Airline Revenue – Case Study and Industry Analysis

Basic Measurements in the Airline Business

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    Load Factor: Production Compared to Capacity To calculate system-wide load factor, divide RPMs by ASMs; in 2007 it’s

    138.5 billion RPMs divided by 169.9 billion ASMs, or 81.5 percent.

    For an individual flight, divide the revenue passengers on board by the

    aircraft capacity; in the MD-80 example above, it is 100 divided by 140, or

    71.4 percent.

    High load factors are not necessarily desirable – How much each passenger

    pays is also important, as we see in the next measure.

    Basic Measurements in the Airline Business

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    A prime example of Airline Revenue Optimization Its not necessarily the maximizing of Load Capacity, but the

    optimization of how much value (yield) you can obtain per seat mile

    flown as illustrated in this example:

    Basic Measurements in the Airline Business

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    Yield: Revenue per Passenger Mile To calculate system yield, divide passenger revenue by total RPMs; For American in

    2007, this is $18.2 billion divided by 138.5 billion RPMs, or 13.1 cents per mile. To calculate a customer’s individual yield, divide ticket price by mileage; if a

    customer pays $98.00 for the 500-mile segment above, the yield would be 19.6 cents per mile.

    Revenue per Available Seat Mile (R/ASM): The Best Basic Measure Multiply load factor times yield to get the measure of how much revenue we

    generate per increment of capacity; using the 2007 example above, it’s 81.5 percent times 13.1 cents or 10.7 cents.

    Basic Measurements in the Airline Business

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    Cost per Available Seat Mile (C/ASM): The Basic Measure Of Cost

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