Airline Break Even Load Factor:
Course Book-Introduction to Air Transport Economics:From Theory to Applications, 2nd Edition by Vasigh, Fleming, and Tacker
Introduction:
Understanding the break even point is essential for any type of financial planning. A business cannot hope to be profitable if it does not know how much it will have to sell or how much service it must provide to break even. In the airline industry, the break-even load factor is usually measured as a percentage of total available seat miles or ASMs.
Instructions:
For this assignment there are three scenarios. For each scenario you must calculate the break even load factor as a percentage of available seat miles or ASMs.
Remember the following equation:
(RPM x RRPM) – (ASM x CASM) = 0
Where:
RPM = revenue passenger miles
RRPM = revenue per revenue passenger mile
ASM = available seat miles
CASM = cost per available seat mile
Scenarios:
A small airline flies 10,000,000 seat miles per year. Yield is 10 cents per RPM. Cost per available seat mile or CASM is 8 cents, so the annual costs are 8 cents (.08) x 10,000,000 or $800,000.
JetBlue Airways available seat miles (ASMs) in 2011 were 37,332 in millions, or 37,332,000,000 miles. The yield was 13.29 cents per mile and cost per available seat mile or CASM was 11.17 cents per mile.
Southwest Airlines available seat miles (ASMs) in 2011 were 98,437,092 in thousands or 98,437,092,000 miles. Operating revenue yield per ASM was 12.3 cents and operating expenses per ASM were 11.29 cents.