Friday, August 06, 2004
"Three times fuel costs."
Google Groups: From: John Schilling (
Subject: Re: Three times fuel costs.
Date: 2004-08-05 14:24:30 PST
Andrew Gray writes:

>A figure that gets thrown around a lot when talking about the operating
>costs of airlines - and, implicitly, what space travel should be aiming
>at - is "three times fuel costs"; it's a number that always vaguely
>surprises me, but that's by the by.
>A while ago, one of the newsgroups I read had a discussion of the
>operating costs of public transport; someone did a quick and dirty
>breakdown of an estimate, and concluded:
>"This means the fuel cost is going to be something like 30% of the total
>cost of operating the bus service."
>It mildly surprised me at the time; for some reason it popped back into
>my head. It's interesting to see convergence in a different field,
>although I know it has little significance.

It is significant in that it points to a common underlying logic.
Mature industries tend to split their costs evenly between manpower,
capital amortization, and consumables. In the case of transportation,
"consumables" mostly means fuel, plus spare parts and little bags of
peanuts, but mostly fuel.

If any one of those three starts to dominate the cost, it gets hammered
down at the expense of the low-cost leg, to restore the balance. Your
fuel expenses are two-thirds of your total budget? Time to invest a
bunch of capital in whatever new technology will allow greater efficiency
on that front. If it's labor costs that are putting you in the red ink,
you invest in automation. If, OTOH, capital investment is itself the
long pole in the tent, you hire as many mechanics as it takes to keep
your creaking old gas-guzzlers in service and postpone replacement as
long as possible.

Sometimes there are structural reasons why an industry won't converge
on an even capital/labor/consumable split. But if you don't know the
industry and are looking for a BOTE estimate, one third capital plus
one third labor plus one third consumables/fuel/energy, is always a
good guess.

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