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Airline cost glossary

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Airline cost glossary

A glossary of common terms used in the analysis of data on the United States airline industry. The US uses English units and flight lengths are therefore measured in statute miles and fuel usage in gallons. In contrast, the airline industry in the rest of the world uses similar quantities, but defined using metric system units, such as kilometers.

US airline carriers, whether privately owned or publicly traded are required under US law to file certain information with the US Department of Transportation, including financial and operating data. Therefore relatively detailed information on even privately held US carriers is often available for public review through the website of the Bureau of Transportation Statistics.[1]

Aircraft Utilization

Measure of aircraft productivity, calculated by dividing aircraft block hours by the number of aircraft days assigned to service on air carrier routes. Typically presented in block hours per day.[2]

Available Seat Miles (ASMs)

A common industry measurement of airline output that refers to one aircraft seat, available for sale, flown one mile, whether occupied or not. An aircraft with 300 passenger seats available for sale, flown a distance of 1,000 miles, generates 300,000 ASMs.

Block Hour

Also known as Aircraft Hour. The number of block hours for a given (revenue) flight is the time from the moment the aircraft pushes back from the departure gate revenue flight until the moment the aircraft arrives at the arrival gate following its landing (equal to the flight time for the flight plus the taxi time). The number of block hours for an airline for a given period of time (like a year, quarter or month) is a measure of the total time that its aircraft were in use during that period. Block hours are the industry standard measure of aircraft utilization (see above).[3]

Cost per Available Seat Mile (CASM)

Measure of unit cost in the airline industry. CASM is calculated by taking all of an airline’s operating expenses and dividing it by the total number of available seat miles produced.

Dependability

Measures of an airline’s reliability. Some common measures of reliability include (for a given time period, for instance a year, or a quarter or a month):

  • D + five (D+5): percentage of departures that push back from the gate within five minutes of the scheduled time.
  • D + zero (D+0): percentage departures that push back from the gate on time.
  • A + 15: percentage of arrivals within 15 minutes of the published arrival time.
  • Completion rate: percentage of scheduled flights completed, whether on-time or not.

Load Factor

The number of Revenue Passenger Miles (RPMs) expressed as a percentage of ASMs, either on a particular flight or for the entire system. Load factor represents the proportion of airline output that is actually consumed. To calculate this figure, divide RPMs by ASMs. Load factor for a single flight can also be calculated by dividing the number of passengers by the number of seats.

Operating Revenue

Revenues received from total airline operations including scheduled and non-scheduled service. Sources of revenue include passenger, cargo, excess baggage and certain other transport related revenue. For passenger airlines, the large majority of revenue generally comes from Passenger Revenue.

Passenger Revenue

Revenue received by the airline from the carriage of passengers in scheduled operations.

Passenger Revenue per Available Seat Mile (PRASM)

Often referred to as a measure of passenger “unit revenue”, 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 (see below).

Passenger Yield

Measure of average fare paid per mile, per passenger, calculated by dividing passenger revenue by revenue passenger miles. Typically the measure is presented in cents per mile and is useful measure in assessing changes in fares over time. Yield is not useful for comparisons across markets and/or airlines, as it varies dramatically by stage length and does not incorporate load factor (unlike PRASM).

Revenue per Available Seat Mile (RASM)

Also called "unit revenue," this figure is calculated by dividing the airline’s revenue by all the available seat miles. Different measures of revenue can be used—see PRASM and TRASM.

Revenue Passenger Miles (RPMs)

An RPM is created when a paying passenger flies one mile. This is the basic measure of airline passenger traffic. It reflects how many of an airline's available seats were actually sold. For example, if 200 passengers fly 500 miles on a flight, this generates 100,000 RPMs. In a typical day in 2007 American Airlines produced 380 million RPMs.[4]

Revenue per Employee

One measure to determine an airline’s labor productivity. It is calculated by dividing an airline’s total revenue by the number of airline employee full-time equivalents as reported to the US Department of Transportation.

Seat Density

Average seating configuration of an airline’s operating fleet. The measure is derived by dividing total available seat miles flown by the number of aircraft miles flown. It is important to understand the average aircraft size as it is an important determinant of employees needed to service the operation of a particular airline. Further, economies of scale generally mean that all other things being equal, an airline's CASM declines with increasing seat density (for instance, two small jet engines on a small commercial jet aircraft generally cost not much less to maintain than two large jet engines on a large commercial jet aircraft).

Stage-Length

The average distance flown, measure in statute miles, per aircraft departure. The measure is calculated by dividing total aircraft miles flown by the number of total aircraft departures performed.

Stage-Length Adjustment

All other things being equal, the same airline will have lower CASM, RASM and yield as stage length increases, since fixed costs are spread over increasingly larger average flight lengths. Therefore, to properly compare these quantities across airlines (or even across the same airline for two different periods if the airline's average stage length has changed significantly) requires settling on a common assumed stage length and then adjusting CASM, RASM and yield appropriately. This requires some judgment and different observers may use different stage-length adjustment techniques. A common method, for instance, would be looking at a detailed cost breakdown of a particular airline and deciding whether each cost category varies with stage length, and how.

Total Revenue per Available Seat Mile (TRASM)

Another measure of unit revenue. It is calculated by dividing total operating revenue by available seat miles. Typically the measure is presented in terms of cents per mile.

References

  1. ^ http://www.bts.gov/
  2. ^ http://web.mit.edu/airlinedata/www/Res_Glossary.html
  3. ^ http://icaodata.com/Terms.aspx
  4. ^ American Airlines, accessed on 15 March 2013
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