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Aviation History
1964
1964 - 2834.PDF
FLIGHT International, 12 November 1964 821 AIRLINE EFFICIENCY _with Particular Reference to Getting: the Facts Right By R. A. SPENCER, AACCA, MBIM, Chief Accountant, BEA Readers will recall that an article by J. M. Ramsden on airline econ- omic efficiency ("Flight" for June 11) brought a strong reaction from Mr Anthony Milward, BEA's chairman, in an article in the <<BEA Magazine," quoted in our July 30 issue. In "Flight" for September 24 Mr A. J. Lucking, writing as a private citizen with no interest in air transport other than as a user, weighed in with comments on Mr Milward's article; and now Mr Spencer enters the lists with these criticisms of Mr Lucking's views. AIRLINE costs can be a boring subject except for a smallnumber of specialists; Mr Lucking's article on "AirlineEfficiency—with Particular Reference to BEA" was no exception, and I fear this reply will be hardly less so. But the article contained grave errors and drew misleading conclusions, so it must be answered. Criticism is right, proper and salutary, but only if it is fair, constructive and informed. The criticism of BEA in the article was hardly of such a nature. BEA's accountants do not claim that their methods of cost allocation are perfect. As any competent accountant knows, most methods of costing involve arbitrary decisions. We are no exception, but we believe that the bases BEA uses are as accurate as possible, and we certainly do not decide what sort of results we wish to show and then allocate the costs in such a way as to produce those results! Any student of transport would hardly be surprised that costs per capacity ton-mile on our longer routes are lower than those on our shorter routes as Fig 1 in Mr Lucking's article shows. However, your contributor has fixed his points on the graph by dividing the variable allocated and apportioned costs by the appropriate capacity ton-miles. This overlooks the fact that these costs include in 1961-2 and 1962-3 the heavy introductory costs of new equipment, a fact disclosed in our Reports and Accounts, and one which is the principal reason for the widening of the gap between the two lines in those years. In his Fig 2 your contributor compares crew costs and engineer- ing costs per capacity ton-mile on international and domestic services; he concedes that perhaps the shorter average duration of domestic flights accounts for the higher crew costs. But this is only part of the story. For example, it might be noted that approximately one-third more capacity ton-miles result from one Vanguard flying- hour on international services than from one Vanguard flying-hour on domestic services, and this obviously influences the crew cost per CTM. There are two main reasons for such a difference. First, the Vanguard 951s, used predominantly on domestic routes, have a lower capacity than the Vanguard 953s used predominantly on international routes; secondly, a greater proportion of the flying time is spent climbing, descending, etc, on shorter routes. A further point which influences crew costs per capacity ton-mile is the lower attainable crew utilization brought about by higher peak: trough ratios on the domestic routes. When one looks at engineering costs the CTMs per flying hour would be lower on domestic routes even if one used exactly the same type of aircraft, for the reason set out in the preceding paragraph. Therefore, since engineering costs are largely a product of flying hours, the engineering costs per CTM would be higher on domestic routes than on international routes. Even more significant than this fact is that there is a difference between the types of aircraft ed on the two services. Mention has already been made of the different CTM production per flying hour on the Vanguards used on domestic services as compared with those employed on inter- national services; and another significant reason why engineering costs are lower for international services is that the Comet, which has the lowest engineering cost per CTM of our present aircraft types, provides some 38 per cent of our international capacity and none of our domestic capacity. Your contributor comments on Viscount 700 engineering costs in 1962-3. There is a simple answer to this—extensive wing-spar modifications were necessary on this type of aircraft and they exercised considerable influence on the costs falling into our annual accounts for the year 1962-3. I am intrigued at the suggestion that there has been a mis- it allocation of £250,000-worth of engineering costs between inter- national and domestic services. Since this suggestion is not sup- ported by the information given here, or in the appendices to our Report and Accounts, I can only assume that your contributor has made his own assumptions—perhaps "tempered by any pre- conceived opinion." The short answer to the relative profitability of Viscount 800 operations on the German internal network is that the average annual revenue rate is higher than the UK average annual rate. It must also be borne in mind that the UK domestic services have to bear a number of above-average costs, such as the heavy UK scales of landing fees at both ends of the operation. Your contributor claims that the average staff cost per head in BEA has increased more rapidly than the national average. In making this assertion he has used 1955 as his "base" year. If he had chosen to use 1952, as does the Ministry of Labour's publica- tion, Statistics on Incomes, Prices, Employment and Production, he would see that from then until 1963 the national average has increased by about 86 per cent, which is the same amount by which the BEA average has risen. In the comments on the Isle of Man network is is claimed that BEA lost £468,000 on this network on a turnover of £586,000. Our Report and Accounts for 1962-3 showed that this loss was incurred on the whole of the Irish Sea routes, of which the Isle of Man routes formed only a part. Comparison is made between Cambrian Airways' crew costs for the Viscount 700 and those of BEA. I suggest there are a number of factors which influence this compari- son. For example, BEA considered the cost of modifying the aircraft for two-crew operation, after their withdrawal from international service, unjustified in view of the comparatively short period they would remain in use with us. Cambrian Airways appear to view the working life of the Viscount 700 as sufficiently long to justify modifications to permit two-crew operations. In 1962-3 we were running-down our Viscount 700 fleet and crews. This, coupled with the seasonal nature of the network, inevitably resulted in low utilization and thus comparatively high unit costs. On the question of Trident utilization your contributor compares the eight aircraft required to operate this summer's schedules with the twelve we shall have by March 1965. Low utilization in the delivery period is one of the penalties one pays for "pioneering." Aircraft deliveries have to take into account the manufacturer's production line, and this often means additional capacity cannot be tailored exactly to the operator's ideal requirements. Against a background of continually rising prices in the UK and Europe I wonder how many other businesses can show reductions since 1949 in unit costs ? And how many can show reductions in the Average fares and unit cost level •icfifc -20% -3O% -scf/o 1949 \ LEVE \ VJ f \ k A PAS •*» SEN< y N PE( 3ER SJ CO >ER MILE 5T s\ 1949 5O 51 52 53 54 55 56 57 58 59 6O 61 YEARS TO MAR 31 62 63 64
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