1. Airline
Budgeting
Elizabeth Conley
ITT - Project Management

2. What is Budgeting
 A written plan or
estimate of future
income or
expenses of an
activity covering a
definite time
period.
 The word BUDGET
taken from the old
French word
bougette, means
purse.

3. Types of Budgets
Incremental
Budgeting
 Increase on the
previous year
budget to a % or
on a fixed value
and converting it
to the next years
budget.
Zero Based
Budgeting
 Process of building
up the budget as
fresh from 0 by
evaluating the socio-
economical, business
conditions, find out
alternatives to arrive
on a real time
expenses or revenue.

4. How Airline
Budget Differs
Airline Budget is slightly
different from the budgets of
other business types. Basically
the numbers are purely
statistics, %, and available
resources.

5. Zero Based Budgeting (ZBB)
 Zero based budgeting is a technique of planning &
decision making which reverses the working process of
traditional budgeting.
 In traditional incremental budgeting, departmental
managers justify only increases over the previous year
budget & what has already been spent is automatically
sanctioned.
 By contrast, in zero-based budgeting, every department
function is reviewed comprehensively & all expenditures
must be approved, rather than only increases
 No reference is made to the previous level of expenditure.
Zero-based budget requires the budget request be
justified in complete detail by each division manager
starting from the zero-base.
 The zero-base is indifferent to whether the total budget is
increasing or decreasing.

6. Advantages of ZBB in Airlines

7. Technological Changes
Aviation is a field of advanced technology .
Automation brought huge amounts of reduction in
manual tasks. High tech equipments & services are
added to operations & infrastructure. This will
change the behavior of operating costs.

8. Cost Effective Alternatives
 Many cost effective alternatives are
available in airline operations. IN ZBB,
Business Managers will prompt to think
cost effective alternatives.

9. Changes in the Economical
Conditions
 While thinking about ZBB, department
Managers can consider the possible
socio-economical conditions.
• Air transport drives economic & social progress
• It connects people countries & cultures
• It provides access to global markets
• It generates trade & tourism
• It forges links between developed & developing
nations.

10. Activity Based Cost (ABC)
Analysis
During ZBB, in order to justify
the expenditures business,
managers will run through the
“activities” through which we
can find out the items of high
cost impact & the method of
controlling the cost.

11. Advantages to ABC systems
used in other Businesses
•Link operating behavior to Product &
Customer segment cost
•Support existing & new product
pricing decisions
•Report consistent & reliable
profitability results by product
Behavior Cost Profitability Value

12. Base of Airline Budget Process
•Blue Print of future operation. First step toward Budget.
•Frequency of operation, type of A/C used, available seats for sale,
capacity to carry cargo available on it.
Operating Plan
•Revenue projections based on the available seats & expected
load factor with an average cost @ ticket @ class @ section
•Revenue adjustments from the Customer Loyalty programs
•Ancillary revenue from onboard sales, souvenir shops, etc.
Revenue
Projection
•CAPEX commitments such as A/C purchases, pre-delivery
payments, Engine purchases, Rotables, spares, stocks, etc.
•CAPEX are HUGE numbers therefore have a big impact on Budgets
Capital
Committments

13. Airline Budget Approach
Centralized
 Airport charges
 Handling charges
 Overflying/navigation
 Catering
 Fuel & technical
 Manpower/crew cost
 Taxes & insurance
 Foreword depreciation
Departmental
 Admin Expenses
 Temp manpower
 Phone/utilities
 Local station exps
 Departmental CAPEX
 Local taxes
 Projects
 Other expenditures

14. Process of activity based cost
(ABC) analysis
ACTIVITY
UNIT COST
ANALYSIS
RELEVANCE
USAGE
REDUCTION
COST
EFFECTIVE
ALTERNATIVE

15. ABC OVERVIEW
 Airlines have a highly efficient network of
shared assets that constantly adjusts to
meet demand
 Resources are shared across product lines
making it difficult to identify unique cost
differences
 Analysis of pax market segments provide
a framework to answer such questions as:
THE CHALLNEGE

16. Insights from ABC system support
many current applications
View of cost & profitability of a
division by product across the network.
Activity based forecasting to
integrate financial business plans
with profit objectives.
Database of cost information for
internal cost comparison analysis.
Tool to ensure appropriate pricing.
Monitoring System to track performance by
customer & account rep.
Data mining techniques to
segment customers
Performance
Measurements
Planning &
Forecasting
Cost Reduction
efforts
Pricing
Scorecard

17. Budgetary Control
 Budgets without proper budgetary control
have no use!
 Monthly variance analysis should be
forwarded to the cost centre managers
to explain the variances.
 Considering the recurrent changes in the
airline operations, it will be good to have
periodical budget reviews.

18. SMOOTH
TAKE
OFF
PLAN CONTROL

19. COST UNDERSTANDING
CONCLUSION
In todays competitive market, companies will
not survive without a firm understanding of
product cost.
 Cost is measured at a fine level of detail.
 Detailed work measurement standards
encourage improvements.
 Combining cost detail & work measurement is
a leading edge of ABC analysis.
 Allows airline to accurately measure financial
performance & make effective decisions in
pricing, cost control, quality improvement,
reengineering, forecasting, & customer
relationship management.
REVIEW

20. “A budget tells us what we
cant afford, but it doesn’t
keep us from buying it.”
William Feather