Transcript Mason Template 1: Title Slide

AirTran Airways Productivity
and Cost Analysis
2006-2011
Michael J. McCormick
Air Transportation System Engineering
April 22, 2013
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AirTran Airways - Background
AirTran Airways is generally considered a low-cost carrier:
• Non-traditional distribution channels
• No frills but reliable service
But has many traits of network legacy carriers including:
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Two-class cabin service
Hub network - Atlanta, Baltimore, Orlando & Milwaukee
Frequent Flyer Program – A+ Rewards
Wi-Fi on All Aircraft
Unionized Labor
Heterogeneous Fleet Mix – B717 & B737
International Service (Mexico & Caribbean)
Assigned Seating
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AirTran Airways – History1
Founded in 1993 and incorporated into ValuJet Airlines in 1997
as AirTran Airways.
The original AirTran Airways was part of Mesaba Airlines and
based in Orlando.
AirTran Airways become a wholly-owned subsidiary of
Southwest Airlines in 2011.
AirTran and Southwest joined on a Single Operating Certificate
in 2012.
AirTran Airways is a Fortune 1000 company with many
customer service awards.
1. http://www.airtranairways.com/about-us/history.aspx
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Definitions
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RPM: Revenue Passenger Miles ∑ i = 1 to All Flights (Number of Passengers (Flight i) * Distance
Flown (Flight i)
ASM: Available Seat Miles ∑ i = 1 to All Flights (Number of Seats (Flight i) * Distance Flown
(Flight i)
RASM: Revenue per ASM – Operating Revenue/ASM
CASM: Cost per ASM - Operating Expenses/ASM
Yield: Average Airfare Paid by Passengers per Mile Flown – Total Revenue/RPM
PRASM: Passenger Revenue per ASM – Total Revenue/ASM
Fuel Consumed: Quantity of fuel used in a specified time period or specified flight exclusive
of reserves
Fuel Costs per ASM: Fuel Costs/ASM
Non-Fuel Costs per ASM: (Operating Expenses – Fuel Costs)/ASM
All metrics are utilized to compare airline performance over time, against industry standards or
against individual competitors.
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Data
All data is self-reported by the AirTran Airways to the
Department of Transportation via Form 41.
All data was downloaded from Bureau of Transportation
Statistics public website, www.transtats.bts.gov.
Data was imported into Microsoft Excel 2010 and Stata 12 for
analysis.
AirTran Airways stopped Form 41 reporting after 1st Quarter
2012.
To mitigate seasonal fluctuations, the analysis utilized 3rd
Quarter data from 2006 through 2011.
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90%
12000
80%
10000
70%
ASM/RPM
(millions)
50%
6000
Load Factor
(%)
60%
8000
40%
4000
30%
2000
20%
ASM
RPM
Load Factor
0
10%
2006
2007
2008 Year
(3rd Quarter)
2009
2010
2011
• Increased LF helps narrow the gap between ASM & RPM.
• ASM increased in 2007 & 2011 due to growth in flight segments.
• Essentially flat ASM/RPM/LF (2008-2010) is due to downward
economic pressure.
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$900,000
$800,000
$700,000
$600,000
US Dollars
(thousands)
$500,000
Total Operating Expenses
$400,000
Total Operating Revenue
$300,000
Income Before Taxes
$200,000
$100,000
$0
2006
2007
2008
2009
2010
2011
-$100,000
-$200,000
• In spite of steady operating revenue growth, operating costs
outpaced revenue resulting in a pre-tax loss in 2008.
• From 2009 through 2011, operating expenses outpaced revenue
narrowing profit.
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14
12
Cents
(US Dollars)
10
8
6
4
RASM
CASM
2
Yield per RPM
PRASM
0
2006
2007
2008
Year
2009
(3rd Quarter)
2010
2011
• From Chart 1, RPM & ASM were flat 2008-2010.
• CASM increased to peak above RASM in 2008.
• Yield per RPM is generally downward sloping, most likely due to
lower ticket prices to stimulate demand.
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$500
150
Fuel Operating Expense
$450
Non-Fuel Operating Expense
140
Fuel Consumed
$400
US Dollars
(millions)
$300
120
$250
110
$200
$150
Gallons
(millions)
130
$350
100
$100
90
$50
$0
80
2006
2007
2008
2009
2010
2011
Year
(3rd Quarter)
• In 2008, dramatic increase in fuel operating costs contributes to
increased CASM observed in Chart 3.
• A significant increase in fuel consumed in 2007 is due to system growth
seen in Chart 1 and contributes to increases in both fuel and non-fuel
operating costs.
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$6.00
$5.50
6
$5.00
Fuel Expense per ASM
4
Non-Fuel Expense per ASM
$4.50
Jet Fuel Price
$4.00
$3.50
3
US Dollars
Cents
(US Dollars)
5
$3.00
2
$2.50
1
$2.00
0
$1.50
2006
2007
2008
2009
2010
2011
Year
(3rd Quarter)
• Increasing fuel price in 2008, 2010 & 2011, explain the increases in
fuel operating expenses in Chart 4.
• The decrease in non-fuel expense per ASM in 2011 is due to dramatic
decrease in General and Administrative Costs.
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Statistical Analysis
• Due to the low number of observations (n=6), the analysis
could develop a robust model due to limited degrees of
freedom.
• Due to low n and likely serial autocorrelation, the analysis
does not use time series regressions.
• There is significant multicollinearity between many of
explanatory variables, therefore the model utilizes one cost
variable and one revenue variable.
• Income Before Taxes = B1(Operating Revenue) + B2(Fuel
Price) + Constant + e
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Statistical Results
Fuel Price (US Dollars)
-89921 **
Revenue (Thousands US Dollars)
. 3691 *
Constant
-13168
R2 (adjusted)
.80
* = p < 10% ** = p < 5%
• Ceteris Paribus, a $ 1 increase in fuel prices decreases quarterly income
before taxes by $ 89,921,000.
• Ceteris Paribus, a $ 1,000 increase in operating revenue increases
income before taxes by $ 369.10.
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