Delta Air Lines Cost and Productivity Analysis

Report
Delta Air Lines Cost and
Productivity Analysis
Ujaval Patel
Airline Information
• Delta is considered a legacy carrier.
• It has:
– A heterogeneous fleet mix
– Fleet hubs (Dom: ATL, DTW, MSP, LGA, SLC, JFK, CVG,
MEM; Int: CDG, NRT, AMS)
– Small percentage of unionized workers
– Categorized seating classes
– Seat assignments
– Frequent flyer program
– GDS
Definitions
• RPM –Revenue Passenger Mile – One revenue paying passenger
transported one mile. ∑ i = 1 to All Flights (# of revenue passengers * # of miles
traveled)
• ASMs – Available Seat Miles – One available seat flown 1 mile. ∑ i = 1 to All
Flights (# of seats on flight * # of miles flown)
• RASM – Revenue Per Average Seat Mile –Revenue made from each seat
mile offered = Operating Revenue/ASMs
• CASM – Cost Per Average Seat Mile -Cost to operate each seat per mile
offered = Operating costs /ASMs
• Yield – measure of the average fare paid by all passengers per mile flown.
= Total Operating Revenue/ # Revenue Passenger Miles = Load Factor *
Yield
• PRASM - passenger revenue per ASM. = Total passenger revenue/ASM
• Fuel Consumed – Total volume of fuel used
• Fuel Costs per ASM = Fuel Cost / ASM
• Non-Fuel Costs per ASM = (Operating Expenses – Fuel Costs)/ASM
60,000,000
RSM, ASM, and Load Factor
Comparison
100.00%
90.00%
55,000,000
50,000,000
70.00%
60.00%
45,000,000
50.00%
40,000,000
40.00%
Load Factor (%)
Distance in thousands
80.00%
30.00%
35,000,000
20.00%
30,000,000
10.00%
25,000,000
0.00%
2006
2007
2008
2009
2010
2011
2012
Q3 Years
• The trends shown represent the rise in 3rd Quarter RPMs and ASMs.
• 2010 showed a great increase in both RPMs and ASMs, though the
trend seems to be tapering off a little, due to the merger with
Northwest.
•The load factor has gradually increased from ~80% to ~90% in 6 years.
RPM
ASM
Load Factor
Operating Revenue, Operating
Expenses, and Income Before Taxes
Amount in Thousands of Dollars
12,000,000
10,000,000
8,000,000
Operating Revenue
6,000,000
Operating Expenses
4,000,000
Income Before Taxes
2,000,000
0
2006
2007
2008
2009
2010
2011
2012
Q3 Years
• The 3rd quarter is prime summer traveling season and sees the most RPMs
and ASMs.
• 2008 and 2009 signal the high cost to keep up profits up even during the
summer.
• The merger in 2010 saw expenses and revenues dramatically rise, and this
has led to higher Q3 profits.
RASM, CASM, Yield, PRASM
$0.25
$0.20
$0.15
RASM
CASM
$0.10
Yield
PRASM
$0.05
$2006
2007
2008
2009
2010
2011
2012
Q3 Years
• By 2009 the yeild was dropping and CASM was seeing a rise. This was
cutting into profits.
•With the merger in 2010, the yeild was climbing again and CASM was
dropping . Though, currently CASM is back at 2009 levels.
Fuel OPEX, Non-Fuel OPEX, Fuel
Consumption
900,000
800,000
Costs (thousands of dollars)
6,000,000
700,000
5,000,000
600,000
4,000,000
500,000
3,000,000
400,000
300,000
2,000,000
200,000
1,000,000
100,000
0
Fuel Consumption (thousands of gallons)
7,000,000
Fuel OPEX
Non-Fuel OPEX
Fuel Consumption
0
2006
2007
2008
2009
2010
2011
2012
Q3 Years
• The summer months tend to have higher than average fuel prices.
• 2008 saw a price spike in fuel prices and thus there was a spike in Fuel
OPEX.
• With the merger Fuel OPEX has increased steadily, while Non-Fuel OPEX
and fuel consumption has remained relatively steady.
$0.14
$4.00
$0.12
$3.50
$3.00
OPEX per ASM
$0.10
$2.50
$0.08
$2.00
$0.06
$1.50
$0.04
$1.00
$0.02
Average Fuel Cost per Gallon
OPEX ASMs and Fuel Cost
Fuel OPEX per ASM
Non-Fuel OPEX per ASM
Fuel Cost Per Gallon
$0.50
$-
$0.00
2006
2007
2008
2009
2010
2011
2012
Q3 Years
• The price of fuel saw a spike in 2008 and the price dropped back down in
2009, but it has steadily creeped up over the past 3 years.
• As expected Fuel OPEX per ASM closely follows the trend of fuel cost.
Where as Non-Fuel OPEX has remained fairly stable.
Final Thoughts
• Fuel prices and dropping profits in Q3 were
probably an indicator of two years of lost profits
at Delta in 2008 and 2009.
• With the merger in 2010 with Northwest fuel
expenses did rise as the fleet size increased.
• Additionally, airline expenses rose to handle the
larger company that was formed.
• With an increased market share and a drop in
CASM after the merger profits rose, and have
steadily risen since.

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