Transcript Slide 1
United Airlines Cost and Productivity Analysis Nahid Boustani Spring 2013 United Airlines Inc. – It is a Legacy carrier – It provides a higher level of services than a low-cost carrier • first class and/or business class • frequent-flyer program • airport lounges • Is member of an airline alliance through which it has partners that agree to provide these services to its passengers as well. • There is a higher level of services in the cabin, such as meal service and in-flight entertainment. – Operating major hubs – Serving Domestic as well as International markets Definitions • ASMs – One aircraft seat flown 1 mile. – • RPM – One paid passenger flown one mile. – • • • • • • • ∑ i (Number of seats (Flight i) * Distance Flown (Flight i) ∑ i (Number of Passengers (Flight i) * Distance Flown (Flight i) RASM (Unit Revenue) – Total operating revenue/ASM CASM (Unit Cost) – Total operating cost/ ASM PRASM – total passenger revenue/ASM Yield – Average Fare paid by passenger per mile flown= Total revenue/ RPM Fuel Consumed – Total amount of fuel used Fuel Costs per ASM – Total fuel cost /ASM Non-Fuel Costs per ASM: – (Total Operating Expenses-fuel cost)/ASM Chart 1 40000000 88 35000000 87 30000000 86 25000000 85 20000000 84 15000000 83 10000000 82 5000000 81 0 80 RPM 2006 2007 2008 2009 2010 2011 ASM Avg Load Factor 2012 United Airlines, All major airports (origin airports)-All numbers are for Scheduled services. Data are for Q3 of each year. The load factor is an average percentage load factor of monthly data in Q3. • ASM and RPM have the same trends and are pretty stable between 2006 to 2011. • Average Load Factor does not seem to be the right metric to use for calculating the quarterly load factor. It does not reflect the changes in ASM and RPM. Chart 2 12000000 10000000 8000000 Total Operational Revenue 6000000 Total Operational Cost 4000000 Incom/Loss before Tax 2000000 0 2006 2007 2008 2009 2010 2011 2012 -2000000 Note: All numbers are in thousands of dollars. •Total revenue and total operating cost have the same pattern. •From 2011 Revenue and Operating Cost increase. •As total cost increase in 2008 due to depression and rise of fuel price, the Income before tax decreases dramatically. Chart 3 0.35 0.3 0.25 RASM ($/ASM) 0.2 CASM ($/ASM) 0.15 Yield ($/RPM) PRASM ($/ASM) 0.1 0.05 0 2006 2007 2008 2009 2010 2011 2012 Note: Passenger Revenue used to calculate PRASM is from Scheduled Passengers only to be consistent with ASM data on chart 1. •During 2008-2009 Revenue decreases and cost increases that lead to decreasing in RASM and PRAZM and increase in CASM. Chart 4 1E+11 4E+09 9E+10 3.5E+09 8E+10 3E+09 7E+10 6E+10 2.5E+09 5E+10 2E+09 4E+10 1.5E+09 Fuel Cost ($) 3E+10 1E+09 2E+10 500000000 1E+10 0 0 2006 2007 2008 2009 2010 2011 2012 •The peak in Fuel cost around 2008 is due to United’s prepurchasing fuel in prediction of fuel costs to go up. Non-fuel Cost ($) Fuel Consumption (gallons) Chart 5 2500 4 3.5 2000 3 2.5 1500 Fuel Operational Expenses/ASM 2 1000 1.5 Non-fuel Operational Expenses/ASM Fuel Price/gallon 1 500 0.5 0 0 2006 2007 2008 2009 2010 2011 2012 •Fuel Prices and operational expenses/ASM are oscillating in the same pattern with a max peak in 2008 due to United’s prepurchasing fuel. •Fuel price affects fuel cost. •Non- fuel Cost is influenced by the economy recession in 2008. Effects • • • a. Fuel Prices on Expense – Fuel price has changed the fuel cost. b. Fuel prices on Airline Finance – Changes in the fuel price directly affects the operational expenses and operational revenues c. Fuel Prices on Airline Network Structure – No answer. I used average load factor of the monthly data for Q3. It seems like this is not the right way to calculate the load factor of the quarter. The load factor trend does not comply with the ASM and RPM trends.