Transcript Slide 1

JetBlue Cost and Productivity Analysis
Greg Koch
HW for OR 750
Question 1
• Jet Blue is considered a Low Cost Carrier
– Avoided Labor unions (lower wage rate)
– Uses Single Cabin service (no premium class)
• However it has few characteristics of LCC
–
–
–
–
–
–
Operates 2 types of aircraft
Uses JFK as a natural Hub
Assigns Seats
Has on board services
Loyalty Program
Adopted GDS
Question 2
•
•
•
•
•
•
•
•
•
RPM –Revenue Passenger Mile – One revenue paying passenger transported one
mile. Sum over all flights(# of revenue passengers * # of miles traveled)
ASMs – Available Seat Miles – One available seat flown 1 mile. Sum over all
flights(# of seats on flight * # of miles flown)
RASM – Revenue Per Average Seat Mile –Revenue made from each seat mile
offered (revenue/ASMs)
CASM – Cost Per Average Seat Mile -Cost to operate each seat mile offered
(operating costs /ASMs)
Yield – measure of the average fare paid by all passengers per mile flown. (total
revenue/ # Revenue Passenger Miles)
PRASM - passenger revenue per ASM. (total passenger revenue/ASM)
Fuel Consumed – Total volume of fuel used
Fuel Costs per ASM – Volume of Fuel used per ASM
Non-Fuel Costs per ASM - (= Wages and Salaries, Other rentals and landing fees,
Depreciation and Ammortization, Maintenance materials, and repairs,
Commisions…, Rentals…, and Other
Chart 1
ASM and RPM with Yield
9000
0.9
8000
in Thousands
7000
6000
0.8
5000
ASM
4000
RPM
3000
0.7
Load Factor
2000
1000
40
35
30
25
20
15
10
5
0.6
0
0
Quarters
•As Available Seat Miles have increased the number of Revenue
Passenger miles has increased as well. Which means the demand for
travel is keeping pace with travel offered by Jet Blue
•The Load factor is cyclic dropping off in Q4 and Q1 of every year
and increasing Q2 and Q3
Chart 2
Income - Expenses - Revenue
1000
in Millions ($)
800
600
Income (Loss) Before Taxes
400
Total Operating Expenses
Total Operating Revenue
200
0
0
-200
5
10
15
20
Quarters
25
30
35
40
•The beginning of the data set shows growth in revenue that
exceeds expenses resulting in consistent income, albeit a very small
profitable margin
•In 2005 an oscillation between profitability and losses begins even
though income has continually grown.
Chart 3
RASM - CASM - Yield RPM - PRASM
14
13
12
In Cents
11
10
RASM
9
CASM
8
7
Yield Per RPM
6
PRASM
5
4
0
5
10
15
20
25
30
35
40
Quarters
•Falloff in Revenue during 2001-2003 recession (dot com bust)
general growth during economic expansion till 2009 and then
revenues drop.
•Costs generally increase during expansion because competition for
fuel in the world drives prices higher
Chart 4
Costs and Consumption
600
180
160
500
400
120
100
300
80
200
60
40
100
20
0
0
0
5
10
15
20
25
30
35
40
Quarters
•Falloff in fuel prices after 2008 recession begins leads to a growth
in fuel consumption.
•Nonfuel costs increase consistently by about 10% every year. Fuel
costs also rise but are impacted by other economic factors causing
wide variation on cost and consumption.
In thousands of gallons
in Thousands of $
140
fuel
nonfuel
fuel consumed
Chart 5
0.07
4
0.06
3.5
3
0.05
2.5
0.04
2
0.03
1.5
0.02
1
0.01
Jet Fuel Cost $/gal
Costs per ASM
Costs vs. Jet Fuel Price
Fuel Costs per ASM
Non Fuel Costs per ASM
Jet Fuel Price
0.5
0.00
0
0
5
10
15
20
25
30
35
40
Quarters
•Non Fuel costs per ASM remain fairly consistent
•As Jet Fuel Prices spike, the cost per ASM spikes as well, the
variability in jet fuel prices causes the variability in total costs more
so than all other operating expenses combined.
Question 4
• a. Fuel Prices on Expenses (Chart 5, 4, 3)
– the variability in jet fuel prices causes the variability in total costs
(and thereby profits) more so than all other operating expenses
combined.
• b. Fuel prices on Airline Finance (Chart 2)
– An oscillation between profitability and losses is caused by the razor
thin profit margin of airlines and the exposure to wild oscillations in
jet fuel costs that represent a large portion (1/3) of total operating
costs
• c. Fuel Prices on Airline Network Structure (Chart 1)
– A hub model using fewer flights can increase load factors. Higher
load factors increase the yield of a flight and help offset the fuel
costs. An empty plane uses nearly the same amount of fuel as a full
one.