Aviation business, revenues, Rask and Cask, some overviews about air business data’s of 2017.

Aviation business, revenues, RASK and CASK, some overviews about air business data’s of 2017.

On the discussions about aviation industry costs and demand from part of travellers to have more economic and reasonable fares, many of actors are orphan of important information and necessary knowledge’s. Theirs is a “blaming” story between airports, airlines, service providers and simple travellers that are accusing reciprocally about the situation. The airlines that are offering several transporting models of services are putting finger over the airport prices and fuel providers.

From the other side, the airports are trying to create a comfort zone getting paid for everything, even for those that carriers do not need on their packages of services.

The fuel providers are still using the historical scheme of servicing the airlines with “more kerosene you get less you pay…

The airlines and passenger are confronting each other alone, in the situation where airports, service providers, maintenance, fuel providers and many other are not in the first place hiding all of them after airlines shoulders and as verified in many countries even after Government protections. There are no more loyal passenger to the carrier especially when the carriers are facing cost increase to have them back, for second or third time….Traveller are thinking that “carriers don’t care”, and frankly they “don’t care” for airline costs and problems.

Definitely, will be not easy and neither professional to find a reasonable solutions for all parties if we do not analyse and make known to everyone involved in aviation how costs are build up and how to deal with reasonable costs that will generate reasonable ticket fares.

Analysing the costs and revenues must be made through the explanation for everyone of some important factors and business details. Everything in this business start with a model that generate revenues and in aviation business is called “revenue passenger”.

A revenue passenger is someone who has paid a transport operator for her or his trip. That excludes non-paying passengers such as airline employees flying on free or nearly-free passes, babies and children who do not have a seat of their own, etc.

However, passengers who paid for their trip with a frequent-flyer program mileage award are usually included.

This term is used in the transportation industry, in particular in traffic measures such as revenue passenger kilometre (RPK) and Revenue passenger mile (RPM).

The revenue passenger miles (RPMs) and revenue passenger kilometres (RPKs) are measures of traffic for an airline flight, calculated by multiplying the number of revenue-paying passengers aboard the vehicle by the distance travelled. On short or middle-distance, passengers may board and disembark at intermediate stops, in which case RPMs/RPKs have to be calculated for each segment if a careful total is needed.

Revenue passenger miles can be considered the basic amount of "production" that an airline creates. The revenue passenger miles can be compared to the available seat miles over an airline's system to determine the overall passenger load factor.

These measurements can further be used to measure unit revenues and unit costs.

All airlines are carefully controlling the financial situation with use of model called RASK – (Revenue per Available Seat-Kilometre).

The RASK can be computed by getting the load factor multiplied by the yield to get the revenue per increment capacity. To calculate for system wide load factor, simply divide the Revenue Passenger Kilometre by the Available Seat per kilometre. To get the load factor for individual flight, get the quotient of the revenue passengers on board divide it by the aircraft capacity. Increasing load factor value is not desirable; it is how much passenger’s pay that is more important. Flight lengths and airline cost is very important in the analysis of data.

Generating revenue means that you have invest a product. That’s bring the necessity of knowing and calculating the cost. In aviation business the model used is the CASK – Cost per Available Seat-Kilometre.

The Cost per Available Seat-Kilometre (CASK, or CASM if using statute miles) is an industry standard for measuring an airline's unit cost. Unit costs are useful because they allow for like-for-like comparisons between airlines (with some caveats). By extension, the CASK can be calculated at an aircraft type level, for the purpose of comparing the unit cost of operating different aircraft types. In this case, the CASK includes only the aircraft's direct operating costs, such as depreciation and lease, fuel, navigation and crew.

Traditionally, a rule of thumb in the industry has been that aircraft size is inversely correlated with the CASK; in other words, the larger the aircraft, the lower the CASK. This is due to the fact that wide-body aircraft have more seats and fly, on average, longer stage lengths than narrow-body aircraft. As a result, the size-independent costs of operating an aircraft (such as pilot salaries and take-off fuel) can be offset over a greater number of seats and a longer distance, in the case of wide-body aircraft. This, in turn, reduces the CASK. To understand the methodology how we can perform an airline financial analyses is not a simple mathematical formula, means not a simple RASK-CASK = REVENUES. On recent study from CAPA and Airline financial monitoring performance has been used the example of selected 20 low-cost and full-fare passenger carriers that publicly report their operating costs. Due the fact that none of the 20 airlines reported their operating costs per aircraft type, has been calculated their respective CASK at a fleet mix level. On the study has been picked airlines that fly only wide-body aircraft (a), between 20% and 50% wide-body aircraft (b), between 5% and 20% widebody aircraft (c), and only narrow-body aircraft (d). Has been extracted direct operating costs and available seat-kilometre from their financial statements ending on 31 December 2017 or 31 March 2018. As a worldwide financial monitor for convenience has been applied the U.S. dollar exchange rates at those dates for currency conversions. On the general has been considered the following direct operating costs as: fuel, direct employee costs (pilots, cabin crew, and mechanics), navigation costs, and aircraft-related fixed costs. Where direct employee costs were not detailed, we assumed a percentage of the total headcount, as observed at airlines of similar fleet size and geography. Lastly, has been normalized the CASK for differences in labour cost and stage length, so as to allow for meaningful comparisons. To adjust for labour cost between regions, has been calculated a

median direct employee cost across all 20 airlines, and multiplied it by each airline's direct employee headcount. Therefore has been applied a 2:1 ratio where applicable to reflect the fact that wide-body aircraft utilize more direct employees than narrowbodies. To adjust for stage length, has been applied a slope of 10-4 to a known carrier data previously published by CAPA and Airline Monitor.

After adjusting for labour cost and stage length, the analysis indicates that wide-body aircraft now operate at a 33% higher CASK than narrow-body aircraft (5.61¢ vs.

4.23¢, respectively). Before adjustment, wide-body aircraft are found to operate at a 16% higher CASK. The post-adjustment breakdown by direct operating cost and by fleet mix (refer to the Notes section) is as follows: CASK per direct cost and fleet mix, in ¢

(a)

(b)

(c)

(d)

Fuel Navigation Employees Aircraft-related fixed costs

1.68 1.35 1.23 1.35

1.45 1.31 1.35 1.14

1.26 1.19 1.72 1.29

1.38 0.88 1.12 0.85

Total CASK

5.61

5.25

5.46

4.23

Graphically, the relationship between average fleet gauge/capacity and CASK is as follows (narrow-bodies are on the left, wide-bodies on the right):

The breakdown by region (among the 20 airlines sampled) is as follows: CASK by region, in ¢ Asia Australia Europe Middle East North America

CASK 4.68 6.04 5.26 5.43 5.08

Final considerations.

While counterintuitive, the finding that wide-body aircraft operate at a higher CASK than narrow-body aircraft can perhaps be explained by several factors. Chief among them is the increase in value of large wide-body aircraft (e.g. $437M for an Airbus 380), which impacts the depreciation or lease costs to the airline (counted as "aircraft-related fixed costs" above). The focus on fuel efficiency among narrowbodies, especially the re-engine A320neo and B737 MAX, has also widened the gap for the fuel component of the CASK. And the vastly increased Maximum Take-Off Weight (MTOW) and seat capacity of jumbos has skewed both the fuel costs and the navigation costs (landing, parking, and overflying fees) in favour of narrow-bodies.

This relative CASK position of wide-body aircraft is a finding that airline decisionmakers will need to factor into their future fleet decisions.

Notes (a) 100% wide-body: Emirates Airline, Virgin Atlantic (b) 20%-50% wide-body: Aeroflot, Air Canada, British Airways, Delta Air Lines, Finnair, Lufthansa, Turkish Airlines, United Airlines (c) 5%-20% wide-body: Air China, American Airlines, China Eastern, China Southern, Norwegian, Qantas (d) 100% narrow-body: Air Asia, easyJet, Indigo, Southwest