Homework 4 (Airline Cost Analysis

Report
Homework 4 (Airline Cost
Analysis-United)
Saba Neyshabouri
Airline of Study
• United Airlines
– United Airline is listed as a Legacy carrier
– Typical characteristics of legacy carriers are that they
provide a higher level of services than a low-cost
carrier; for example, a legacy carrier typically offers
first class and/or business class, a frequent-flyer
program, airport lounges, and is a member of an
airline alliance through which it has partners that
agree to provide these services to its passengers as
well. Also, there is a higher level of services in the
cabin, such as meal service and in-flight
entertainment.
United (NLC)
• Operating major hubs
–
–
–
–
–
–
–
–
–
–
–
O'Hare International Airport, Chicago, Illinois
George Bush Intercontinental Airport, Houston, Texas
Denver International Airport, Denver, Colorado
Washington Dulles International Airport, Washington, DC
San Francisco International Airport, San Francisco, California
Maintenance hub (MRO) San Francisco International Airport,
San Francisco
Los Angeles International Airport, Los Angeles, California
Narita International Airport, Tokyo, Japan
Newark Liberty International Airport, Newark, New Jersey
Cleveland Hopkins International Airport, Cleveland, Ohio
Antonio B. Won Pat International Airport, Guam
United (NLC)
• Serving domestic markets as well as
international
– Transcontinental
– Transatlantic
– Transpacific
Definitions
• RPMs :
– Revenue Passenger Miles= sum of all the paying
passengers multiplied by the distance travelled.
• ASMs :
– Available Seat Miles= sum of all the seat flown
(available) multiplied by the distance travelled.
• RASM :
– Revenue per Available Seat Miles=It is obtained by
dividing operating income by available seat miles
(ASM).
Definitions
• CASM :
– Cost per Available Seat Miles: It is obtained by dividing the
operating costs of an airline by available seat miles (ASM)
• Yield :
– Average fare paid by passengers, per mile flown : Revenue
per RPM
• PRASM :
– Passenger Revenue per Available Seat Miles: It is
calculated by dividing passenger revenue by available seat
miles. Typically the measure is presented in terms of cents
per mile. This measure is equivalent to the product of load
factor and yield.
Definitions
• Fuel Consumed :
– Sum of all the fuel expenses for all the flights
operated.
• Fuel Cost per ASM :
– Fuel consumed divided by Available Seat Miles
(ASM)
• Non Fuel Cost per ASM :
– Total non fuel costs divided by Available Seat Miles
(ASM)
Chart 1 (RPM-ASM-LF)
50000
100.00%
45000
90.00%
40000
80.00%
35000
70.00%
30000
60.00%
25000
50.00%
20000
40.00%
15000
30.00%
10000
20.00%
5000
10.00%
RPM
0
0.00%
0
5
10
15
20
25
30
35
40
ASM
LF
Chart 1
• In 2002 there has been a drop in ASM and RPM and load
factors.
• The seasonal behavior of ASM, RPM and subsequently load
factor can be seen through the wave motions.
• Load factor has been increased while RPM has been
approximately held constant after 2004 but ASM has been
reduced.
Chart 2(Income-Expense-Revenue)
10000
8000
6000
4000
Income(loss) before tax
Total Operating Expense
2000
Total Operating Revenue
0
0
-2000
-4000
5
10
15
20
25
30
35
40
Chart 2
• Operating revenue is following costs closely, however it is
standing below the cost line for most of the time.
• Total operating expenses shows small seasonal changes and
has been growing from 2003 to 2008.
• Income before taxation is mostly negative and varying small
showing some seasonal changes .
Chart 3(RASM-CASM-Yield per RPM- PRASM)
25.00
20.00
15.00
RASM
CASM
Yeild per RPM
PRASM
10.00
5.00
0.00
0
5
10
15
20
25
30
35
40
Chart 3
• RASM shows some growth after some variations in 2001-2003
with small seasonal changes.
• CASM also shows the behavior close to RASM.
• PRASM is having the same behavior while being smaller than
RASM and CASM showing that Passengers are not the only
source of revenue and can not cover the costs alone.
• Yield per RPM shows some variations in years, but it has
generally increased:
– y = 0.0492x + 12.282
– R² = 0.0656
Chart 4 (Fuel vs. Non fuel)
7000
3000
6000
2500
5000
2000
4000
1500
Non-Fuel Cost
Aircraft Fuel
3000
1000
2000
500
1000
0
0
0
5
10
15
20
25
30
35
40
Chart 4
• In United, big chunk of costs are non-fuel operational
expenses.
• Non-fuel expenses has been some what steady with some
peaks.
• Fuel costs has been steadily growing until a drop happened at
the end of 2008.
• In United non-fuel costs are major operating costs and they
out weigh fuel costs.
Chart 5 (Costs per ASM and Fuel Price)
0.2
4
0.18
3.5
0.16
3
0.14
2.5
0.12
NonFuel/ASM
0.1
2
Fuel/ASM
Fuel Price
0.08
1.5
0.06
1
0.04
0.5
0.02
0
0
0
5
10
15
20
25
30
35
40
Chart 5
• As non-fuel cost has been some what steady, non-fuel costs per
ASM has also been steady with some few peaks and small
variations representing the seasonality.
– y = -6E-05x + 0.1071
– R² = 0.001
• Fuel costs per ASM has growth steady with a drop at the end of
2008 which follows the fuel price behavior closely
– y = 0.001x + 0.0099
– R² = 0.544
• Fuel Price has shown an overall increase during these time,
however the decrease started at the end of 2008
– y = 0.0581x + 0.4556
– R² = 0.6078
Effect of Fuel Price on Expenses
• What can be seen from these charts is that fuel price increase
has effectively changed the fuel costs.
• While RPM has not changed, RASM has increased with slow
rate.
• Decreasing ASM has helped to keep the costs from growing
• Increasing load factors has improved efficiency and keep the
costs from growing.
• Non-fuel costs are still the major cost for United
Airline Finance
• It can be seen that United has not
done very good in terms of
business while the most of the
time, they have had loss.
• Trend shows they have reduced
the loss over time but in 2008
they have had major loss
(recession)
10000
8000
Income(l
oss)
before
tax
6000
4000
Total
Operatin
g
Expense
2000
0
0
-2000
-4000
10
20
30
40
Total
Operatin
g
Revenue
Airline Network Structure
50000
100.00%
45000
90.00%
40000
80.00%
35000
70.00%
30000
60.00%
25000
50.00%
20000
40.00%
15000
30.00%
10000
20.00%
5000
10.00%
• Network Load Factor (LF) has
been steadily improved with
small variations in seasons
– y = 0.0037x + 0.7162
– R² = 0.4694
RPM
0
0.00%
0
10
20
30
40
ASM
LF
• Increased fuel costs will push the
airline to operate with more
efficiency and take advantage of
their seat inventory.
• Increased fuel costs has pushed
the airline to reduce ASM
(operating AC) to mitigate the
costs.

similar documents