14  Cancellation cost



14.2 Description

The values presented above refer to cancellation on the day of operation and include the following:

  • Service recovery costs (i.e. passenger care and compensation costs (passenger vouchers, drinks, telephone calls, hotels))

  • Loss of revenue

  • Interlining costs

  • Loss of future value (i.e. passenger opportunity cost (individual passenger delay expressed in value))

  • Crew and catering costs

  • Passenger compensation for denied boarding and missed connections, estimated based on the application of the Regulation (EC) No 261/2004.[1]

  • Luggage delivery costs

  • Operational savings (e.g. fuel, airport and navigation fees, maintenance, handling outstations, lounge outstations)

Ground handling costs (e.g. ramp services, passenger services and field operation services) are not included in the estimation.


When a flight is carried out, the airline incurs out-of-pocket expenses (i.e. variable costs) but receives revenues which are 60 100% greater than the out-of-pocket expenses. Cancelling a flight means that the airline forgoes a substantial operating profit. Also, in addition to the loss, costs are incurred for the care and compensation of passengers.

Figure 14.1: Cancellation costs as a function of time

Timely cancellation will enable the airline to take the necessary measures to mitigate the cost impact, for example by rebooking passengers on another flight and allocating crew and aircraft to a different destination. The cancellation costs will thus be minimal and more in the region of the incurred opportunity cost and passenger value of time. If the cancellation is nearer the flight time (i.e. on the day of operation (D)), the cost of cancellation increases, to cover expenses such as fuel, maintenance, and crew and catering.

14.5 References

European Commission, “Regulation (EC) No 261/2004 of the European Parliament and of the Council of 11 February 2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing Regulation (EEC) No 295/91.” [Online]. Available: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32004R0261#:~:text=Regulation%20%28EC%29%20No%20261%2F2004%20of%20the%20European%20Parliament,of%20flights%2C%20and%20repealing%20Regulation%20%28EEC%29%20No%20295%2F91