Propiedad, instalaciones y equipo

It is normal practice to divide airline accounts into operating and non- operating categories. The aim is to identify and separate out as non- operating items all those costs and revenues not directly associated with the operation of an airline’s own air services. Following ICAO and US practice, most airlines have adopted this approach which identifies as non-operating the following five items:

1 The gains or losses arising from the retirement of property or equip- ment, both aeronautical and non-aeronautical. Such gains or losses arise when there is a difference between the depreciated book value of a particular item and the value that is realised when that item is re- tired or sold off.

2 Interest paid on loans, as well as any interest received from bank or other deposits. It is considered that bank interest paid or received has little to do with the business of flying. For some costing purposes, however, such as aircraft evaluation, some airlines would include in- terest paid on aircraft-related loans as an operating cost.

3 All profits or losses arising from an airline’s affiliated companies, some of which may themselves be directly involved in air transport. In some cases this item may be of some importance in the overall finan- cial performance of an airline. Early in 2009 British Airways, for ex- ample, had 18 majority-owned subsidiaries and minority investments in at least four other aviation companies, including three airlines (Iberia, with a 13.15 per cent shareholding, Comair Ltd in South Africa, and Flybe in the UK), and in the UK’s National Air Traffic Services.

4 An assortment of other items which do not fall into the previous three categories, such as losses or gains arising from foreign exchange transactions or from sales of shares or securities. In recent years air- lines have from time to time made large losses or profits as a result of sudden marked fluctuations in exchange rates. These are clearly a non-operating item.

5 The final item includes any direct or indirect government subsidies or taxes on profit or other corporate taxes. In the case of some airlines, subsidies have at times been very substantial. Thus, in the mid-1990s Air France, like several other state-owned airlines in Europe, received massive injections of state funds to enable it to reduce its debts and re- structure its operations (see Doganis, 2006). Subsidies have also been paid periodically to most government-owned airlines outside Europe. Such subsidies should appear as non-operating items. Similarly, profit taxes or other corporate taxes would also be categorised as non- operating.

For some airlines non-operating items may have a major impact on their financial results. Singapore Airlines (SIA) provides a dramatic example. In the financial year 2006–7 SIA produced an overall net profit before tax of $1,456 million. Of this, a little less than half $717 million or 49.2 per cent was from airline operations (Table 4.1). The remainder (50.8 per cent) came from non-operating items. Nearly 30 per cent of the profits came from surpluses generated by selling assets – aircraft (10.4 per cent of profits), the HQ building (9.6 per cent) and its investment in a leasing company (8.7 per cent). There was also an exceptional tax write back in that year of $157 million following a change in the tax rate. In the following financial year 2007–8, there were no large exceptional items and the surplus on sale of aircraft and engines was substantially less. As a result, non-operating items ac- counted for only 17 per cent of SIA’s pre-tax profits. The SIA case amply illustrates why it is essential to separate out non-operating

items so as to get a true assessment of how well the core business, which is flying aircraft, is doing.

Table 4.1 The impact of non-operating items on financial results – the SIA case in 2006–7

Non-operating items are not necessarily profits or surpluses as in SIA’s case. They may well be losses or costs. Most airlines normally pay out a great deal more in interest charges on their loans than they receive from their own cash deposits at the bank. This is particularly so of state-owned airlines whose development has been financed by a succession of loans rather than through injection of equity capital. But even many privatised airlines face large interest payments on their debts, which may not be off-set by interest they may earn on their cash in hand.

The nature of each airline’s non-operating costs and revenues is prob- ably unique, in that many non-operating items are influenced by

circumstances which are very particular to each airline. As a result inter-airline comparisons of net profits or total costs including non- operating costs are of little value.

In fact, in years when their profits decline, many airlines ‘massage’ their non-operating costs or revenues to improve their bottom line results. For instance, it is common for hard-pressed airlines to sell some of their aircraft and then lease them back. This generates a sub- stantial cash inflow which appears as a positive non-operating item which may offset any operating losses. Because of such anomalies and complexities it is better when assessing an airline’s costs or revenues to leave non-operating items aside and to focus on its operating costs or revenues. These are the best descriptors of its performance as an airline.

On the operating side, airline accounts are divided into operating rev- enue and operating costs. The latter can be further subdivided into direct operating and indirect operating costs. But direct and indirect have a different meaning in the airline industry from that in normal accounting usage.

In theory, the distinction between these two cost categories is fairly clear. Direct operating costs should include all those costs which are associated with and dependent on the type of aircraft being operated and which would change if the aircraft type were changed. Broadly speaking, such costs should include all flying expenses (such as flight crew salaries, fuel and oil), all maintenance and overhaul costs and all aircraft depreciation costs. Indirect operating costs are all those costs which will remain unaffected by a change of aircraft

DIRECT OPERATING COSTS (DOC)

1 Flight operations

• Flight crew salaries and expenses • Fuel and oil

• Airport and en-route charges* • Aircraft insurance

• Rental/lease of flight equipment/crews**

2 Maintenance and overhaul • Engineering staff costs • Spare parts consumed

• Maintenance administration (could be IOC)

3 Depreciation and amortisation • Flight equipment

• Extra depreciation (in excess of historic cost depreciation) • Amortisation of development costs and crew training

INDIRECT OPERATING COSTS (IOC)

4 Station and ground expenses • Ground staff

• Buildings, equipment, transport • Handling fees paid to others

5 Passenger services

• Cabin crew salaries and expenses (could be DOC) • Other passenger service costs

• Passenger insurance

6 Ticketing, sales and promotion • General and administration

7 Other operating costs

Notes

* ICAO classifies airport and en-route charges as an indirect operat- ing cost under ‘Station and ground expenses’.

**The US practice is to classify rentals under ‘Depreciation’.

type because they are not directly dependent on aircraft operations. They include areas of expenditure which are passenger related rather than aircraft related (such as passenger service costs, costs of ticketing and sales, and station and ground costs) as well as general adminis- trative costs. In practice, however, the distinction between direct and indirect operating costs is not always clear-cut. Certain cost items, such as maintenance administration or costs of cabin staff, are cat- egorised as direct costs by some airlines and as indirect costs by oth- ers. The main categories of airline operating costs are shown inTable 4.2. The cost categories shown are those currently accepted and used, with some modification, by most international airlines around the world. They are broadly based on the cost categorisation traditionally used by the International Civil Aviation Organisation.