sys-461 alaska airline operating costs and productivity · 2013-04-29 · •overall, non operating...
TRANSCRIPT
Airline Business Model
• Is an airline based in the Seattle suburb of SeaTac, Washington
• Major, low-fare U.S. carrier
• Seventh-largest U.S. carrier
• Founded: 1932, in Anchorage, Alaska
• Hubs: Seattle (main hub); Anchorage, Alaska; Los Angeles; Portland, Ore.
Term Definitions
• RPMs = revenue passenger miles – ∑(number of passengers per flight i)(distance flown by flight i)
• ASMs = available seat miles – ∑(number of seats per flight i)(distance flown by flight i)
• RASM = revenue per available seat mile or unit revenue – (total revenue)/ASM
• CASM = cost per available seat mile or unit cost – (total operating expenses)/ASM
• Yield = average fare paid per passenger per mile – (passenger airfare revenue)/RPM
• PRASM = passenger revenue per available seat mile or passenger unit revenue – (passenger revenue)/ASM
Term Definitions
• Fuel Consumed = amount of fuel consumed over some time t – e.g., gallons/quarter, pounds/hour
• Fuel Costs per ASM = cost of fuel per available seat mile – (total fuel cost)/ASM
• Non-Fuel Costs per ASM = non-fuel cost per available seat mile – Wages, salaries, etc.
– Other rentals and landing fees
– Depreciation and amortization
– Maintenance materials and repairs
– Commissions, booking fees, credit card expense
– Aircraft rentals
– Food service
– Other operating expenses/special charges/grants
RPM, ASM and LF
0
10
20
30
40
50
60
70
80
90
100
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Load
Fac
tor
RP
M,A
SM a
nd
r
Year and Quarter
RPM
ASM
LF
RPM ASM and LF
Observations from Chart 1
– ASM is always greater than RPM (load factor is less than 100%); logical as the number of enplaned passengers cannot exceed the number of available seats.
– Seasonal correlation; business appears to improve during the months of April through September; logical as many people take vacations during this time period and students are available to travel.
– Load factor appears to improve steadily over time
Operating Expenses and Income chart
-200000
0
200000
400000
600000
800000
1000000
1200000
1400000
2006 2007 2008 2009 2010 2011 2012
$M
illio
ns
Year and Quarter
OP-REV, OP-Exp and Income
OP_REVENUES
OP_EXPENSES
INCOME_PRE_TAX
Observations from Chart2
– Total operating revenue minus total operating expenses = operating income (different parameter in data file). Income before taxes includes the following:
• Operating income
• Interest income, interest expense, interest capitalized and some other costs
• The trend shows that Alaska airlines has shown significant improvement in showing profitable quarters
• Alaska has shown some positive gains in income compared with the early years on the graph such as 2006-2008
RASM, CASM, Yield and PRASM
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2006 2007 2008 2009 2010 2011 2012
$ p
er
ASM
(0
r R
PM
)
Year
RASM, CASM, Yield and PRASM
PRASM
Yiel/RPM
CASM
RASM
Observations from chart 3
• Cost per available seat mile CASM) tends to exceed revenue per available seat mile (RASM)
• The overall trend shows that the Yield per RPM has increased since 2006 which shows the increase in fares and the cost exceeding the revenue
• CASM > RASM
Fuel and Non-fuel related expenses
0
20000000
40000000
60000000
80000000
100000000
120000000
140000000
160000000
180000000
2006 2007 2008 2009 2010 2011 2012
Op
era
tin
g Ex
pe
.
Year
Operating Expence (fuel and nonfuel)
OP_EXPENSES
SDOMT_COST
SDOMT_GALLONS
Observations from chart4
• Overall, Non operating fuel expenses shows fluctuation
• However, fuel related cost which covers the large amount for airlines, has shown an increase starting from 2006
• fuel operating expenses continued to climb significantly increasing total operating expenses
Fuel Related Costs
0
0.5
1
1.5
2
2.5
3
3.5
4
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
2006 2007 2008 2009 2010 2011 2012
Fue
l pri
ce /
g
$p
er
ASM
Year
Fuel related costs /ASM
FuelOpEXp/ASM
NONFUELOpExp/ASM
Q3 fuel cost/g
Observation form that chart Non-fuel expenses per ASM tend to remain fairly stable; fuel operating expenses per ASM tend to continuously increase
• Effects of fuel prices
• Charts 3,4,5 have shown that the operating expenses, CASM and aircraft operating cost related with fuel prices shown increase through the years
• Airlines Finance
• Chart two indicated that Alaska Airlie's net income before related with operating expense and revenue has show an increased since 2006. This is an indication that the Alaska is in the making the right decisions to make improvements for profit maximization.
• Airline Network structure
• Increased load factor can result from use of smaller aircraft (less seats available for some given passenger demand) or reduction of number of flights