Transcript Homework: Airline Operating Costs and Airline Productivity

Homework: Airline Operating
Costs and Airline Productivity
April 9,2012
Maryam Zavareh
Q1: Frontier Airline
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US Low Cost Carrier Airline
Headquarter: Denver, Colorado
Founded: 1994
Fleet Size: 91
Flies to 76 destination
Parent Company: Republic Airways Holding
Assumption and Notes
• The data range was assumed to be started
from Q1,2001 to Q3,2009.
• In years 2001 and 2002, some of the data is
missing.
Q2:
• RPMs: Revenue Passenger Mile
Number of Passengers X Distance Flown
• ASMs: Available Seat Mile
Number of Seats X Distance Flown
• RASM: Unit Revenue
Revenue/ASM
• CASM: Unit Cost
Operating Expense / ASM
• Yield: Average fare paid by passenger, per mile flown
Revenue / RPM
• PRASM: Passenger Revenue per available seat mile
Passenger revenue/ASM
Q2 (Cont.):
• Fuel Consumed: Fuel Consumed (by airline,..)
• Fuel Costs per ASM: cost of fuel consumed per ASM
Cost of fuel / ASM
• Non-Fuel Costs per ASM: Wages and Salaries,
Other rentals
and landing fees, Depreciation and Amortization,
Maintenance materials, and repairs, Commissions…,
Rentals…, and Other
The sum of above/ ASM
Chart 1
Transition of ASM-RPM- LF vs Years
4000
1
0.9
3500
0.8
0.7
2500
0.6
2000
0.5
0.4
1500
0.3
1000
0.2
500
0.1
0
0
1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
1
2
3
4
1
2005
Years by Quarters
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
3
4
2009
RPM
ASM
Load Factor
Load Factor
Millage Flown in Millions
3000
Chart 1
• This graph shows ASM,RPM and Load Factor which is RPM/ASM.
• The ASM was overall gone up and so the RPM. However, the
highest ASM and RPM for each year happen in third and fourth
quarter.
• The ASM was increased 31% from Q4,2008 to Q1,2009, but the
RPM was just increased 23% and made the LF drop 6%.
• The ASM and RPM were decreased 80% from Q2 to Q3 in 2009.
• The lowest ASM ad RPM belongs to Q3, 2009 however the load
factor is still high. (As discussed in class, LF by itself can not be a
good indicator for airlines performance).
• The Max LF which is 0.84 belongs to Q3,2008.
• The min LF which is 0.52 belongs to Q4,2001.
Chart 1
Year
Average
Average System
System RPM
ASM
Average
System LF
Year
Max LF
2003
1167.70
1692.89
0.69
2003
Q3
2004
1691.88
2367.40
0.71
2004
Q3
2005
1945.18
2592.37
0.75
2005
Q2
2006
2233.07
2941.21
0.76
2006
Q2
2007
2633.00
3368.12
0.78
2007
Q3
2008
2631.10
3245.40
0.81
2008
Q3
2009
1839.88
2363.27
0.78
2009
Q2
Chart 2
Transition of Income Before Tax-Total Operating Expense-Total
Operating Revenue vs Years
450
400
350
Million Dollars
300
250
200
150
100
50
0
Income (Loss) Before
Taxes
-50
-100
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2001
2002
2003
2004
2005
2006
Years by Quarters
2007
2008
2009
Total Operating Expenses
Total Operating Revnues
Chart 2
• The operation expense and revenue was fairly gone up
until Q4,2006. The Total Op Revenue was dropped
14%, however the Total Op Expense dropped 6%.
• The Total Op Revenue was dropped again at Q4,2007,
and so the Total Op Exp.
• The drop between Q4,2008 and Q1,2009 was very
significant.
• The max Total Op Revenue is 373.2 million dollar
Q3,2007.
• The max Total Op Expense is 401.97 million dollar
Q2,2008.
• 2009 was the only year that had positive income.
Chart 2
Year
Average of Total Average of Total
Average of Income
Operating
Operating
(Loss) Before Taxes
Revenues
Expenses
2003
147.52
143.48
2.22
2004
196.81
204.47
-9.99
2005
240.09
240.59
-3.45
2006
283.34
286.45
-6.62
2007
333.59
335.38
-7.29
2008
343.12
362.03
-26.25
2009
299.72
268.16
17.39
Chart 3
Transition of RASM, CASM, Yield per RPM, and PRASM vs Years
70
60
Revenue in Cents
50
40
30
20
10
RASM (¢)
0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2001
2002
2003
2004
2005
2006
Years by Quarters
2007
2008
2009
CASM (¢)
Yield per RPM (¢)
PRASM (¢)
Chart 3
• In the Q1, 2009 the ASM was hugely
increased (the highest value over the years),
but the RPM did not increased as much, so
the RASM decreased 33%.
• The same trend happened for CASM. In the
next graphs, we will see the expense went
down at the same time period.
• The yield per RPM was decreased because of
the lost in the revenue and spike in ASM.
Chart 3
• The RASM and CASM were increased very
significantly at Q3, 2009.
• These are because of sudden decreased in
ASM at the same time.
• Also, the Revenue and Cost has increased at
Q3,2009 in comparison to Q2,2009, so the
Yield per RPM was increased as well.
• The PRASM was increased at the same time
period because of the same reasons. (ASM )
Chart 4
Transition of AC Operating Expence, Non Fuel Operating Expenses,
Fuel Consumed vs Years
300
50
Expense in Million Dollars
250
40
35
200
30
150
25
20
100
15
10
50
Fuel Consumed in Million Gallons
45
5
0
0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2001
2002
2003
2004
2005
Years by Quarters
2006
2007
2008
2009
Aircraft Fuel Operating Expense
Non-Fuel Operating Expenses
Fuel Gallons Consumed
Chart 4
50
90%
45
80%
40
70%
35
60%
30
50%
25
40%
20
30%
15
20%
10
10%
5
Expenxe Percentage
100%
0%
0
1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
1
2
3
4
1
2005
Years by Quarters
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
3
4
2009
Non-Fuel Operating Expenses
Aircraft Fuel Operating Expense
Fuel Gallons Consumed
Fuel Consumed in Million Gallons
Transition of AC Operating Expence, Non Fuel Operating Expenses,
Fuel Consumed vs Years
Chart 4
• Overall, the AC fuel Op Exp was increased over
the years. Although, it dropped at the first
quarter of each year.
• Unfortunately there is not enough fuel
consumption data for analysis.
• The ASM was decreased slightly from Q3,2007 to
Q3,2008. Also, the fuel consumption was
decreased for the same time period.
• However, the AC fuel Op Exp increased 20% for
the same time period.
Chart 5
Transition of AC Fuel Op Exp per ASM, None-Fuel Op Exp per ASM,
and Jet Fuel Price vs Years
0.60
4
Expence in Million Dollars
3
0.40
2.5
0.30
2
1.5
0.20
1
0.10
Jet Fuel Price Dollar Per Gallon
3.5
0.50
0.5
0.00
0
1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
1
2
3
4
1
2005
Years by Quarters
2
3
2006
4
1
2
3
2007
4
1
2
3
4
1
2
3
4
2008
2009
Non-Fuel Operating Expenses/ASM
Aircraft Fuel Operating Expense/ASM
Jet Fuel Price
Chart 5
• The Non-Fuel Op Exp per ASM has been
increased over the years until Q2, 2008. After this
point, it dropped significantly.
• Reasons:
“The depreciation and amortization cost
decreased due to impairment charge in 2008.”
(from the website)
“The Commissions, booking fees and credit
card expense decreased in conjunction with the
15.1 percent decrease in company’s revenue. ”
(from the website)
Chart 5
• Overall, AC fuel Op Expense per ASM increased until
Q4,2008.
• However, the AC Op Exp decreased at the first quarter of
each year and it decreased at Q1,2009. Then it gone up
dramatically at Q3,2009 because the ASM decreased by
80%.
• The jet fuel price has an impact on the AC fuel Op expense.
• The Jet Fuel Price has the lowest amont at Q1,2009 for the
last four years. That could be the reason why we see a huge
increase in ASM.
• The highest jet fuel price belongs to Q2, 2008 which shows
the highest AC Op Exp at chart 4.
Q4:
• describe the effect of Fuel Prices on:
a. Expenses (Chart 5, 4, 3)
It seems that the fuel price has a significant impact
on AC fuel and even non fuel Op Exp per ASM. For
example, at Q2, 2008 when the fuel cost was the highest
over the study time period, the AC fuel and even non fuel
Op Exp per ASM went up. Also, at Q1, 2009 when the jet
fuel price went down, the fuel and non fuel Op Exp per
ASM decreased as well. The same trend happened for
chart4. However, Chart 3 did not show any significant
impact from jet fuel cost.
Chart 3 with Fuel Price
70
4
60
3.5
3
Revenue in Cents
50
2.5
40
2
30
1.5
20
1
10
Jet Fuel Expense dollar per Gallon
Transition of RASM, CASM, Yield per RPM, and PRASM and fuel
price vs Years
0.5
0
0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2001
2002
2003
2004
2005
2006
Years by Quarters
2007
2008
2009
RASM (¢)
CASM (¢)
Yield per RPM (¢)
PRASM (¢)
Jet Fuel Price
Chart 4 with Fuel Price
Transition of AC Operating Expence, Non Fuel Operating Expenses,
Fuel Cost vs Years
300
4
Expense in Million Dollars
3
200
2.5
150
2
1.5
100
1
50
Fuel Cost Dollar per Gallon
3.5
250
0.5
0
0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2001
2002
2003
2004
2005
Years by Quarters
2006
2007
2008
2009
Aircraft Fuel Operating Expense
Non-Fuel Operating Expenses
Jet Fuel Price
Q4:
• describe the effect of Fuel Prices on:
b. Airline Finance (Chart 2)
The jet fuel cost has significant impact on the
airline financing. Whenever the fuel cost went
up (Q2 2008), the airline has lost income (the
highest lost was Q2, 2008 due to highest fuel
price.
Likewise, when the fuel cost went down
(Q1,2009), the airline gain income (+ income).
Chart 2 with Fuel Price
Transition of Income Before Tax-Total Operating Expense-Total
Operating Revenue vs Years
450
4
400
3.5
3
Million Dollars
300
250
2.5
200
2
150
1.5
100
50
1
Jet Fuel Price Dollar Per Gallon
350
0
0.5
-50
-100
0
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2001
2002
2003
2004
2005
2006
Years by Quarters
2007
2008
Total Operating Revnues
2009
Total Operating Expenses
Q4:
• describe the effect of Fuel Prices on:
c. Airline Network Structure (Chart 1)
– The jet fuel did not have a huge impact on the
network (on the max and min fuel cost-Q2 2008
and Q1,2009), however, it is shown that at Q3,
2009, when the jet fuel cost was rising, the ASM
decreased very significantly.
Chart 1 with Fuel Price
4
3500
3.5
3000
3
2500
2.5
2000
2
1500
1.5
1000
1
500
0.5
0
0
1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
1
2
3
4
1
2005
Years by Quarters
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
3
RPM2009
ASM
4
Fuel Price Dollar per Gallon
milage Flown
Transition of ASM-RPM- Fuel Price vs Years
4000