1. Aircraft equipment quality: The quality of the aircrafts possessed by Delta airlines may be better than that of Singapore airlines. This might lead to longer aircraft lives and less depreciation expenses for Delta airlines. 2. Aircraft maintenance: Delta may be spending a larger amount on their aircraft maintenance than Singapore airlines and thereby achieving higher aircraft useful lives.3.
Frequency of usage (Number of miles flown per trip and Number of times flown per annum/month): Though the number of aircrafts owned by Delta airlines (564) is approximately 10 times more than that of Singapore airlines (57), the total revenue passenger mile for Delta airlines (82,406 M) is only about 3.482 times that of Singapore airlines (23,663). Therefore, the lower usage rate of Delta airlines compared to Singapore airlines might have contributed to Delta airlines’ less depreciation expenses.4. Different management intentions and policy: Singapore airlines are renowned for their superior customer service and aircraft facilities. This may be in line with their management’s policies to renew their fleet more often than others and hence result in shorter operational lives. 5.
Difference in capacity utilization: From the financial and operational data, it can be noted that the capacity utilization for Delta airlines and Singapore airlines are 62.3% and 71.2% respectively. Therefore, Delta airlines capacity utilization is 9% less than that of Singapore airlines.
This may be a contributing factor for Delta airlines to have a longer useful life of their aircrafts than Singapore airlines.6. The available passenger miles for Delta airlines are very high compared to that of Singapore airlines. 7. Application of Accounting policies: Singapore airlines may be more conservative in their estimation of residual values and asset lives than Delta airlines. Singapore airlines appear to be basing their estimates on worse case scenarios, where as Delta airlines are taking a more optimistic approach.
8. Operations: Most of Singapore airlines revenue is coming from their international operations (56%). Therefore, Singapore aircrafts may be flying longer distances and more frequently than Delta aircrafts.
This could result in more wear and tear of Singapore aircrafts and may be contributing to their higher depreciation expense. 9. Geography: Delta airlines operate mainly in the United States. Therefore, most of their income is from domestic service.In addition, most of the time, the average length of the domestic trip will be less than international trip. Long haul flights tend to operate at higher altitudes where planes can reach greater speeds due to thinner air.
At such heights, a plane will endure more extreme temperatures and atmospheric conditions than flights at lower altitudes. Therefore, the less wear and tear of Delta aircrafts compared to Singapore aircrafts could prolong Delta airlines equipments’ useful life.10. Profit margins: Domestically, Delta airlines compete heavily with other low-cost and no frills airlines for most of their revenue. This makes their gross profit margin less than that of Singapore airlines, which compete mainly with other international carriers.
Therefore, Delta airlines may use low depreciation expenses in order to compete and display better performance than their main competitors.11. The operational costs in Asia, where Singapore Airlines operates, are known to be less compared to those in US. This could be another reason for Singapore airlines to have a better gross profit margin than Delta airlines. In addition, Singapore airlines may have chosen aggressive accounting techniques (writing-off most of their expenses at the earliest possible time) for expenses to manage investor’s future expectations.