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Client Update - quarterly newsletter |
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The Airline IndustryBarry's Accounting Services can help you get tax-related benefits to which you are entitled if you are an aircraft owner, buyer, seller, leasing company, charter/air taxi operator, airline/aviation support company, pilot, or flight attendant. Our practice includes acquisition and disposition of business aircraft, budget and forecasting, route revenue analysis, federal, state, fuel, and airport tax reporting. For pilots and flight crew, the new rules include per diem calculations, crash pad and airport car limitations, fringe benefits, supplies, training costs, and expenses, etc. Please call to discuss your specific issues. Overview A large airline can handle about 200,000 calls and about 300,000 pieces of luggage daily. An airline can schedule 2,000 flights daily and have 50 different fares attached to each flight because there are many variables in its pricing system/mechanism. TSA screening does contribute to baggage delays causing 1% of the luggage not to be on the same flight with the customer. About 70% of the luggage that is handled by a carrier may have to be routed to connecting flights. Sometimes they may have to be sorted and driven to a lot of different planes. Less baggage on a flight creates more room for cargo storage and cargo rates are considerably more lucrative for the airline. Revenue from dedicated contracts, including freight-forwarding contracts with other haulers, can be in the billions of dollars, but damaged and lost cargo can translate into lost profits for the consignee and loss of confidence and future freight revenue for the airline. When positioning or benchmarking, the airline should be a leader on price or quality, but don't get stuck in the middle. This is a tough challenge for airlines that are burdened with "legacy costs," but the aviation graveyard is filled with airlines that have failed trying to cut price while boosting service. Overbooking of passengers should be anticipated by airline personnel and timely arrangements made to add backup planes or add more seats to accommodate connecting passengers and get more traction on pricing to recoup money lost.
Clemson (Clem) Barry advises and prepares taxes for clients in the transportation industry. He has worked in the cargo industry for many years. He started out doing custom brokerage where he gained valuable experience in the airline and merchant marine industry. He has done extensive research on Southwest Airlines, a low-fare carrier; Virgin Atlantic, a premium-class carrier; and two of the "legacy" carriers. He graduated from Travel Institute in 1981.
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Income
Expenses
Jet fuel (Jet "A"), aviation fuel, is expensive and heavy to carry. Jet fuel can cost an airline up to $6 billion annually. A $1 increase in fuel price can increase the annual fuel bill by $70,000. Increases in fuel costs coupled with an economic slowdown can have an impact on tourism. A 10% reduction in airline capacity can translate into a 3% decline in hotel occupancy. Depending on the age, configuration, and condition of the aircraft, 5% of the fuel carried by the aircraft is burned during preparation for departure, including taxiing along the runway. To save on fuel costs in this volatile energy market, the airline should consider hedging at least 60% of jet fuel and it should consider adding home heating oil futures and other instruments to make the hedge work. It works for Southwest Airlines, and Lufthansa seemed interested in implementing that strategy. Hedging can be structured to provide protection against souring prices and benefits from falling prices. The airline should consider buying lighter planes and carrying less or lighter miscellaneous incidentals. It can save about $2 million in annual fuel costs if it can save one gallon of fuel for every 1.5 miles traveled. The pilot should not fill the fuel tank completely. Instead, s/he should consider taking just enough fuel that will allow for departure and landing at the destination, then refuel for the return trip. The pilot should consider taxiing on one engine then starting the other engine a few seconds before take off. A 767 aircraft weighing 145 tons and going from zero to 150 mph can cover 150 feet of runway in 10 seconds.