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# lect1 - MIT MIT ICAT Introduction to the Airline Planning...

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MIT ICAT MIT ICAT Introduction to the Airline Planning Process Dr. Peter Belobaba 16.75/1.234 Airline Management February 8, 2006

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MIT ICAT MIT ICAT Airline Terminology and Measures Airline Demand RPM = Revenue Passenger Mile One paying passenger transported 1 mile Yield = Revenue per RPM Average fare paid by passengers, per mile flown Airline Supply ASM = Available Seat Mile One aircraft seat flown 1 mile Unit Cost = Operating Expense per ASM (“CASM”) Average operating cost per unit of output Average Load Factor = RPM / ASM Unit Revenue = Revenue/ASM (“RASM”)
MIT ICAT MIT ICAT Example: Airline Measures A 200-seat aircraft flies 1000 miles, with 140 passengers: RPM = 140 passengers X 1000 miles = 140,000 ASM = 200 seats X 1000 miles = 200,000 Assume total revenue = \$16,000; total operating expense = \$15,000: Yield = \$16,000 / 140,000 RPM = \$0.114 per RPM Unit Cost = \$15,000 / 200,000 ASM = \$0.075 per ASM Unit Revenue = \$16,000 / 200,000 ASM = \$0.080 per ASM Average Load Factor = RPM / ASM ALF = 140,000 / 200,000 = 70.0% For single flight, also defined as passengers / seats

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MIT ICAT MIT ICAT US Airline Traffic 2001-2004 TRAFFIC: Revenue Passenger Miles 30 35 40 45 50 55 60 65 70 January February March April May June July August September October November December Billions 2001 2002 2003 2004 SOURCE: AIR TRANSPORT ASSOCIATION
MIT ICAT MIT ICAT US Airline Capacity 2001-2004 CAPACITY: Available Seat Miles 55 60 65 70 75 80 85 January February M arch April M ay June July August Sept ember Oct ober November December Billions 2001 2002 2003 2004 SOURCE: AIR TRANSPORT ASSOCIATION

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MIT ICAT MIT ICAT US Airline Losses Almost \$40 Billion From 2001 to 2005 (\$15,000) (\$10,000) (\$5,000) \$0 \$5,000 \$10,000 \$15,000 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 (USD Mi lli ons ) Oper Profit Net Profit
MIT ICAT MIT ICAT Load Factors are at Record Levels LOAD FACTOR 4 Qtr Moving Average 60% 65% 70% 75% 80% 1Q 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Source: ATA data Source: ATA Monthly Passenger Traffic Report

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MIT ICAT MIT ICAT US Domestic Unit Revenues PRASM (¢) -- Mainline Domestic 12 Months Ended 8.00 8.50 9.00 9.50 10.00 10.50 11.00 Ja n- 01 Ap r Ju l Oct 02 03 04 05 Source: ATA data
MIT ICAT MIT ICAT Airline Supply Terminology Flight Leg (or “flight sector” or “flight segment”)

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lect1 - MIT MIT ICAT Introduction to the Airline Planning...

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