Flight Dept 1.qxp_Finance 27/10/2021 09:52 Page 1
FLIGHT DEPARTMENT MANAGEMENT
Tips When Planning or Reducing a Budget When budgeting season arrives, what are the assumptions Flight Department managers should establish in order to plan accurately? How can you know where to cut costs without adverse impacts on operations? David Wyndham offers some pointers…
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s year-end approaches, we enter ‘budget season’. This is a time that many aviation managers dread. Others simply use the previous year’s costs, add a few percentage points, and assume their budget to be complete. Neither approach works – but what does? Budgeting for flight department operations during the coming year becomes easier once you get past the dread, expand your information, and agree on the assumptions. Here are some tips…
Agree on the Assumptions
For any given period, your operating budget is reliant on what missions you’re expected to accomplish with the company airplane. Inputs from senior leadership as to what types, how much, and where flight activity is expected to occur in the coming year will be vital. Armed with such information, the operating budget is simply the cost to accomplish that mission need. The approach of allocating a total budget amount first, then trying to perform at or below budget, given any assumptions, is destined to fail and disappoint. Here’s why… 80 Vol 25 Issue 11 2021 AVBUYER MAGAZINE
The wrong example: Assume that this year you will fly 300 flight hours and your operating expenses are approximately $2.5m. Senior leadership, still worried about COVID, labor costs, and supply shortages, has informed you that the coming year’s budget is being cut by 10% ($250k). In this scenario, assume there has been no communication about flight hours, levels of service, changes in department structure, staffing levels; and no request has been made for your estimated minimum costs. Assuming that $750,000 of your current budget is a variable cost, the $250,000 reduction for next year may result in a one-third reduction in flight hours, unless significant changes are made to the fixed expenses. The right example: Senior leadership needs to let you know what air travel is expected, including where, and how frequently, since changes in your utilization will impact your variable costs. Your fixed costs will remain essentially unchanged. Once you have the mission defined, then your variable operating budget is set. Fuel and maintenance will be the major variable www.AVBUYER.com
