Fixed-and-Variable Aircraft Cost Model
Separate ownership overhead from usage costs before choosing an aircraft
- Difficulty
- Easy
- Time to result
- ~days to results
- Steps
- 5
- Confidence
- 98%
The model divides aircraft expenses into fixed and variable categories. Fixed costs—including pilots, recurrent training, management, hangar space, insurance, subscriptions, and navigation services—remain payable regardless of how often the aircraft flies. Variable costs increase with utilization and include fuel, hourly maintenance reserves, and other trip-related expenses. A buyer first calculates the annual ownership baseline, then estimates hourly operating costs for the intended aircraft and multiplies those costs by realistic flight hours. Combining the two figures exposes the true annual commitment and makes comparisons between aircraft sizes, ownership, fractional programs, and charter more meaningful. The mechanism also reveals how low utilization can make each trip extraordinarily expensive because substantial fixed overhead is spread across fewer hours.
Origin
Extracted from Masters in Business during Preston Holland's explanation of how private-aircraft owners should budget beyond the purchase price.
Core principles
- 01Purchase price is only one component of ownership cost
- 02Fixed costs continue even when the aircraft remains grounded
- 03Variable costs should be calculated per flight hour and mission
- 04Aircraft size and utilization jointly determine affordability
How to run it
- 1
Define the Mission
Estimate annual flight hours, typical routes, passenger counts, and required range. These inputs determine the class of aircraft that can reliably perform the work.
Pro tip Use actual travel records rather than an aspirational itinerary.
Watch out Choosing an aircraft before defining the mission can produce either inadequate range or unnecessary expense.
- 2
Calculate Fixed Costs
Total the annual expenses that remain constant when the aircraft is not flying, including crew, training, management, hangar, insurance, and subscriptions.
Pro tip Use local hangar and crew prices because they vary considerably by market.
Watch out Do not omit management and recurrent-training expenses.
- 3
Calculate Hourly Variable Costs
Estimate fuel burn, fuel price, maintenance reserves, and other consumption-based costs for each flight hour.
Pro tip Model a range of fuel prices rather than relying on one favorable quote.
Watch out Fuel burn can reach hundreds of gallons per hour even on regional missions.
- 4
Build the Annual Total
Multiply the hourly variable cost by expected annual utilization and add the fixed-cost baseline. Include financing and depreciation separately when evaluating the complete economic cost.
Pro tip Compare low, expected, and high utilization scenarios.
Watch out A cash purchase still has depreciation and opportunity costs.
- 5
Compare Access Models
Compare the resulting ownership cost and service experience with fractional ownership, memberships, and charter. Account for availability, control, and administrative burden as well as price.
Pro tip Assign a value to guaranteed availability if rapid departures matter.
Watch out The cheapest nominal option may not satisfy the required response time.
In the wild
The episode models four passengers flying from Teterboro to John Wayne Airport in a Global 5000. The approximately four-hour-and-forty-minute trip carries about $7,000 of variable cost per hour and a quoted total trip variable cost of $38,281, before allocating annual fixed ownership costs.
→ The calculation turns an abstract luxury purchase into a mission-specific operating estimate.
A buyer expecting 100 annual hours lists roughly $450,000 in fixed costs, estimates hourly fuel and maintenance reserves, and then adds acquisition financing and depreciation. The same calculation is repeated for fractional access to determine whether control and availability justify full ownership.
→ The buyer can compare access options using total annual cost instead of purchase price alone.
Common mistakes
Budgeting Only for the Purchase
The acquisition price ignores recurring crew, training, hangar, insurance, management, fuel, and maintenance obligations.
Treating Every Expense as Usage-Based
Many substantial costs continue even when the aircraft does not fly, so low utilization does not eliminate ownership overhead.
Using One Fuel-Burn Number
Hourly consumption differs sharply between light, midsize, and large-cabin aircraft and must be matched to the candidate model.
Is it for you?
Best for
Prospective aircraft owners comparing models, budgets, and expected utilization levels.
Not ideal for
Travelers who only need to compare retail charter prices for an occasional trip.
From the transcript
“So the framework to think about this is the difference between fixed costs and variable cost”
“That fixed cost will range in the kind of light jet world four hundred to five hundred thousand dollars a year.”
“People don't realize when you're flying a jet, even regionally, you're burning through hundreds of gallons, if not thousands of gallons of fuel.”
From the episode
At The Money: What Does it Take to Buy Your Own Jet?