2.  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…

3. Incremental Budgeting Increase on the previous year budget to a percentage or on a fixed value and converting it to the next years budget E.g.: increase of expenses budget to the percentage of next years increased planned sales by a percentage Zero Based Budgeting Process of building up the budget as fresh from Zero, by evaluating the socio- economical, business conditions, find out alternatives to arrive on a real time expenses or revenue E.g. Analyzing the expenditure based on the changes in the market, cost effective and qualitative alternatives. There are many types of budgeting practices available, however I wish to explain 2 major types of budgets mostly in use with Airlines

4. 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.

5.  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.

6. 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.

7. This is a kind of blue print of future operation somewhat like a production plan. This is the first step towards airline budget. 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 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 sector. This also should consider the revenue adjustments from the Customer Loyalty Programs Revenue projections should include the ancillary revenue from Onboard Sales, souvenir shops, other incentives and commissions on marketing etc. Revenue Projection CAPEX commitments are in huge numbers typically in airline. This will have a huge impact on the financial budgets. CAPEX such as Aircraft purchases, pre-delivery payments, Engine purchases, Rotables (assets under rotation), spares and stocks etc are few examples Capital Commitments

8.  Publish the projected Annual Operating plan with all required details  Publish customized Templates to the user departments  Publish the Budget Approval process  Publish budget guidelines and policies  Common assumptions to be used across the board  Projected FOREX rates  Timelines

9. Airport Charges Handling Charges Overflying/Navigation Catering Fuel & Technical Manpower & Crew Cost Taxes & Insurance Foreword Depreciation GDS Cost etc Centralized Budget Admin Expenses Temp Manpower Telephone/Utilities Local station Exps Departmental CAPEX Local taxes Projects Other expenditures Department Budget 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.

10. Activity Unit Cost Analysis Relevance Usage Reduction Cost Effective Alternative

11. Ground Power Unit Is Fixed Power Unity Available Is it cost effective to use APU PAX Bus Is it possible to get a nose-bay and aero bridge? Office Space Optimum utilization of existing space Manpower Is it cost effective to outsource

12.  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. Some simple steps will reduce your work if you do the exercise carefully!

13.  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.

14. Note: Fils is the currency denomination used in UAE

15.  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.

16. "A budget tells us what we can't afford, but it doesn't keep us from buying it.” — William Feather Plan Control Smooth take off