Airline Operating Costs & Airline Productivity

Report
Airline Operating Costs
& Airline Productivity
- US Airways -
Seungwon Noh
(Apr. 09. 2012)
US Airways is a NLC.
LCC’s Characteristics
Single Aircraft type or
Single family of aircraft
Point-to-point ticketing,
no connecting hubs
No labor unions, Lower wage rates
Single cabin service, no premium class
No seat assignments
Reduced frills for on-board service
No frequent-flyer loyalty program
Avoid global distribution systems
US Airways

X

X
X

X
X
• Changing fleets to Airbus
• Operate 3 hubs (Charlotte, Philadelphia,
Phoenix) and 1 focus city (Washington D.C.)
• Low wage rates
• Provide different class seats
• Assign seats
• No free meals
• Have mileage program
• Use GDS
 US Airways was a Network Legacy Carrier from the beginning.
 Try to be a LCC, but have other factors to incur cost a lot.
 US Airways has strong hub & spoke network.
 US Airways Express operates spoke network with contract.
Terminology and Definition
 RPMs (Revenue Passenger Miles)
 Number of passenger-miles transported

 ASMs (Available Seat Miles)
 Number of seat-miles transported

 RASM (Revenue per ASM)
 Revenue received for each available seat mile
 Total Revenue / ASMs
Terminology and Definition
CASM (Cost per ASM)
 Cost to operate each available seat mile
 Total Operating Cost / ASMs
Yield
 Average fare paid by passenger per mile flown
 Total Revenue / RPMs
PRASM (Passenger RASM)
 Passenger revenue received for each available seat mile
 Passenger Revenue / ASMs
Terminology and Definition
Fuel consumed
 Number of gallons of fuel consumed
Fuel Costs per ASM
 Fuel cost to operate each available seat mile
 Total Fuel Cost / ASMs
Non-Fuel Costs per ASM
 Non-fuel cost to operate each available seat mile
 (Total Operating Cost – Fuel Cost) / ASMs
Airline Analysis
 Similar trend in ASM and RPM
 Decrease in 2001 (due to Sep. 11)
 Significant changes in 2005 (Bankruptcy and Merge with America West)
 L/F increased with seasonal fluctuation
Airline Traffic, Output and Performance
(Millions)
35,000
100%
ASM
RPM
L/F
90%
30,000
80%
25,000
70%
60%
20,000
50%
15,000
40%
30%
10,000
20%
5,000
10%
-
0%
1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
2009
3
Airline Analysis
 Changes by the merging in revenue and expense trend
 Increase after decrease
 Significant decrease of revenue in 2001 (Sep. 11)
 Remarkable increase of expense in 2008 (Fuel price)
 Loss followed by profit after the merging
Total Operating Revenue & Expense
(Millions)
$5,000
Total Operating Revnues
Total Operating Expenses
Income (Loss) Before Taxes
$4,000
$3,000
$2,000
$1,000
$1
$(1,000)
$(2,000)
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
2009
3
Airline Analysis
 Similar trends with total revenue and expense
 Increase after decrease
 Decrease of RASM, Yield, PRASM in 2001 (Sep. 11)
 Big increase of CASM in 2008 (Fuel price)
 Increase in profitability after merging
Operating Revenue & Cost per output
(Cents)
19.00
RASM
CASM
Yield per RPM
PRASM
17.00
15.00
13.00
11.00
9.00
7.00
5.00
1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
2009
3
Airline Analysis
 Expenditure on fuel increase
 Significant increase in 2005 (merging) and 2008 (increase of fuel price)
 Big difference by the merging in fuel consumption
 Consume fuel 3 times more than before merging
Fuel & Non-fuel Operating Expense
(Millions)
(Gallons in Million)
$4,000
400
Aircraft Fuel Operating Expense
Non-Fuel Operating Expense
Fuel Consumed
$3,000
300
$2,000
200
$1,000
100
$-
0
1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
2009
3
Airline Analysis
 Significant increase of jet fuel price
 Reached at $3.50 per gallon in 2008
 Gradual increase in fuel expense per ASM
 Decrease of non-fuel expense
Unit Fuel & Non-fuel Operating Expense
(Cents)
(Per Gallon)
20.00
$4.00
Aircraft Fuel Expense per ASM
Non-Fuel Operating Expense per ASM
Average Jet Fuel Price
$3.50
16.00
$3.00
$2.50
12.00
$2.00
8.00
$1.50
$1.00
4.00
$0.50
0.00
$1
2
3
2001
4
1
2
3
2002
4
1
2
3
2003
4
1
2
3
2004
4
2
3
2005
4
1
2
3
2006
4
1
2
3
2007
4
1
2
3
2008
4
1
2
2009
3
Effects of Fuel Prices
 Airline Expenses
 Proportion of fuel expense to total expense highly depends on
fuel price.
Significant Level Adjusted R2
Coefficient
t-statics
Constant
.048
4.207
.000
Fuel Price
.114
17.058
.000
0.898
 As fuel price increases, total operating expenses increases.
 Airline Finance
 The higher fuel price, the worse airline finance.
 Airline Network Structure
 No direct effects of fuel price
Summary
 US Airways is considered a NLC.
 Strong Hub & Spoke Network, High Operating Cost
 US Airways experienced three big changes of Operating
Cost and Productivity between 2001 and 2009.
 Traffic, Output and Revenue decreased in 2001 due to Sep. 11.
 Most significant decrease and increase of all data in 2005
(Bankrupt and Merge with America West)
 Big jump of Fuel prices in 2008
 Fuel Prices affect the airline’s operating expenses and
finance significantly.

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