1. Airline Budgeting Author Sam Issac Airline Management Expert Email: sam.kalathra@gmail.com (c) Sam Issac. Email: sam.kalathra@gmail.com
2. What is budgeting? A written plan or estimate of future income and expenses of an activity covering a definite time period. The word budget taken from the old French word bougette, means purse… “For which of you intending to build a tower, sitteth not down first and counteth the cost whether he has sufficient to finish it” Holy Bible- Luke 14 : 28 (c) Sam Issac. Email: sam.kalathra@gmail.com
3. There are many types of budgeting practices available, however I wish to explain 2 major types of budgets mostly in use with Airlines Types of budgets (c) Sam Issac. Email: sam.kalathra@gmail.com
4. How Airline budget differs Airline budget is slightly differs from the budgets of other business types. Basically the numbers are purely statistics, percentages and available resources. Airline’s production units are Aircraft & Routes. (c) Sam Issac. Email: sam.kalathra@gmail.com
5. Zero based budgeting in airline (zbb) Zero-based budgeting is a technique of planning and decision-making which reverses the working process of traditional budgeting. In traditional incremental budgeting, departmental managers justify only increases over the previous year budget and what has been already spent is automatically sanctioned. By contrast, in zero-based budgeting, every department function is reviewed comprehensively and all expenditures must be approved, rather than only increases. No reference is made to the previous level of expenditure. Zero-based budgeting requires the budget request be justified in complete detail by each division manager starting from the zero-base. The zero-base is indifferent to whether the total budget is increasing or decreasing. (c) Sam Issac. Email: sam.kalathra@gmail.com
6. Advantages of zbb in airline (c) Sam Issac. Email: sam.kalathra@gmail.com
7. base of airline budget process (c) Sam Issac. Email: sam.kalathra@gmail.com
15. Airline budget approach In an Airline Set up, we can initiate budget process in two lines, Centralized & Departmental. Below are the examples of certain cost elements can be considered in each group. (c) Sam Issac. Email: sam.kalathra@gmail.com
16. Process of Activity based cost (Abc) analysis (c) Sam Issac. Email: sam.kalathra@gmail.com
17. Some Examples of cost reduction on ABC !! (c) Sam Issac. Email: sam.kalathra@gmail.com
18. Careful!! Some simple steps will reduce your work if you do the exercise carefully! Create Rate Tables with all possible variables Link the operating plan with the rates table using automates calculations (if you are not using any specialized software). Operating plan can be changed at any time during the budget exercise. Identify the variables and connection to the time / season /slabs of operation Keep a track of all changes done, keep version control. (c) Sam Issac. Email: sam.kalathra@gmail.com
19. Budget consolidation Budget Consolidation is a tiresome work since the whole cost centre/locations budget should be bring into one single report to arrive on the performance. If you are doing any adjustments during the consolidation time, do it correctly on the base sheet, NOT ON THE FINAL REPORT. Analyze the financial numbers by using ratios and airline statistics. (c) Sam Issac. Email: sam.kalathra@gmail.com
20. Ratio analysis Note: Fils is the currency denomination used in UAE (c) Sam Issac. Email: sam.kalathra@gmail.com
21. Budgetary control Budget without proper budgetary control have no use. It is quite simple in automated ERP environment. Budget/MIS Department should get involved in the spending process before any unpleasant things happens in the year end. Monthly variance analysis should be forwarded to the cost centre managers to explain the variances. Considering the recurrent changes in airline operations, it will be good to have periodical budget reviews. (c) Sam Issac. Email: sam.kalathra@gmail.com
22. Conclusion! "A budget tells us what we can't afford, but it doesn't keep us from buying it.” — William Feather (c) Sam Issac. Email: sam.kalathra@gmail.com
23. About the author Sam Issac Airline Finance & Cost Management Systems Professional Email: Sam.kalathra@gmail.com About Me: Having 18 years of working experience with various successful airlines and aviation consultants in the Middle East, Asia & African Region. A Certified Management Accountant by profession, presented many aviation related topics on Cost Reduction strategies, Performance, Budgeting, Activity Based Cost Analysis, Profitability Analysis, Airline Startup, Airline Management etc in various international airline forums. Also designed various cost management systems and procedures for airlines. Available for professional assignments. (c) Sam Issac. Email: sam.kalathra@gmail.com
