Fuel burn and operating costs

Obviously, the comments from Boeing’s  Randy Tinseth about reengining and what it means to the operating costs of an aircraft caused some confusion about the relation between fuel burn and operating costs.

Randy Tinseth said that the reengining, widely believed to result in a fuel burn advantage of  13-14% would mean that operating cost would be 3-4% lower than today.

Some people were surprised by this low number (at least compared to the 15% better SFC the engines shall deliver), but it becomes clear, if you put it in perspective:

With a fuel price around $2/gallon, fuel accounts for roughly 40% of the cash operating costs. 14% from 40%....- that’s 5.6% cash operating improvement. Mow all depends on the airlines capital costs to determine the effect on direct operating costs.

But it’s not a too long way to come from 5.6% to 3-4%, so Tinseth’s numbers seem to be in the right range.

The question is, if he is right when he says that these 3-4% would just close the gap between today’s narrowbody families, bringing the A320NEO essentially on par with the B737NG.

I guess that’s there many airlines (and Airbus of course) would disagree. As both aircraft manufacturers as of today own about 50% of the market, I would say that the aircraft are more or less on par - in the end it depends on the exact mission an airline has for the aircraft (stage length, cargo revenue potential, etc.) to decide which one is better for it.

Now: 3-4% does not sound like a lot – does that justify the reengining effort?

Yes! It becomes clear if you take a look at the results of airlines like American or Continental. Taking the numbers from their quarterly filings one can obtain their operating profit and operating margin. As fuel costs are listed separately, you can see what would happen if the whole fleet would be 15% more fuel efficient.

Of course, this is a simplification, but still impressive, I think - it makes Continental in 2009 going from a $147m. loss to a +$350m. operating profit - American would have made an operating loss of (just) $171m. instead of $1004m.