An interesting accounting question for 'filler' flights (Updated)

Hi AirlineSimers,

 

I’m thinking of an accounting issue for a filler flight. By ‘filler’, I mean a non-essential, non-hub flight set up primarily to maximize the usage of an aircraft (and of course earn some revenue).

 

With my previous flight plan, I have my outbound hub flight LAS - PHL, stay at PHL for around 3 hrs, and make it back to LAS for my hub connection. The aircraft usage would be 200+%. Therefore, I decide to set up a PHL-BDL short-haul flight to fill the 3-hr turnaround at PHL. My flight plan becomes LAS-PHL-BDL-PHL-LAS, that brings down my aircraft utilization to a very healthy 110%.

 

The load factor for PHL-BDL flight is of course sub-optimal, since PHL is not my hub, I can only depend on the O/D traffic between PHL-BDL (and a small LAS-BDL connection). The flight shows up as an accounting loss on the flight information page. However, I think the flight information page cannot reflect the whole picture of my PHL-BDL flight, since the other option is to let the plane stay idle while I still have to pay the same leasing amount at the end of the week. My rationale is that I can manually re-calculate the ‘fixed cost’ section to see if my filler flight is actually making money. Here is my recalculation below.

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I'm assuming I'll otherwise pay the exact same amount for these fixed costs (such as leasing/depreciation, salaries etc.), so I set them to zero for this flight. I think this method might overestimate profit for a bit, but generally serve the purpose. I'm wondering this is a way to approximate profits for filler flights, or if there are other critiques about it. 

Updated v1.1

What about taking this a step further? I plan to operate LAS-NRT-HKG, in which I have no traffic rights between NRT and HKG. I cannot fill my plane full LAS-NRT, so adding HKG as a second destination flight makes the LAS-NRT leg more 'full', since there are additional passengers going to HKG also on-board. Even the CMII number could still remain negative, it could in some circumstances be a net gain for me.

Assume 25 economy passengers transfer on NRT-HKG, should my adjusted CMII number be:

CMII[NRT-HKG] + 25*Price[LAS-NRT] - 25*Var-Flight-Cost[LAS-NRT]

Thanks a lot!

Just look at CMII

Yep, that's what the calculation with contribution margins is for. If CM I and II are positive, it's still better to operate the flight than not operating it, as all the fixed costs exist anywa

Just look at CMII

Thanks! I'm wondering what about an additional leg without traffic rights? For example, LAS-NRT-HKG, should I add additional gross profit from transfer passengers from LAS-NRT to the CMII of NRT-HKG leg to see if that's positive?

Yep, that's what the calculation with contribution margins is for. If CM I and II are positive, it's still better to operate the flight than not operating it, as all the fixed costs exist anywa

Thanks! If there are my own transfer passengers on-board, could it be profitable for me even if the CMII number is a little negative?

If those passengers are flying A-B-C and let's say revenue A-B is 400 and B-C is 100, and you have availability on A-B that passengers on A-B-C can take, then what you need to do is calculate net revenue from A-B for those incremental passengers (excluding on board service), net revenue from B-C for those passengers, and deduct cost for operating B-C segment.

This would only be true if passengers flying A-B-C do not displace passengers who want to fly A-B.

You may also want to do the calculation for the whole round trip.

If those passengers are flying A-B-C and let's say revenue A-B is 400 and B-C is 100, and you have availability on A-B that passengers on A-B-C can take, then what you need to do is calculate net revenue from A-B for those incremental passengers (excluding on board service), net revenue from B-C for those passengers, and deduct cost for operating B-C segment.

This would only be true if passengers flying A-B-C do not displace passengers who want to fly A-B.

You may also want to do the calculation for the whole round trip.

Fantastic! I checked these rules and some of my A-B-C-A triangular flights actually worked out pretty well! As for no-flight-right B-C flights, most of them are at most close to breaking even... it's definitely quite challenging to operate those flights.