COST INDEX basic explanation
Cost index (CI) is a number presenting the ratio of the time-related cost of an airplane operation and the cost of fuel. The value of the CI reflects the relative effects of fuel cost on overall trip cost as compared to time-related direct operating costs.
The formula may look simple enough but getting the numbers in it isn‘t quite simple.
Each company must determine its fleet CI in order to fly as efficiently as possible. It is work that should be done when forming the basic strategies of the company. It is a lot of work and is not as simple as it looks. Most of the manufacturers provide a default CI based on the average prices of fuel and time related cots but CI for a specific operator may be very different for another. Sometimes the CI of two airplanes of the same type model or variation may have different values.
Time related costs (TRC)
The TRC are basically the costs you can save by saving one hour of flight time.
When determining the type related costs for a trip, you must take into account every cost you pay by time. Such costs are leasing, maintenance, engines, auxiliary power units and all other items you replace by the hours. Also some companies pay their crew by the hour, or provide a bonus by the hours, If this is the case those expenses should be included in the CI.
The leasing of the airplane can be paid by the actual flight time or by fixed period of years. If the first is the case then leasing is directly included in TRC if the case of your company is the second then a more complex calculation based on lease period is required to determine the how it affects the TRC during the lease period. When the lease is paid then this cost can be removed by the formula.
The hourly price of leasing can be determined by dividing the lease price by the hours, you want to fly in order to pay the airplane.
Maintenance price is the price you pay for every scheduled maintenance of the aircrafts and its items. This price can be easily evaluated as most maintenance is hourly scheduled. When there is cycles based maintenance it doesn‘t add value to the TRC as it doesn’t change with changing the flight time between two cycles.
Fuel costs is the price of fuel your aircraft consumes by the hour during flight. It looks straight forward but in fact this costs are subject for complex calculation. The varying fuel price, fuel tankering and fuel hedging can make a lot of difference when calculating the fuel costs.
Avery simple example is given below
Airplane lease 10 000 000$ planned to be paid in 10 000 hours equals 1000 $/h
Calculated maintenance 50$/h
Resource limited Items (such as Engines APU etc.) = 100 $/h
TRC= 1150 $/h
Average consumption = 2000 lb/h
Fuel price500 $ per 1000 lb
Fuel Cost Per Hour = 1000$
This means that if you can save one hour by flying faster and burning 2000lb more you will save 150$
The number of the cost index varies with each manufacturer and a way to determine it is provided in the manuals. Once calculated it can be inserted into the FMC and the computer will do the complex calculation and give you the optimum speeds and performance in order to get most of the airplane resources. CI changes all the time and modifications should be made with each change in costs.
Flying efficiently is very important in commercial aviation and is sign of good airmanship.