Airline Operating Costs & Airline Productivity
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Transcript Airline Operating Costs & Airline Productivity
Airline Operating Costs
& Airline Productivity
- US Airways -
Seungwon Noh
(Apr. 09. 2012)
US Airways is a NLC.
LCC’s Characteristics
Single Aircraft type or
Single family of aircraft
Point-to-point ticketing,
no connecting hubs
No labor unions, Lower wage rates
Single cabin service, no premium class
No seat assignments
Reduced frills for on-board service
No frequent-flyer loyalty program
Avoid global distribution systems
US Airways
X
X
X
X
X
• Changing fleets to Airbus
• Operate 3 hubs (Charlotte, Philadelphia,
Phoenix) and 1 focus city (Washington D.C.)
• Low wage rates
• Provide different class seats
• Assign seats
• No free meals
• Have mileage program
• Use GDS
US Airways was a Network Legacy Carrier from the beginning.
Try to be a LCC, but have other factors to incur cost a lot.
US Airways has strong hub & spoke network.
US Airways Express operates spoke network with contract.
Terminology and Definition
RPMs (Revenue Passenger Miles)
Number of passenger-miles transported
ASMs (Available Seat Miles)
Number of seat-miles transported
RASM (Revenue per ASM)
Revenue received for each available seat mile
Total Revenue / ASMs
Terminology and Definition
CASM (Cost per ASM)
Cost to operate each available seat mile
Total Operating Cost / ASMs
Yield
Average fare paid by passenger per mile flown
Total Revenue / RPMs
PRASM (Passenger RASM)
Passenger revenue received for each available seat mile
Passenger Revenue / ASMs
Terminology and Definition
Fuel consumed
Number of gallons of fuel consumed
Fuel Costs per ASM
Fuel cost to operate each available seat mile
Total Fuel Cost / ASMs
Non-Fuel Costs per ASM
Non-fuel cost to operate each available seat mile
(Total Operating Cost – Fuel Cost) / ASMs
Airline Analysis
Similar trend in ASM and RPM
Decrease in 2001 (due to Sep. 11)
Significant changes in 2005 (Bankruptcy and Merge with America West)
L/F increased with seasonal fluctuation
Airline Traffic, Output and Performance
(Millions)
35,000
100%
ASM
RPM
L/F
90%
30,000
80%
25,000
70%
60%
20,000
50%
15,000
40%
30%
10,000
20%
5,000
10%
-
0%
1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
2009
3
Airline Analysis
Changes by the merging in revenue and expense trend
Increase after decrease
Significant decrease of revenue in 2001 (Sep. 11)
Remarkable increase of expense in 2008 (Fuel price)
Loss followed by profit after the merging
Total Operating Revenue & Expense
(Millions)
$5,000
Total Operating Revnues
Total Operating Expenses
Income (Loss) Before Taxes
$4,000
$3,000
$2,000
$1,000
$1
$(1,000)
$(2,000)
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
2009
3
Airline Analysis
Similar trends with total revenue and expense
Increase after decrease
Decrease of RASM, Yield, PRASM in 2001 (Sep. 11)
Big increase of CASM in 2008 (Fuel price)
Increase in profitability after merging
Operating Revenue & Cost per output
(Cents)
19.00
RASM
CASM
Yield per RPM
PRASM
17.00
15.00
13.00
11.00
9.00
7.00
5.00
1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
2009
3
Airline Analysis
Expenditure on fuel increase
Significant increase in 2005 (merging) and 2008 (increase of fuel price)
Big difference by the merging in fuel consumption
Consume fuel 3 times more than before merging
Fuel & Non-fuel Operating Expense
(Millions)
(Gallons in Million)
$4,000
400
Aircraft Fuel Operating Expense
Non-Fuel Operating Expense
Fuel Consumed
$3,000
300
$2,000
200
$1,000
100
$-
0
1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
2009
3
Airline Analysis
Significant increase of jet fuel price
Reached at $3.50 per gallon in 2008
Gradual increase in fuel expense per ASM
Decrease of non-fuel expense
Unit Fuel & Non-fuel Operating Expense
(Cents)
(Per Gallon)
20.00
$4.00
Aircraft Fuel Expense per ASM
Non-Fuel Operating Expense per ASM
Average Jet Fuel Price
$3.50
16.00
$3.00
$2.50
12.00
$2.00
8.00
$1.50
$1.00
4.00
$0.50
0.00
$1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
2009
3
Effects of Fuel Prices
Airline Expenses
Proportion of fuel expense to total expense highly depends on
fuel price.
Significant Level Adjusted R2
Coefficient
t-statics
Constant
.048
4.207
.000
Fuel Price
.114
17.058
.000
0.898
As fuel price increases, total operating expenses increases.
Airline Finance
The higher fuel price, the worse airline finance.
Airline Network Structure
No direct effects of fuel price
Summary
US Airways is considered a NLC.
Strong Hub & Spoke Network, High Operating Cost
US Airways experienced three big changes of Operating
Cost and Productivity between 2001 and 2009.
Traffic, Output and Revenue decreased in 2001 due to Sep. 11.
Most significant decrease and increase of all data in 2005
(Bankrupt and Merge with America West)
Big jump of Fuel prices in 2008
Fuel Prices affect the airline’s operating expenses and
finance significantly.