Learning more about route profit
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Learning more about route profit
Hi everyone,
I'd be interested to find sources of info to better understand this topic from an airline standpoint, to understand how it fits within a corporate process (across lines of business, thus) & what the most attractive solutions in the market place are.
Thks for your advice...
I'd be interested to find sources of info to better understand this topic from an airline standpoint, to understand how it fits within a corporate process (across lines of business, thus) & what the most attractive solutions in the market place are.
Thks for your advice...
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The basic model of operating economics is dead simple. It is based on four variables:
Traffic (typically passenger-kms or tonne-kms)
Capacity (Seat-km or Available tonne-km)
Operating Revenue
Operating Expenditure
Then you have four basic derivatives:
Load factor (traffic divided by capacity)
Yield (revenue divided by traffic)
Unit Cost (Expenditure divided by capacity)
Operating Ratio (revenue divided by expenditure)
Your objective is to arrive at an operating ratio of more than 100, by juggling the various balls. There are a lot of inter-relationships, for example if you have overcapacity you can fill the empty seats by lowering the fares – traffic & load factor up (good), yield down (bad).
Operating expenses, according to the IATA model, consist of:
Flight Deck Crew
*Fuel & Oil
Flight Equipment Insurance
Maintenance & Overhaul
Depreciation
Rentals (= leasing charges)
Airport Charges
Navigation Charges
*Station & Ground
Cabin Attendants
Passenger Service
*Ticketing, Sales & Promotion
General & Admin
*For the network airlines, these 3 are the big ones
Route profitability is more complicated, particularly for network airlines, because connecting traffic on one route will contribute to the profitability of the other routes it connects to. So looked at in isolation a route or group of routes (such as a domestic network) might be loss-making but makes a positive contribution to the network as a whole.
LoCo economics has some particular features. Some of the above cost items are very low (TSP, S&G, airport charges, passenger service…). There are significant amounts of non-ticket revenues. Especially, demand pricing, where the first few seats are sold for peanuts, then the prices rise as the aircraft fills up, creates a very strong relationship between load factor and yield which doesn’t exist in the ‘traditional’ model.
That should do for a first lesson, class dismissed
Traffic (typically passenger-kms or tonne-kms)
Capacity (Seat-km or Available tonne-km)
Operating Revenue
Operating Expenditure
Then you have four basic derivatives:
Load factor (traffic divided by capacity)
Yield (revenue divided by traffic)
Unit Cost (Expenditure divided by capacity)
Operating Ratio (revenue divided by expenditure)
Your objective is to arrive at an operating ratio of more than 100, by juggling the various balls. There are a lot of inter-relationships, for example if you have overcapacity you can fill the empty seats by lowering the fares – traffic & load factor up (good), yield down (bad).
Operating expenses, according to the IATA model, consist of:
Flight Deck Crew
*Fuel & Oil
Flight Equipment Insurance
Maintenance & Overhaul
Depreciation
Rentals (= leasing charges)
Airport Charges
Navigation Charges
*Station & Ground
Cabin Attendants
Passenger Service
*Ticketing, Sales & Promotion
General & Admin
*For the network airlines, these 3 are the big ones
Route profitability is more complicated, particularly for network airlines, because connecting traffic on one route will contribute to the profitability of the other routes it connects to. So looked at in isolation a route or group of routes (such as a domestic network) might be loss-making but makes a positive contribution to the network as a whole.
LoCo economics has some particular features. Some of the above cost items are very low (TSP, S&G, airport charges, passenger service…). There are significant amounts of non-ticket revenues. Especially, demand pricing, where the first few seats are sold for peanuts, then the prices rise as the aircraft fills up, creates a very strong relationship between load factor and yield which doesn’t exist in the ‘traditional’ model.
That should do for a first lesson, class dismissed
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Thks Mr Professor! :-)
would you have any other lectures available or could you suggest some useful readings?
One of my duties is to select an off-the-shelf package & I am trying to figure out some evaluation matrix.
would you have any other lectures available or could you suggest some useful readings?
One of my duties is to select an off-the-shelf package & I am trying to figure out some evaluation matrix.
