Definition of 'Yield'

[Sikpupi]

Hi All....

IS there a definitive definition of Yield when it come to airline executive speak??

If it the same as 'a One-Way Fare'??? What does it include and exclude.

I see it bashed around the various forum but can't understand why the posters won't use the word 'fare' instead.

Sikky

[EastMids]

Revenue per passenger per mile... Typically aggregated over the entire airline, or the route, or whatever...

e.g. Passenger pays £100, travels 400 miles, yield is £0.25

It is more a more meaningful than average fare as measure of an airline's ability to generate revenue because fare is unrelated to the distance a passenger is transported in exchange for their fare

A

[Deep and fast]

Yield- The excuse for cancelling a route that seems to have sufficient passenger numbers that the company doesn't want run any more

[RB311]

I have no idea what yield means, except that when yields are low, pilots are made redundant, and when they're high directors get bonuses.

[garethjk22]

yield |yēld|
Verb:
• (of a financial or commercial process or transaction) generate (a specified financial return) : such investments yield direct cash returns.

Noun:
• Finance the amount of money brought in, e.g., interest from an investment or revenue from a tax; return : an annual dividend yield of 20 percent.

Or put simply, how much money you earn. In the case of an airline, it is the net money earned by the airline for providing a service. It can be expressed in whatever terms you like, e.g. the total yield for the 0800 departure to Malaga was £3,250, or the average yield per passenger is £87.24 each way etc ...

It can also be expressed as seat miles but this is more useful to compare the yield between different sector lengths, which take into account the duration of the flight. SO for example, let's think about LPL-BFS compared to LPL-AGP. LPL-BFS will have a lower fare (on average) than LPL-AGP, however it is conceivable that the yield per seat mile is higher, because the sector is so short. Sometimes, the sector is too short and there are not enough market factors to enable you to push the price up, and so the yield is very low. This is common on UK domestic routes such as LPL-LON, where you compete with the train and don't really have a time advantage when all things are considered. BUt why, LPL-BFS works as you have water in the middle ...

When airlines think about their profitability and what routes to keep, they consider load factors but really it is the yield from the flight that matters, and often why loads are not a good indicator. For example, if the LPL-BFS flight only has a load of 25% but everyone is paying £300 each way for the ticket, you'll fly it till the cows come home ....

You would expect the yield to be net of taxes and charges and represent the income which the airline can account for.

[Groundloop]

When airlines think about their profitability and what routes to keep, they consider load factors but really it is the yield from the flight that matters,

No it isn't. It is the REVENUE from the flight that matters.

Yield is an average value - for example the average price per seat sold (but lots of seats may remain unsold!). Revenue is actually how much money you get. Yield Management and Revenue Management are two separate approaches to accounting. Revenue Management is the important one - unfortunately some airlines get bogged down concentrating on high load factors, or high yields whereas overall revenue is the important bottom line.

300 seats: full fare at $1,900; discounted at $1,300; would you prefer:
a) 50 full fare and 250 discounted, or
b) 190 full fare and 50 discounted, or
c) 135 full fare and 135 discounted?

The one that makes you most money (c) is not necessarily the one that gives you the highest average yield (b) or the highest load factor (a).
Revenue Yield Load-factor
a) (50*1900)+(250*1300)=$420,000 420000/(50+250)=$1,400 ((50+250)/300)*100=100%
b) (190*1900)+(50*1300)=$426,000 426000/(190+50)=$1,775 ((190+50)/300)*100=80%
c) (135*1900)+(135*1300)=$432,000 432000/(135+135)=$1,600 ((135+135)/300*100=90%

a) gives highest load factor
b) gives highest yield
c) gives highest revenue.

It's balancing ticket prices and volumes that require good revenue management - not good yield management.

[Sikpupi]

Many thanks above guys....really good analysis!!

So...if an airline operator says "I need to get a yield of £50 a seat to make it work"...what is he looking for????

Is the £50 AFTER:

1. Government Taxes (APD etc)
2. Airport Taxes & charges (Landing fees etc)

but BEFORE all his own costs e.g. Crew, Fuel etc etc???

Looking at Groundloop reply above....he is 'shortchanging' himself because he should be talking 'Revenue Per Flight' rather than 'Yield Per Pax Per Sector'.

[racedo]

So...if an airline operator says "I need to get a yield of £50 a seat to make it work"...what is he looking for????

Think you are assumming that there is a single definition and everybody would sign up to same definition and treat it exactly the same..........its like saying what is the ticket price.

Example would be BA stating its getting a yield of £120 per passenger on LHR-JFK thereby sending a message that others would pick up and decide to go after but given that AF may measure yield in a different way it could mean AF would get a yield of £40 or £180, an extreme example but companies want to hide as much as possible to keep competition away.

Its why when an Airline listed on a couple of Stock Exchanges states different profit figures to each as laws will be different in each country.

[Expressflight]

Groundloop's definition may be technically correct, but I've never really considered 'yield' to be "the average price per seat sold" because that, as he says, doesn't give you any meaningful information as to the profitability of the flight. You certainly need to know that number but what you're actually looking for is the balance to obtain the highest possible volume against the highest average fare. That should result in maximimum revenue for the flight and it's actually achieving that which is so difficult.

I wouldn't really differentiate between the terms 'sector revenue' and 'total sector yield' in everyday usage, but it's quite an interesting subject to discuss.

[DjerbaDevil]

What about.............

YIELD = GOOD OLD PROFIT MARGIN!!!!

[TartinTon]

Djerba...that's because it doesn't.

Yield is amount earned per seat or per mile or whatever measure you want to use.

Load factor is the amount of seats you fill.

Revenue is the combination of the above 2 factors.

The only thing that really matters to an airline is contribution.

Contribution over and above variable and fixed costs equals profit margin.

[Cyrano]

We typically use Yield to refer to revenue per passenger. Other airlines use it to refer to revenue per passenger km, or passenger mile.

In terms of revenue per passenger, it's indeed related to the average fare. "Gross yield" is the average all-in price, so if the average one-way fare is £150 plus £30 taxes and charges (ie the average passenger has paid £180 for her one-way ticket), then the gross yield is £180. "Net yield" is what's left after taking out taxes and charges (ie what comes into the airline's coffers) - £150 in this example. And some carriers (BA if I recall correctly) also refer to "net net" yield, which is the net yield with commissions subtracted.

If a carrier says "we need a yield of £50 to make it work", I'd hazard a guess that they are talking about net (or maybe net net - but probably not gross). However the statement is meaningless unless they've also specified what load factor they're talking about.

C.

[h&s]

To me yield is quite an easy definition. It's the flight total revenue divided by the number of seats sold (and not the capacity, which is revenue per seat).
Profit = revenue - cost, and yield is a pure revenue metric, so there is absolutely no cost included in its calculation.

Airport taxes are not included as neutral for the airline (collect it from pax and give it to airports), but surcharges usually are. Credit card fees, bagages fees etc are excluded as there are considered as anciliaries revenue. So overall, revenue = flight revenue (ie. capacity * load factor)*yield) + anciliaries revenue

Yield management actually usually means revenue mangement (ie. to find the right balance between load factor and yield that will maximise the revenue).

Problem during crisis is that airline tends to protect their market share at the detriment of yields, which is wrong to my point of view. Volume-driven revenue management is also due to fierce price competition over the last few years, and also for low cost carriers the most important metric for various reason (heavily dependant on passengers numbers for subsidies and high margin anciliaries, the greater the load factor the lower the cost per passenger etc).
Yield strategies are more used when competition is very low, for example with airfrance on their african network (they know they will generate the highest revenue with very high yield but load factor at r40%).

Finally, your sentence "I need to get a yield of £50 a seat to make it work" doesn't mean anything. If it is £50 a seat available, then it's not yield but revenue. If it's seats sold, then it misses the load factor to be able to calculate the break even (corect sentence would be "to make it works, I need a yield of £50 for 60% LF, or of £60 for 50% LF)

[Sikpupi]

(corect sentence would be "to make it works, I need a yield of £50 for 60% LF, or of £60 for 50% LF)

HS.... that is exactly what was said. I didn't realise that the ...@ 60% LF meant so much!!!!

So.....is the £50 Before or after Taxes (APD, etc) ?? Is it before or after Airport Charges (Landing/Handling etc) ??

I need to know what to charge the passenger. I know the customer will pay £55 each way for a flight. That is the customer will put £55 on his credit card and consider this good value. So will the airline make £5 a head if he gets a 50% load factor???

[The SSK]

Airline Economics 101

There are four primary measures of performance:
TRAFFIC – usually measured in volume – i.e. passenger-km or tonne-km
CAPACITY – similarly, seat-km or available tonne-km
REVENUE – does not include taxes and charges collected on behalf of the government
EXPENSES – including external costs such as airport and air navigation charges

There are four secondary measures:
LOAD FACTOR – traffic divided by capacity
YIELD – revenue divided by traffic
UNIT COST – expenses divided by capacity
OPERATING RATIO (= profit margin) – revenue divided by expenses

There is also a third-order measure:
BREAKEVEN LOAD FACTOR – either unit cost divided by yield or load factor divided by profit margin

So the economics of the operation depends on the interaction of the various elements. Longhaul services tend to have much lower yields than shorthaul, but also lower unit costs and higher load factors. An airline flying mainly business routes can have low load factors and relatively high unit costs but can make up for this with very high yields.

Over time, yields always reduce, so unless the unit costs reduce as well, the breakeven load factor goes up – but profitability can still be maintained if the achieved load factor goes up as well.

The above is the traditional airline business model. It may not necessarily work with low-cost since yield varies greatly with load factor and ancillary revenues play a much greater part in the equation, as do financial inducements from airports (are they a revenue or a negative cost?)

[willy wombat]

Sikpupi - to answer your question, gross yield is normally money received before deduction of taxes, commissions etc and nett yield is after deduction of commissions and, in some companies, taxes. You will have gathered from this thread that different companies use different definitions of yield which is absolutely fine as long as, within the company, finance, sales, marketing etc are all using the same definition.

[h&s]

HS.... that is exactly what was said. I didn't realise that the ...@ 60% LF meant so much!!!!

Well, 60% is crucial because the LF is half of the revenue equation (other half is yield) and revenue half of the profit equation (so LF is a quarter of the profit equation!). To calculate a break even of a route, you need the ocst, and both yield and load factor assumptions.

About AP or taxes, as mentioned by Cyrano for example, you can speak of gross yield (what the PAX pays for the flight excl. anciliaries but incl. all taxes) or net yield (without neutral elements as APD, landing fees etc). However, I do think (but not 100% certain) than in annual financial reports, airline do not include APD in yields, but do include the landing/airport fees, as these elements are substracted in the direct operating cost part of the P&L.

SSK

Longhaul services tend to have much lower yields than shorthaul

I don't think this sentence is correct. Yields are usually way much higher on longhaul than on short haul which is quite logical. I think you probably mixed up yield with revenue per ask, or yield per ask eventually.

[The SSK]

Sorry, I didn't mix up anything. (Passenger) yield is revenue per RPK. Check out IATA stats, or AEA, or AAPA. I work with this stuff every day, it has paid my salary for the last 40+ years.

'Revenue per seat' or 'revenue per passenger' is parochial. It allows you to compare within an airline with a single product, or on a single route. To compare across the networks you can only look at RPK/ATK.

[Cyrano]

Originally Posted by h&s

SSK

Longhaul services tend to have much lower yields than shorthaul

I don't think this sentence is correct. Yields are usually way much higher on longhaul than on short haul which is quite logical. I think you probably mixed up yield with revenue per ask, or yield per ask eventually.

I think you'll find SSK is far too knowledgeable to have mixed this up - it's just that he is using yield to refer to revenue per passenger kilometre (what is sometimes also referred to as "unit yield" or RASK or RASM).

You'll see from his definitions that he defines yield as revenue/traffic, where traffic is measured in passenger-km.

And it's quite correct to say that the revenue per passenger kilometre is much lower for a long-haul flight than a short-haul one.

(Of course the average yield per passenger is usually higher on a long-haul flight, but that wasn't what he was saying.)

[h&s]

SSK/Cyrano - no offense in my posts, I finally believe there are more acceptations than I thought. Are you working in cargo or airports, not in airline?

I ask that because in the differents airline I know, yield always meant average fare per passenger, ie. revenue / seats sold.

I am fully aware than yield as defined above is not a perfect metric, and need to be adjusted by the aircraft capacity and the distance in order to compare performances (this is RASK/M) but what I don't understand is why you are using RPK and yield as the same metric? then why two metrics/names?

I also always considered than easyJet yields were around £60, ryanair 45€ etc and I doubt these are rpk... So maybee it's different in your companies, but I garantee you than in the 4 airlines I know quite well, yield is never a measure of the revenue per PAX KM (this is rpk) but only of revenue per seats sold.