Re: What's happening at the top end of the market...

Date:         22 Jul 99 23:30:42 
From:         spagiola@my-deja.com
Organization: Deja.com - Share what you know. Learn what you don't.
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jmweber@goodnet.com (James Matthew Weber) wrote:
> How much is payload worth... The Arithmetic suggests the result can be
> staggering over the life of the aircraft. One of the reasons BA likes
> the 777 so much is it turned out to be about 400kg under weight. Let's
> look at how much that 400kg is worth.  If we assume it is cargo, and
> we can get on average $1.75 per kg in revenue for it (given how the
> 777 is deployed today, this is probably a realistic number), and you
> fly a round trip per day, that 400kg is worth $1400 per day. Assuming
> you fly the aircraft 80% of the days it is the fleet, over the 20 year
> life of the airframe that is $8 million...The savings in fuel over the
> life at current US prices for Jet A is about another half million.

Careful here. From the perspective of someone deciding how much to pay
for an airplane, what matters is the PRESENT VALUE of the future flow
of benefits, not the total undiscounted value of this flow. So, using
your hypothetical figures, 400kg extra cargo, at $1.75/kg, twice a day
(=$1400/day), on 80% of days(=$409000/year), for 40 years is actually
worth $5.5 million once you discount it at 5% (less, with a higher
discount rate, more with a lower one). That's lower than the $8.6
million that you get without discounting.

That's point one. Point two is that it's simply incorrect to then add
the "fuel savings" -- there are no fuel savings since you've made up
for the lower weight by adding cargo; that's what we just calculated.
You can either have fuel savings (lighter airplane, extra payload not
used) or additional cargo revenue (extra payload IS used), but not
both. Obviously, you pick whichever is higher, in this case the cargo.
It would be legitimate to add fuel savings for those days that you do
not in fact carry extra cargo. Is that what you were suggesting?

Stefano Pagiola
--
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