Economic Analysis

Critical analysis of basic economic markers can be very revealing of an airline’s financial health. For this assignment, research an airline’s most-current financial data, analyze the data, and report your findings.

Most airlines are public companies (as compared to private companies) and, usually, public companies are required by securities regulators to make financial information available to the public. This gives students and other researchers open access to audited information via annual and other reports. This information is generally available from the airline’s website; look for “About Us” or “Investor Relations” links in your research. For U.S. companies, look for the most recent SEC Reports. An annual SEC report (called a 10K report) is an audited report containing all of the company’s financial data.

For this discussion, select a public airline, find its most current annual financial information, and look for some of the key terms discussed in Activity 5.1. Then, in an essay of 200–300 words, analyze the figures you found, noting trends and relationships. For example, you might find a company with high costs (CASM) and low fares (yield), resulting in a very high BLF (near 1.0). A high BLF will put pressure on marketing to keep seats filled. Another company might have PRASM less than CASM; meaning ancillary revenue (like baggage fees) will be very important to maintaining a profit.

Aviation Economic Terms

Available Seat-Mile

One seat flown one mile (also called capacity available).
A 100-seat aircraft that flies a 100-mile flight produces 10,000 ASMs.

Total annual ASMs represent the airline’s total production or capacity. ASMs are what the airline produces; as an analogy, if shoe factories produce shoes, airlines produce ASMs.

Total annual ASMs are expressed in very large numbers, usually billions for a large airline or cargo carriers.

Cargo carriers use a similar term: Available ton-miles. An available ton-mile (ATM) equates to a ton of carrying capacity multiplied by miles traveled.

RPM

Revenue Passenger-Mile

One paying passenger flown one mile (also called capacity used or traffic)
A 100-seat aircraft that flies a 100-mile flight with 90 people onboard produces 9,000 RPMs.

RPMs represent the amount of production the airline sells. RPMs are the airline’s “demand.”

Total annual RPMs are expressed in very large numbers, usually billions for a large airline or cargo carriers.

The cargo carriers’ term is RTM, or revenue ton-mile. The RTM equates to a ton of actual cargo multiplied by miles traveled.