Airline economics for dummies
Airline economics is the simplest thing. There are only four primary variables:
Traffic – revenue tonne-km
Capacity – available tonne-km
Revenue
Expenses
There are four secondary variables, which depend on the above:
Load factor – traffic divided by capacity
Yield – revenue divided by traffic
Unit cost – expenses divided by capacity
Operating ratio (= profitability) – revenue divided by expenses
And one tertiary variable:
Breakeven load factor – either unit cost divided by yield or Op ratio divided by load factor (it’s the same thing).
In the current climate of depressed premium travel (= depressed overall yields), breakeven on longhaul is probably at 80% unless you’re a Middle Eastern carrier. A three-class A380 will have slightly lower unit costs than a 747/777/A340 due to economies of scale. A one-class A380 would have much lower unit costs, so if you could replicate today’s yields, the breakeven would be much lower, and if you could fill it 100% full, you would make a packet.
There are two ‘ifs’ in the statement above.