Transcript Airline Productivity and Cost Analysis of South West Airlines

Airline Productivity and Cost Analysis for
South West Airlines
Student:
Karym Z. Zabara
SouthWest Airlines (LCC)
 SouthWest Airlines serves as a Low Cost
Carrier, incorporated in Texas and
commenced service on June 18, 1971
 As of December 31, 2012, Southwest and
AirTran operated 694 Boeing jets
 Southwest and AirtTran provide their
services in 97 destinations in 41 states,
including the District of Columbia, and
the Commonwealth of Puerto Rico
 Southwest Airlines Representatives
booked approximately 11.4 million
reservations in the last 12 months.
 In 2012, Southwest's average passenger
airfare was $147.17 one way.
Characteristic
Single Aircraft
Family
Single Cabin
Service
No Seat
Assignment
SouthWest
Term Definitions
 Revenue Passenger Miles (RPM) = Sum of all the paying passengers multiplied by
the distance travelled.
 Available Seat Miles (ASM) = Sum of all the seat flown (available) multiplied by
the distance travelled.
 Revenue per Available Seat Miles (RASM) = Obtained by dividing operating
income by available seat miles.
 Cost per Available Seat Miles (CASM): Obtained by dividing the operating costs of
an airline by available seat miles (ASM).
 Average fare paid by passengers, per mile flown (Yield): Revenue per RPM.
 Passenger Revenue per Available Seat Miles (PRASM) : calculated by dividing
passenger revenue by available seat miles. Typically the measure is presented in
terms of cents per mile.
 Fuel Consumed: Sum of all the fuel expenses for all the flights operated.
 Fuel Cost per ASM : Fuel consumed divided by Available Seat Miles (ASM).
 Non Fuel Cost per ASM : Total non fuel costs divided by Available Seat Miles
(ASM).
Chart of
(RPM, ASM, & SLF)
Chart Description:
(RPM, ASM, & SLF)
 An overall correlated rising trend exists for RPM, ASM, & SLF for
the third quarter of all the years from 2001 – 2012 though some
minor deviations appear.
 A decrease of RPM, ASM, & SLF occurs every year on the month of
September, most likely due to the end of vacation season and the
return of employees to work as well as beginning of classes for
school.
 The greatest two drop in SLF occurs on September of 2001 and
September of 2008 due to the events that occurred at the time .
Chart of
(Income, Expense, & Revenue)
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Income, Expense, & Revenue by Year
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Values ($)
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150
100
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0
-50
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Year (Q3)
Operating Revenus
Operating Expenses
Income Pre-Tax
2012
Chart Description:
(Income, Expense, & Revenue)
 The general trend shows the operating revenues and expenses
growing together, they display a close relation to each other through
out the years with a minor deviation where revenue is greater than the
expenses.
 Due to the sky rocketing increase in the price value of crude oil lead
to the loss of income on the year of the 2008 and 2011, leading the
expenses to catch up with the revue values.
 Airtran -supposedly the smaller rival of southwest airlines- was
bought by southwest airlines for 1.4 billion dollars in 2010, the
process of running the new fleet increased revenues but also posed its
own risks in costs in the following year of 2011.
Chart of
(RASM, CASM, Yield/RPM, & PRASM)
RASM, CASM,PRASM, & Yield/RPM
0.0002
0.00018
value(Cents)
0.00016
0.00014
0.00012
0.0001
0.00008
0.00006
0.00004
0.00002
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
Year (Q3)
RASM
CASM
Yield/RPM
PRASM
2010
2011
2012
Chart Description:
(RASM, CASM, Yield/RPM, & PRASM)
 A growing trend for RASM, CASM, & PRASM appears over all
years with a minor deviation where RASM is greater than that of
CASM and PRASM.
 The Yield/RPM displays a similar growth to RASM, CASM, &
PRASM, yet due to the increase in fuel prices in 2008 the
Average fare paid by passengers per mile flown was increased
accordingly to make up for the cost of fueling the flights.
Chart of
(Fuel vs. Non fuel)
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4000
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3500
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Millions
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0
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2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Year (Q3)
Fuel Operating Expenses
Non-Fuel Operating Expenses * 1000
Fuel Consumtion (GALLONS)
Fuel Consumed (Gallons)
Expenses ($)
Millions
Fuel & Non-fuel Operating Expenses, and Fuel Consumption
by Year
Chart Description:
(Fuel vs. Non fuel)
 Fuel Operating Expenses carry on a gradual increasing trend over the
years following closely the growth in air travel demand , and increases
accordingly with increase in fuel price in and after the year of 2008.
 Non-Fuel Operating Expenses though scaled to fit on the graph it is a
fraction of the Fuel Operating Expenses has growing trend that grows
exponentially after 2010 due to the merger of Southwest Airlines with
AirTran.
 Fuel Consumption at its lowest in 2001 raises gradually until 2009
where a drop in fuel consumption occurs most likely due to a decrease
in the amount of flights to reduce costs or due to an improvement of
technologies outfitted in fleet.
Chart of
(Costs/ASM & Fuel Price)
0.18
4
0.16
3.5
0.14
3
0.12
2.5
0.1
2
0.08
1.5
0.06
Fuel Price ($)
Fuel and Non fuel / ASM ($)
Fuel Costs per ASM and Fuel Prices by Year
1
0.04
0.5
0.02
0
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Year (Q3)
Fuel Operating Expenses/ASM
Indexmundi Fuel prices:
Non-Fuel Operating Expenses * 1000 / ASM
Jet fuel Prices
httpwww.indexmundi.com/commodities/?commodity=jet-fuel&months=180&commodity=jet-fuel://
Chart Description:
(Costs/ASM & Fuel Price)
 Fuel Operating Costs per ASM has a gradual increase over the years
yet not significant noticeable other than the minute spike in 2008.
 Non- Fuel Operating Costs per ASM though scaled to fit in the same
graph, has the a gradual increase until 2008 where a the trend
becomes exponential, most likely due to the increase of air travel
demand, and the merger that occurs in 2010 with AirTran.
 Generally the jet fuel prices acquired from index-mundi display an
extreme spike in 2008 by almost 75 % followed by drop in 2009
where efforts of mining more fuel was increased.
Effect of Fuel Price on Expenses
(Chart 5, 4, 3)
 Fuel price has had a significant effect on overall SouthWest
operating cost.
 Between early 2008 and mid of 2010, fuel expense as a proportion
of overall operating expenses ranged from 50% to 80% spikes.
 Even during the years when fuel price was steady, the fuel
operating expense is a large factor to the overall southwest's
operating expenses especially after the merger.
Airline Finance (Chart 2)
 Fuel price has had a modest effect on overall income of
Southwest's operation in general.
 Almost all the periods when fuel price has increased appreciably
are accompanied by an appropriate charge to accommodate for a
close breakeven value with income.
 Yet in some situations the effects were significant enough to force
the southwest airlines to operate in a negative territory for
example in the years (2008 and 2011)
Airline Network Structure
 Comparatively, fuel price has had minimal effects on RPM, ASM
and Load Factor.
 For the most part, RPM and ASM have increased through the
years and Load factor changed very slightly in spite of fuel price.
 Though, during the time when fuel price was significantly high,
(2001 and 2008 ), RPM and ASM stagnated and fell.
Thank For Your Time
Back up slide for Chart of
(RPM, ASM, & SLF)
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0.9
0.8
10000
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6000
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Year (Q3)
Revenue Passenger Miles (RPM)
Availiable Seat Miles (ASM)
System Load Factor (SLF)
SLF (%)
RPM & ASM
Millions
RPM, ASM & SLF by Yearly Quarter