Developing a cost model for running an airline service

Abstract

Paper presented at the 23rd Annual Southern African Transport Conference 12 - 15 July 2004 "Getting recognition for the importance of transport", CSIR International Convention Centre, Pretoria, South Africa. From the NEPAD objective of partnership in the African continent, major connectivity within Africa as should be addressed through air transport. The paper involves, describing the nature of the airline industry, especially in the African situation with some of the issues being high airfares and poor accessibility within the continent. In order to address these problems however, an analysis of the minimal operating costs and key factors affecting route costs is carried out. The aim of the paper was to develop from first principles, a cost model to calculate operating costs along any route in the African continent and test its applicability. The costing of an airline service is reviewed through existing literature and a compilation of the structure, components and their equations and default values done. A model structure to calculate these operating costs on a route is set up, while data is analysed to provide databases and calculations to the model. The model is then calibrated by comparing costs calculated with fares of a given route within Africa, showing its applicability while proposals for further research in hubbing to consolidate traffic as a method of minimising costs for airlines.