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Airline Operating Costs & Airline Productivity

Airline Operating Costs & Airline Productivity. - US Airways - Seungwon Noh (Apr. 09. 2012). US Airways is a NLC. 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.

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Airline Operating Costs & Airline Productivity

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  1. Airline Operating Costs & Airline Productivity - US Airways - Seungwon Noh (Apr. 09. 2012)

  2. US Airways is a NLC. • 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.

  3. 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

  4. 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

  5. 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

  6. 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 (Millions)

  7. 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 (Millions)

  8. 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 (Cents)

  9. 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 (Millions) (Gallons in Million)

  10. 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 (Cents) (Per Gallon)

  11. Effects of Fuel Prices • Airline Expenses • Proportion of fuel expense to total expense highly depends on fuel price. • 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

  12. 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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