt Schedule

Crew Schedule

Fuel Prices

Currency Rates

A/C Rotation

FlightPlanning

AutomatedInterfaces

AutomatedInterfaces

Source : Airbus/fwz:

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Internet

per CityPair

InternetInternet

AirSavings Minimum Configuration

Database

ManualInterfaces

FlightPlanning

FMC

Database

Cost Index

Administra

tion

Cost Index

Administration

Manual InputsCost Index

per City Pair

FlightPlanningFlight

Planning

For small short haul carriers

Browser Client, running on a PCwith Internet connection

Single Currency (no exchangerate updates required)

No interfaces

No crew cost

Fuelprices by manual input

TDMC by manual input

Citypair Lists as Output

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AirSavings Fullsized Configuration

For large or long haul carriers

Server components on dedicatedor shared server

All input data via interfaces(Schedule, Aircraft Rotation,Crew, Fuel prices, Currencies)

Automatic TDMC updates /requests

Interface to flight planning system

Database Cost Indexper Flight

AutomatedInterfaces Flight

Planning

FMC

Database

Cost Index

Administra

tion

Cost Index

Administration

Manual InputsCost Indexper Flight

Cost Indexper Flight

AutomatedInterfaces

FlightPlanning

Flt Schedule

Crew Schedule

Fuel Prices

Currency Rates

A/C Rotation

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Cost Factors / TDMC

Sector Length in Flight Hours

DMCper Trip

DMC per Trip = H * Sector Length + C


DMCper Trip


DMCper Trip

DMC per Trip = H * Sector Length + C

Cyclic Cost (C) Hourly Cost (H)Cyclic Cost (C) Hourly Cost (H)Cyclic Cost (C) Hourly Cost (H)

In the diagrams above, only the blue section is determining the TDMC, whichis purely the portion of cost that is directly proportional to flight time.

Only include costs that will be affected by a change in flight time assmall as a single minute.

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Added feature : Time Dependant Maintence Cost Wizard

Source :Airbus

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Delay Cost Management

Cost Input to AirS@vings and Flight planning System

Based on Historical Irregularity Cost to be consulted on CRS

Source :Airbus

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On the Ground: Flight Planning System Integration

Cost Index

TDMC+Fuel

Overflight Charges

Del

ayCo

st

Total Cost

All cost factors of different solutions are visible for comparison in on singledisplay, with values relative to the best solution

Source :fwz:

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username: GUESTij

password: airsave

domain: public

http://airsavings.fwz.aero

Support :[email protected]

Do ask for a password here!

Send your feedback toAirbus and f:wz

Getting a temporary password and testing it for free

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Application Layout / City Pairs List

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Savings per Flight Leg

Savings per Flightleg

Avg predicted savings with AirSavings in original units Avg predicted Savings in $Opt. Mode Unit SR MR LR SR MR LRFL / Mach kg 13 90 483 8 54 290Delay Cost Index * kg 21 48 261 13 29 157Tankering $ 10 30 40 10 30 40

Avg. Fuel Price $/T 600

for Flights on ScheduleCurrent Scenario Nr 1 1 1Current Scenario LRC LRC LRC

for Flights with DelayCurrent Scenario Nr 5 5 4Current Scenario M75 M80 M82Percentage delayed % 30% 30% 30%

Current Tankering % 20% 10% 0%Tankering Potential % 40% 30% 20%

SR = Short RangeMR = Medium RangeLR = Long RangeLRC = Long Range CruiseM80 = Mach 0.80 CruiseCI 40 = Cost Index 40 Cruise

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Check Your Solutions

• typical result from a legacy flight-planning system with added functionalityclaiming to optimize for cost index,

• the green area shows the results from the system, while on the right side acomparison is made for required cost indices. The red zone values shouldactually be in the same line as the corresponding Cost Index! The values inthe orange cells are the fuel penalties for not optimizing correctly,

• Results like these may actually be responsible for the limited acceptance ofthe Cost Index concept,

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Real Optimization

• this is how a well optimized solution will look like – note that the zero valuesare exactly on the correct lines in the orange fields,

• typical in-flight solutions like the Mmo speed profile on a fuel optimized FLprofile in the last line show a significant cost penalty (over 4T of virtual fuel),

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Running Conservative Scenarios on representative aircraft

AirSavings Application Cost

One-time License Fee 38,413 USD

One Time Setup Cost (installation, interfacing,training, etc - estimate*) 5,000 USD

Hardware, Standard Software licenses (estimate*) 8,000 USD

Yearly recurringcost (license, support, releases) 5,762 USD/yAmortization period 5 Years

Total yearly cost 15,044 USD/y

* both can be reduced significantlyif you choose the hosted variant,which will make absolutelysense for yourfleet size of 7 aircraft.

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Cost Saving Potential Overview

Cost Saving Potential Overview (relative to current situation)

Short Range Medium Range Long Range TotalNumbero f A/C 9 10 10 29Legs/Day 6.0 4.0 1.5Legs/Year 19710 14600 5475 39785

Opt. Module Short Range Medium Range Long Range TotalFL/Mach X 151,767 786,940 1,586,655 2,525,362Delay Cost Index X 248,346 420,480 857,385 1,526,211Tankering X 197,100 438,000 219,000 854,100

Total (USD/Year) 4,905,673

This is an estimate how much saving could be achieved in total relative to the current situation.

While AirSavings will contribute significantly to achieve those savings, this potential also implies that flight planning andFMS handling is done accordingly, as well as pilots and dispatchers are properly trained to understand the concepts andact accordingly.

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1

5


4

3


Introduction

Contents

AirSavings


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Don‘t wait & don‘t drag your feet.

Consulting is available from us

Support is performed through f:wz

Applying this tool needs the inputs of all…

A personalized airline website can be tailored!

Do you want to specify some kind of induction training?

AirSavings pays for itself within the first month!

Please try free of charge & feedback your ideas

Conclusion

[email protected]

[email protected]

Thanks!

Furtherquestions andanswerscanbe directedto:

Cost Index Savings

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