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…
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Zero Based
es
Incremental
Budgeting Budgeting
Process of building up the
budget as fresh from Zero,
Increase on the previous
by evaluating the socio-
year budget to a
economical, business
percentage or on a fixed
conditions, find out
value and converting it to
alternatives to arrive on a
the next years budget
real time expenses or
revenue
E.g.: increase of expenses E.g. Analyzing the expenditure
budget to the percentage of based on the changes in the
next years increased planned market, cost effective and
sales by a percentage qualitative alternatives.
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.
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.
Technological changes
• Aviation is a field of advanced technology, automation brought
huge amount of reduction in manual tasks. High tech
equipments and services are added to operations and
infrastructure. This will change the behavior of operating cost.
Cost Effective alternatives
• As mentioned in the previous point, many cost effective
alternatives are available in airline operations. In ZBB business
managers will prompt to think cost effective alternatives
Changes in the Economical conditions
• While thinking about ZBB, department managers can consider
the possible socio-economical conditions.
Activity Based Cost (ABC) analysis
• During ZBB in order to justify the expenditures business
managers will run through the ‘activities’, through which we can
find out the items of high cost impact and the method of
controlling the cost.
• This is a kind of blue print of future operation somewhat like a
t i n g Pla n production plan. This is the first step towards airline budget.
Opera
• Frequency of operation, type of aircraft used, Available seats for
sale, capacity to carry cargo will be available on it.
• The whole set of cost will be linked to the operating plan
• Revenue projections will be done based on the available seats and
expected load factor with an average price per ticket per class per
Revenue
sector.
• This also should consider the revenue adjustments from the
oje ct i on Customer Loyalty Programs
Pr • Revenue projections should include the ancillary revenue from
Onboard Sales, souvenir shops , other incentives and commissions
on marketing etc.
Capital s
• CAPEX commitments are in huge numbers typically in airline. This
will have a huge impact on the financial budgets.
i t m e n t • CAPEX such as Aircraft purchases, pre-delivery payments, Engine
Comm
purchases, Rotables (assets under rotation), spares and stocks etc
are few examples
q Publish the projected Annual Operating plan
with all required details
q Publish customized Templates to the user
departments
q Publish the Budget Approval process
q Publish budget guidelines and policies
q Common assumptions to be used across the
board
q Projected FOREX rates
q Timelines
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.
• Airport Charges • Admin Expenses
• Handling Charges • Temp Manpower
• Overflying/Navigation • Telephone/Utilities
• Catering • Local station Exps
• Fuel & Technical • Departmental CAPEX
• Manpower & Crew Cost • Local taxes
• Taxes & Insurance • Projects
• Foreword Depreciation • Other expenditures
Centralized
• GDS Cost etc Department
Budget Budget
Activity
Cost Effective Unit Cost
Alternative Analysis
Usage
Relevance
Reduction
• Is Fixed Power Unity Available
Ground
Power Unit • Is it cost effective to use APU
• Is it possible to get a nose-bay and aero
PAX Bus bridge?
Office
• Optimum utilization of existing space
Space
• Is it cost effective to outsource
Manpower
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.
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.
Note: Fils is the currency denomination used in UAE
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.
Plan
Control
"A budget tells us what we can't afford, but it
doesn't keep us from buying it.” — William Feather
