COC and DOC Part IV

Over at Leeham News where is a heated debate (once more) over if the A320(neo) or the B737(MAX) is the more efficient aircraft. As both aircraft were ordered and are flown in thousands both aircraft obviously cater their respective users - besides there are quite a few airlines operating both aircraft.
I tried to lay out how looking at DOC's or COC's or looking at costs per flight or per seat influences such a comparison in an earlier post.
Let's have another look at it. DOC or Direct Operating Costs are comprised of

• Fuel Costs
• Flight Crew Costs
• Cabin Crew Costs
• Landing Fees
• Maintenance Costs for the Aircraft
• Maintenance Costs for the Engine

This is true for the North American Environment. In Europe there are additionally en-route fees. Another difference is that airports in North America base their landing fees on Maximum Landing Weight where European Airports base them on Max Takeoff Weight and many have additional fees for noise and  NOx.
I concentrated on the North American Environment and found $4.40 per 1,000lbs landing weight to be a fair value. The Max Landing Weight (MLW) I took from the information provided by Airbus and Boeing for the respective highest weight variants.
I found pilot and 1st officer wages here. I took the average from Southwest and Jetblue and came out with $305.50 for both per hour. For the flightcrew I got information here and picked $50/hour for my calculation. I calculated with one flight attendant per 50 seats.
The most difficult part is the maintenance cost evaluation. I found some valuable information here and here and decided to take $600 per flight hour for aircraft maintenance and $300 per flight hour for engine maintenance into the calculation, regardless of the engine involved (and I know that some readers might cry "foul" here, but at least the CFM56-5B and -7B should not be that far apart).
If you sum all these cost elements up and calculate the fuel burn (I used well calibrated models for the A320 and B737-800), you have a comparison of the DOC per trip. Divide it by the number of seats and you have the DOC per seat (and trip). I took the numbers that Boeing uses (150 for the A320 and 162 for the B737-800).
I did calculations for a 500nm mission and a 800nm mission. Boeing likes to present their numbers based on the shorter, Airbus favors the longer mission.
Fuel burn for the A320 was found to be between 0.4% (500nm) and 1.6% (800nm) lower than for the B737-800. on a per sear basis that means the Boeing aircraft is more efficient by between 7.1% (500nm) and 5.9% (800nm). A fuel price of $3/gallon was assumed for this analysis.
The result:

• The B737-800 has between 2.6% (500nm) and 3.3% (800nm) higher trip costs than the A320.
• The B737-800 has between 5% (500nm) and 4.4% (800nm) lower seat costs compared to the A320.

Now let us have a look at the Direct Operating Costs, which include the capital costs. Conventional wisdom is that the monthly leasing rate is about 0.8% of the list price.
The current list price for the A320ceo is $88.3million, the B737-800 sells for $84.8million at list.
This translates into a monthly leasing rate of $706.400 for the A320 and $678.400 for the B737-800.
Assuming around 3.000 operating hours a year the aircraft can operate we get lease cost per trip between

• $4.238 - $6.216 for the A320
• $4.070 - $5.970 for the B737-800

depending on the trip length.

This leads to a DOC/trip cost advantage of roughly 0.15% for the

• B737-800 for the 500nm mission
• A320 for the 800nm mission

On a per seat basis the B737-800 is better by

• 7.6% for the 500nm mission
• 7.25% for the 800nm mission

The leasing cost account for roughly 42% of the trip costs. If the leasing rate of one of the aircraft is considerably lower than for the other, the picture changes pretty much: if, for example, the monthly leasing rate for the A320 is just 0.75% of the list price, the DOC/trip advantage for the A320 is between 2.5% and 3%.

This little analysis shows how unimportant a few percentage of fuel burn are even in a high fuel cost environment. The higher capacity of the B737-800 can result in more revenue and profit when you are able to fill the additional seats. If your load factor is in the 80% range with a A320, you are probably better off with the slightly smaller aircraft.

UPDATE: Scott Hamilton was so kind to provide "real-life" monthly lease rates for the A320 ($325,000) and the B737-800 ($385,000). I used the list prices as I had no better source. Counting in these lease rates, based on discounted list prices, the picture somewhat changes:

It leads to a DOC/trip cost advantage for the A320 between

• 6.5% for the 500nm mission and
• 7.2% for the 800nm mission

On a per seat basis the B737-800 is still better, but only marginal at

• 1.4% for the 500nm mission
• 0.7% for the 800nm mission

Again, this analysis shows that fuel burn is only one factor and that fuel burn difference between two aircraft stemming from a few percentages in engine SFC is way less influential as the capital costs. Hence Delta Airline opting to lease the B717 from Southwest/Airtran instead of buying (for example) the CSeries. The lower fuel burn would (at least in the Delta Airlines Cost World) not offset the higher capital costs involved with buying or leasing a brand new aircraft.
Another example of this "business model" (low capital costs coupled with higher fuel costs) is Allegiant. They are buying their MD-80 for $2-$3 million a piece - leasing a B737.-800 would cost them about $4.62 million a year with a monthly rate of $385,000! Say Allegiant financed the $3m buy of an MD-80 with an 8% loan, so they have to pay $20,000 in interests each month - still they are saving $365,000 over the B737-800.
I remember American Airlines stated that a B737-800 burn about 30% less fuel than a MD-80. For an 800nm trip I get fuel costs for the MD-80 that are $1,404 higher than for the B737-800. Theoretically you could fly 260 each month for the saved $365,000 before you have the same costs for fuel + financing. Of course the maintenance costs for a  20+year old  MD-80 are way higher than for a brand new B737, so this is only one side of the medal - but it shows why different airlines can make money with different business models.