The Fixed Costs Attached to Aircraft Ownership
You may be familiar with the stories about actor Harrison Ford and his passion for airplanes, including aircraft ownership and, while a lot of actors—including John Travolta—own private planes, there are also a lot of everyday people passionate about flying. While you don't need to be a millionaire to own a plane, you do need to know in advance of purchase what the day-in, day-out costs will be.
Fixed vs. Variable Costs
The cost of aircraft ownership can be divided into fixed costs and variable costs. Determining which ownership costs are fixed and which are variable is essential to successful aircraft ownership. If you are a potential aircraft buyer or operator, knowing these costs can help determine if you will be able to afford an airplane.
Fixed costs, as opposed to variable costs, are defined as costs that remain the same over a period of time. Conversely, variable costs are subject to change and include things like fuel, oil, maintenance, landing fees, etc. An aircraft’s fixed costs remain the same no matter how many hours you fly your plane. However, the "cost per unit" of a fixed cost will increase (or decrease) depending on the level of activity of the airplane.
For example, if your fixed cost is insurance, you will pay the same rate no matter how much the airplane flies each year. If your insurance costs $1,200 per year, and you fly the airplane for 100 hours each year, your hourly insurance cost is $12 per hour. However, if you fly the airplane more often (let's say 200 hours each year), then your insurance "cost per hour" drops to $6 per hour. It is why you'll often hear aircraft owners say that they need their airplane to fly more to keep costs down.
Examples of Fixed Costs
Some examples of fixed costs include the following:
- Aircraft financing (whether on a lease or loan payment basis)
- The purchasing of books, charts, and materials
- Hangar rental
- Taxes and FAA registration fees
- Aircraft accessories
- Crewmember salaries, if they are paid a fixed annual salary. If a crew member is paid by the flight hour, on the other hand, it is considered a variable cost because the cost depends on the activity level of the airplane.
The cost per unit, or cost per flight hour, can be decreased with an increase in aircraft use. Overall, pilots like to say that they get more “bang for your buck” when they fly more hours. For example, if you rent hangar space for $6,000 per year and fly your airplane 100 hours per year, your cost per hour for the hangar rental is $60. If you rent the same hangar but only fly 500 hours per year, your cost per flight hour decreases to $12 per hour.
Budgeting for Your Plane
It's important to recognize (and plan ahead) for both fixed and variable costs when you become an aircraft owner or operator. All too often, aircraft owners are surprised by the additional costs they encounter after purchasing an airplane. Knowing both the fixed (and variable) costs of air travel, aircraft usage, and aircraft maintenance will determine if you can afford this hobby and, if so, help to keep your budget in check.