Money grounds Qantas flights, analyst says

[Paul McFarlane]

From news.com.au (http://www.news.com.au/business/breaking-news/money-grounds-qantas-flights-analyst-says/story-e6frfkur-1226083517240)

Gee the boys and girls in the QF Public Relations department must be wondering if their career path choice was wise! :D

Certainly gaining some good experience.

[Chris W]

I think you will find that CASA had a lot to do with it as well...

[damien b]

Not so sure CASA did have anything to do with it as most international flights flew (surely CASA would have stopped them if safety was a big issue, similar to what happened in Europe) and i know REX was going to fly out of Sydney but the icing conditions on Tuesday afternoon/evening halted that idea. They couldn't go below or above the ash cloud.

[Radi K]

load of ***** - and that is being nice.

planes sitting on the ground not flying actually cost more to and airline than flying them with revenue passengers! Consider the lost yield all airlines that cancelled hundreds of flights must have experienced!

its aviation economics 101.

[Hugh Jarse]

Aviation economics 101. In which country, Radi? Last time I looked, we don't do "101" in Australia.;)

[Ash W]

So Hugh are you suggesting that Qantas would be better off just shutting up shop? If not then what Radi is saying is true. It would have cost Qantas more to be grounded than it would have to keep flying.

[Dave Powell]

load of ***** - and that is being nice.

planes sitting on the ground not flying actually cost more to and airline than flying them with revenue passengers! Consider the lost yield all airlines that cancelled hundreds of flights must have experienced!

its aviation economics 101.

it's the marginal yield of the flight that is important question - if your revenue from the flight is less than the marginal cost of operating the flight (i.e fuel, landing fees, handling fees etc) then it's better not to go.

Certain costs such as depreciation etc get incurred whether the flight operates or not.

cheers

Dave

[Ash W]

Your labour costs also get charged if a flight is cancelled and you need to consider the flow on effects of canceling a flight as this too may have a fiscal implication.

[Dave Powell]

Hi Ash

Labour is thus a sunk cost - and can't be used as an argument to fly - you incur it whether you do or don't. I accept that there are other implications arising from flow-on effects and I'm sure that QF along with other major carriers model this.

Bottom line is though if you're not making a marginal contribution to your sunk costs, you have to very carefully assess whether you go ahead.

I am not questioning QF's decision to go or not go in this circumstance, more replying to the earlier post regarding yield.

cheers

Dave

[Ash W]

Dave I disagree to an extent.

If lets say it costs $10,000 in fixed (sunk) costs (including labour fee's etc) to not fly clearly with $0 in income for that flight and it cost $20,000 to fly with an income of $25,000. How can it be cheaper to stay on the ground? Even flying at a loss with say an income of $15,000 is still $5000 cheaper than staying on the ground.

Bottom line is so long as the income exceeds the costs inccoured by actually flying it is cheaper to fly than stay on the ground.

[Adam P.]

Bottom line is so long as the income exceeds the costs inccoured by actually flying it is cheaper to fly than stay on the ground.

...and as they didn't fly, some external factor must be weighing into the decision. Like, oh I dunno, a large cloud of volcanic ash, maybe?

[Dave Powell]

Dave I disagree to an extent.

If lets say it costs $10,000 in fixed (sunk) costs (including labour fee's etc) to not fly clearly with $0 in income for that flight and it cost $20,000 to fly with an income of $25,000. How can it be cheaper to stay on the ground? Even flying at a loss with say an income of $15,000 is still $5000 cheaper than staying on the ground.

Bottom line is so long as the income exceeds the costs inccoured by actually flying it is cheaper to fly than stay on the ground.

Ash

If you stay on the ground you spend $10k and receive nothing - agreed.
If you fly and receive $25k income for $20k marginal cost (fuel etc) - yes it is better to fly as you are contributing (25-20) = $5k towards your $10k sunk cost.

If however you get income of say $15k and the marginal cost of flying is $20k your net spend is $5k on top of your sunk costs (i.e more expensive than staying on the ground).

cheers

Dave

[Ash W]

...and as they didn't fly, some external factor must be weighing into the decision. Like, oh I dunno, a large cloud of volcanic ash, maybe?

Exactly, which is what makes the claim that they didn't fly for purley commercial reasons wrong. In other words it cost them more to stay grounded.

[Paul McFarlane]

If I may just interrupt for a moment..:p

Here is the Jetstar rebuttal from news.com.au (http://www.news.com.au/breaking-news/national/jetstar-cancelled-flights-for-safety-not-money/story-e6frfku9-1226084317647)

[lloyd fox]

Well they have added to their own costs by placing full page adds in all Australian newspapers the past 2-3 days.

[Radi K]

Dave you raise valid points but you are failing to consider the need to re protect passengers on other airlines (even your own later on), putting them up in accommodation, even offering refunds etc. Full flights when the ash departs doesn't necessarily mean the aircraft is making money for you on that given day. You could have sold those empty seats, even some, at a premium, to make that particular flight profitable. But airlines don't look at profitability based on a specific flight, or if they do it's rare. Its mostly on a citypair basis and sometimes tweaking of the flight schedule is necessary to achieve the optimum yield, based on maximum connections etc.

I can assure you that within the airline environment, the financial burden because of serious disruption (be it weather, IT, ATC etc etc) far exceeds the operating costs of flying an aircraft half empty. Aircraft and crew end up out of position, maintenance cannot be completed, it does untold damage to your brand etc.

If your theory is correct, airlines would be cancelling flights left right and centre that were not making money on a given day. Most cancellations in Australia and indeed worldwide come about because of operational reasons. (lack of crew, weather, engineering etc)