Monthly Archives: May 2013

What Keeps Giants Awake (Part 2)

Well hello there. We hope you had a great weekend, and can’t resist sharing what this looks like right now in our backyard. It’s warmer than Cancun!

Despite all evidence to the contrary, yup, we love this city (in full disclosure – we attempt to live in the present, and are writing during the summer, so…)
The feedback from our last post was very insightful, so we thought we’d dig a bit deeper and be a bit more concrete with some of the terms that are standard in the airline industry.

Here we go:

ASM: Available Seat Miles

This is a measure of how far a seat flies. It doesn’t matter whether there’s a passenger in it or not. So, if you have a plane with 100 seats, and it flies from Seattle to New York (~2,850 miles), you have 2,850 x 100 = 285,000 ASMs.

CASM: Cost per Available Seat Mile

Similar to ASMs, this is a measure of how much it costs to operate one (empty or filled) ASM. As you probably can tell, this will vary per airline operation. But it’s simply:

Total Operating Expenses / Total ASMs.

PM: Passenger Mile

This is a measure of passenger travel, basically an individual in a seat flying for one mile. If Batman flies 50 miles, he’s basically generated 50 Passenger miles. And who wouldn’t want to fly with Batman?

Now let’s get to the money metrics.

RPM: Revenue Passenger Mile

This is a measure of paying passengers traveling. So if Batman pays for his flight above (assuming his BatWing is getting retrofitted), he’s generated 50 RPMs.

Yield: Revenue per Passenger Mile

This is the measure of how much revenue each passenger mile is generating. This is a function of:

Total Passenger Revenue / Total RPMs

This will also vary by carrier, as airlines charge different rates for different segments.

LF: Load Factor

This is where things get a bit complicated. Actually, not really, but you do have to tie two concepts together. The Load Factor is a function of basically how productive an airline is: it’s how much the airline is producing relative to the capacity it has available. It’s almost like miles per gallon for automobiles – how much value the aircraft is getting based on what it has available. Here’s the formula:

Total RPMs / Total ASMs

So if there were 100 seats available (100 ASMs – you’re catching on!) and only 50 paying passengers boarded (50 RPMs), the load factor would be 50%.  If every seat were filled – 100%!

RASM: Revenue per Available Seat Mile.

This is described as probably the best basic measure in the industry. You also have to tie two of the above concepts together – load factor and yield.

R/ASM = Load Factor x YIELD

 Let’s go through an example.

Here’s a Boeing 737 with a class 2 configuration, making that 180 seats. Let’s assume the following:

  • All 180 seats are filled
  • The flight is 100 miles long.
  • The airline’s total operating expenses are $1,000
  • The airline’s total revenue = $5,000

Here we go:

  • Available Seat Miles: 180 seats x 100 miles = 18, 000 ASMs.
  • Cost per Available Seat Mile: $1,000/18,000 ASMs = $5.5 /mile
  • RevenuePassengerMiles: 100 miles * 180 passengers = 18,000 RPMs.
  • Yield: $5,000 / 18,000 = 27.7%
  • Load Factor:  18,000 / 18,000 = 100%
  • Revenue/ASM: 1 * 27.7% = $27.70

These are the metrics that airlines use to monitor their operations & compete in the industry. Having these handy will help us dig deeper into what it means for customers and how airlines work to optimize the customer travel experience.

Until next time,