Introduction to Airline Economics 101

Airline economics – the use of metrics to measure performance – is an interesting subject. These metrics not only allow an airline to asses its own performance, across routes and wide-network, but also allows comparisons between airlines to be made where applicable.

Some key airline metrics are below.

 

Available Seat Kilometre (or Available Seat Mile)

The measure of airline capacity production. Calculated as distance x sale-able seat capacity.

 

Revenue Passenger Kilometre (or Revenue Passenger Mile)

The measure of utilized airline capacity. Calculated as distance x paying passengers on a flight.

 

Passenger Load Factor

The percentage of utilized seat capacity. Calculated as RPK divided by ASK and shown as a percentage.

 

Cost per ASK

The measure of unit cost in the industry. Calculated as Operating Expenditure (usually before Finance Charges), divided by ASK.

 

Revenue per ASK

The measure of unit revenue in the industry. Calculated as Net Revenue (after taxes and commissions), divided by ASK.

 

Yield per RPK

Provides an indication of revenue earned per passenger kilometre. Calculated as Passenger Revenue (after taxes and commissions), divided by RPK.

 

Consider the example below:

Airline A operates flight 123 from ABC to XYZ. The flight has a capacity for 100 seats, and carries 80 passengers. The 500km journey earns a net revenue of USD4,000 from passengers, and a USD200 revenue from carriage of cargo. The operating expenses incurred on the route is USD3,500.

ASK = 100 x 500 = 50,000

RPK = 80 x 500 = 40,000

Passenger Load Factor = 40,000/ 50,000 = 80%

Cost per ASK = 3,500/ 50,000 = 7.00 US Cents

Revenue per ASK = (4,000 + 200)/ 50,000 = 8.40 US Cents

Yield per RPK = 4,000/ 40,000 = 10.00 US Cents

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