How to Manage Rising Flight Operation Costs

It doesn’t take much scrutiny of the news to see how the cost of living is increasing. As the world struggles with supply of raw materials, manufacturing, labor shortages, and global crises including the fallout of Covid-19 and Russia’s war in Ukraine, those rising costs have predictably spread into the day-to-day running of Flight Departments.

At the start of a New Year, Flight Department Managers around the world are tasked with entering the new escalation costs into their spreadsheets. Some of the increases are part of long-term contracts covering support services (such as engines, APUs and maintenance agreements), and are to be expected. But what about those which aren’t?

Take the Long View

I have always taken a long view towards budgeting. For example, I do not change my fuel price according to market oscillations. Instead, I set an annual budget per Jet A gallon used as a benchmark for the coming year.

The price of fuel may go up down or up, but if the cost remains below the benchmark, I change nothing on the fuel budget. I do not use block hours in my calculations, since actual flying is the service we provide.

Ultimately, I validate the monthly expenses, running year-to-date expense reports against the hours flown. As a matter of fact, I met with some success while staving off the rising costs last year.

Keeping abreast of Business Aviation trends helped inform me that hangaring costs would continue to soar, with availability decreasing. Our operation responded by negotiating a five-year lease for our hangar.

While we had to accept annual adjustments, predicated on non-fixed benchmarks, the idea of keeping an expensive jet on the open tarmac was a considerably costlier proposition if you consider the wear, degradation, corrosion, and maintenance issues.

Managing Maintenance Costs

I believe that business transactions should be beneficial to both parties. Just recently, my Flight Department negotiated a new maintenance contract, for which I insisted on a fixed escalation over the life of the contract.

While the maintenance provider argued this type of agreement could result in us paying more than we would for a variable annual escalation, my experience has taught me to prefer fixed values for budgeting purposes.

While it was a calculated risk, it worked in our favor when the annual correction indexes were well above our agreed fixed-price increases.

With that being said, we are solid stewards of our maintenance contract, working carefully with our provider to save money, reduce costs, and troubleshooting issues before exchanging expensive components.

Because business aircraft reliability is predicated on maintenance and inspections, we need to be attentive to our short-, mid- and long-term needs. The cost of aviation maintenance labor has increased tremendously, while the maintenance workforce has dwindled. When planning major inspections, it has become necessary to select a provider at least one year ahead of the scheduled due date.

The selection process should include the scope of the work, the predicted length of downtime (including a cushion for unforeseen findings) and a price that is negotiated and accounting for cost inflation at the time the work will be performed.

My Flight Department is three years away from a major ten-year inspection of our aircraft, but we are already in the process of selecting a provider and discussing the extra tasks that we plan to accomplish during that inspection. Our aim is to have a solid quote and reservation for aircraft input within the next few months.

Managing Insurance Costs

One of the most significant cost increases recently is insurance. As discussed an earlier article (What Caused Your Aircraft Insurance Rate Hikes?), insurance costs rose due to the large number of claims and reinsurers exiting the market.

One tip to help trim your insurance rate is to look at the market value of the aircraft. If you insure at a value higher than the actual market value, be aware that in the event of a claim the insurance company will only cover the actual value, not the extra insured amount.

By efficiently evaluating our airplane we reduced our insurance premium. Further optimization could be had by adjusting liability coverage. But our best savings were realized by joining all our corporation’s insurance with one major insurer. The actual cost of the aircraft’s policy remained the same, but the preferential customer status we received provided a discount – and the savings were considerable.

Managing Fuel Costs

While many would believe that increased fuel cost would result in less flying, historically, fuel prices don’t impact flying. That continues to be the case today. 

Having said that, a Flight Department that isn’t signed up to a fuel purchase program is ultimately paying for my fuel discounts! Fuel programs are the easiest way to deliver immediate savings and reduce the expensive ramp and facilities charges. In fact, I consider fuel programs to be the number one initiative for Flight Department Managers trying to build a balanced budget.

Managing Crew Compensation

Finally, with the increasing demand for experienced pilots and inflation inflicting pain, crew members will be looking for raises at the same time as our company principles tighten their corporate budgets to remain profitable.

Flight crews have unique life schedules, being available 24-7 throughout the year. Their compensation is also unique. Whatever your financial situation, remember that an attractive compensation package will include a healthy work-life balance, where people feel valued, respected, empowered, integrated, and part of the team, while being able to focus on their interests, families and friends outside of work.

While finances may not be available to offer a pay rise, there are other proactive steps to be taken to keep the team happy.

My best wishes for a fruitful New Year, with many flight hours, under calm skies, to new and exciting destinations. Fly safe!

Read more articles covering a range of topics on Flight Departments Management