Developing a cost model for running an airline service

Abstract

The study involves, describing the nature of the airline industry, especially in the African situation with some of its problems being high airfares and inaccessibility within the continent. In order to address these problems an analysis of the minimal operating costs and challenging factors affecting route costs needs to be carried out. The aim of the study was to develop from first principles, a cost model to calculate operating costs along any route in the African continent. The costing of an airline service is reviewed through existing literature and a compilation of the structure, components and their equations and default values was done. A model structure to calculate these operating costs on a route is set up, while data is analysed to provide inputs to the model. The model is then applied to carry out an analysis of the type of service provided in terms of costs and service quality. Africa specific data is then included in the model in terms of passenger trips and sector distances and these are embedded into the model. The main conclusion drawn from the study was that this model could be used to design optimally an airline service based on operating costs using existing passenger demand and sector distance. The model was applied to a route within Africa and results showing how smaller capacity aircraft even though limited by maximum range are the most economical to run along routes when the frequency of flights is high.