This newspaper carried a story last Thursday reporting that Caribbean Airlines (CAL) was still tallying the cost of flight cancellations as a result of pilots reporting sick on August 19-20. It is shocking that after two months, CAL has been unable to determine the full financial impact of the disruptions to its services by the high incidence of pilots’ sick calls.
The injunction granted by the Industrial Court against the pilots' union, TTALPA, is due to be heard sometime soon, and certainly accurate financial data on the imbroglio may be required by the court.
However, it must be carefully noted that there is a very subtle difference between airline operating revenues and airline operating incomes. Therefore, loss of revenue is not the same as loss of income.
Airline operating revenue is the earnings from the transport of passengers, cargo and other revenues such as the sale of onboard items.
Airline operating expenses are two-fold: fixed and variable.
Fixed operating expenses include aircraft lease charges, flight-crew salaries, maintenance costs, insurance costs and administrative costs such as human resources, sales and marketing. These costs accrue even when aircraft do not operate.
Variable operating expenses are based on the flight sectors flown and include fuel costs, air navigation fees, catering costs, landing fees and enroute crew expenses such as hotel accommodation and ground-handling costs.
Airline operating income is the difference between operating revenues and operating expenses.
Based on the confirmed bookings for every cancelled flight, CAL should readily have estimates of the potential revenues and operating expenses for these cancelled flights.
Some flights were operated using wet-leased aircraft, and the difference between the wet-lease costs and the flight revenues realised can be easily calculated.
In addition to the loss of income, there were poor-service costs that included ticket refunds, hotel accommodation, ground transport and meals for passengers whose flights were cancelled, and other customer claims.
Income losses due to the flight cancellations plus poor-service costs will give the total losses.
Airline accounting is not rocket science, and with the ready availability of modern airline accounting software, it is definitely not a difficult task to determine the financial performance of airline operations in a very short time.
The airline industry is very dynamic, highly capital- and labour-intensive and operates in a hyper-competitive environment.
Key decision-making requires timely, valid and reliable financial data.
Therefore, what accounting systems does CAL have in place to manage its affairs efficiently?
Accounting software and air-to-ground data links enable many airlines to compute their operating income within minutes after a flight ends and the engines are shut down. For each flight, the system has real-time data on the passenger revenues, cargo revenues and onboard sales. The system is programmed with the fixed costs per aircraft type. Du
