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### Author Topic: New proposed way to calculate office rent  (Read 453 times)

#### wilian.souza2

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##### New proposed way to calculate office rent
« on: August 23, 2018, 07:55:44 PM »
The new formula

I started to work on an alternative way of calculating office rent because I think the way it is calculated today very odd - the values tend to change every week - and I'm not sure if it considers the economy level of the countries or the size of the airport appropriately. Initially, I thought the values deducted from my airline were too cheap in some countries and too expensive in others...

In real life I am an engineer specialized in real estate. The formulas we use to estimate sale and rental values are really complex and takes into account dozens of factors in order to take into account its location, its desirability and its feasibility for its intended use, for example. For AWS I created a simpler formula which takes into account the following factors:

- base level;
- number of office staff (excluding pilots, cabin crew and other airport related staff) at a base;
- the infrastructure and traffic level of the airport (higher traffic and infra equals higher costs);
- the country's salary level (to balance the values according to the country's economy strenght);
- company image (Higher CI means offices of higher standard so it grows at higher rates).

Basically, the office rent formula I propose is:

R = A*k, where R = office rent, A = office area and k = its value per square meter or square feet.

The office area is calculated by summing up all the company's staff excluding pilots, cabin crew, safety, ground handling and technical services personnel (which I call airport staff), and multiplying the result by 13,91 m² (150 square feet, same ratio used by 42floors.com to estimate the office area required for staff).

The factor k is a function of all the factors mentioned above and is shown in the spreadsheet/calculator attached to this post. It was made to use the office area in square meters and will give the office rent value per month in US dollars.

You can download the spreadsheet/calculator and simulate the values given for your airline. Play with the values to see how the factors will influence the final result. In short, compared to the current way AWS calculates office rent, it is expected to increase the values significantly in large, higher level airports in countries with high salary level, and decrease the values significantly in smaller, lower level airports in countries with low salary level. The values seem to be consistent to real life office rents I have researched when testing the formula.

IMPORTANT NOTICE - The company image to be used must be between 0 and 100, so any airline with negative CI must be considered with CI=0. Although the formula works with negative CI values, it will give irrealisticaly low results.

How office rent calculation should change

Besides the adoption of the new formula above, the following changes should be applied:
- Office rent would be deducted monthly and their costs would be fixed throughout the year;
- Each base will have its own parameters considered individually for office rent calculation, and the company-wide result will be the sum of all of the bases rents;
- New values for the next year would be calculated at the last day of the current year using the airline and airport parameters in that day;
- The registration of office rent deductions could follow the model used for aircraft leasings;

#### wilian.souza2

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• Posts: 882
##### Re: New proposed way to calculate office rent
« Reply #1 on: August 25, 2018, 02:33:22 AM »
Let me show you how the new formula calculates office rent, using my GW2 airline as the example.

Airline located in Brazil (Salary level = 80%), Company image 100 and an office population of 15822 (from 45K total staff). The spreadsheet linked in the post above gives the staff numbers of my airline per base, and my company-wide office rent was estimated as \$ 6.180.925 per month. Airwaysim calculated \$ 7.786.710 for the month I used as reference, but it has floated around \$ 5.9 M and \$6.3 M in the last 3 months, despite the fact that my staff has grown a little bit during this period (1000+ office staff I estimate).

This is the key difference between my formula and AWS formula. With my formula, office rent will grow as your staff grows pretty much in a linear fashion, but the office rent raises will only happen once in a year, as new office rents will be calculated at the last day of the current year for the next year.

Let's see the effect of the country on the calculation.

If my airline was transported to India (salary level = 58%), the total office rent would be \$ 5.014.491;
In Russia (salary level = 95%), it would be \$ 7.128.366;
In Italy (salary level = 144%), it would be \$ 11.359.726;
In United States (salary level = 192%), it would be \$ 17.934.627.

Now, let's see the effect of Company Image considering my airline was in the United States:

At 100 -> office rent \$ 17.934.627;
At 80 -> office rent \$ 13.835.622;
At 60 -> office rent \$ 10.674.056;
At 40 -> office rent \$ 8.235.402;
At 20 -> office rent \$ 6.354.257;
At 0 and below -> office rent \$ 4.903.086.

Now, let's see the effect of Traffic and Infrastructure level, considering the staff numbers of my airline in SSA (Office staff: 5130) and Brazil's salary level.

SSA has infrastructure 5 and traffic level 6, so office rent is \$ 1.794.090 (Airwaysim calculated \$1.2 - 1.5M for it in the last 3 months);
If the airport had infrastructure 6 and traffic 10, it would be \$ 2.597.765;
Infrastructure 4 and traffic 4, \$ 1.434.612;
Infrastructure 3 and traffic 4, \$ 1.334.057;
Infrastructure 1 and traffic 2, \$ 1.087.388.

Now, let's see the effect of base level on office rent calculation, still considering my SSA base. The current value calculated for it already considers it level 4, as it's the headquarters of my airline.

If it was level 3, it would be \$ 1.268.613;
Level 2, \$ 897.045;
Level 1, \$ 634.306.

Feedbacks are welcome.
« Last Edit: August 25, 2018, 02:40:49 AM by wilian.souza2 »

#### DanDan

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• Posts: 2882
##### Re: New proposed way to calculate office rent
« Reply #2 on: August 25, 2018, 07:22:14 AM »
sounds interesting. just out of curiosity: how did you get the information on the current aws calculation formula?

#### wilian.souza2

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• Posts: 882
##### Re: New proposed way to calculate office rent
« Reply #3 on: August 25, 2018, 09:11:07 AM »
how did you get the information on the current aws calculation formula?

I don't know how AWS calculates it. I just picked the AWS values for my airline in the Income Statement.

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