Analysis of Airline Results
Actual operating statistics for the three months ended June 30 in a Continental Airlines quarterly report follow:
Current Year Preceding Year
Revenue passengers carried 946,603 1,044,697
Revenue- passenger-miles (000s)* 549,179 577,071
Scheduled aircraft miles flown 9,472,766 8,595,308
Available seat- miles (000s) 971,028 839,720
Passenger load factor 56.6% ?
Yield per revenue-passenger-mile $ ? $ .0884
• A revenue-passenger-mile is 1 passenger carried 1 mile. For example, 2 passengers carried 800 miles would be 1,600 revenue-passenger-miles.
• Total revenue divided by revenue-passenger-mile.
The president of Continental commented:
“In the second quarter, airline revenues were nearly $64 million, a 25.6% increase compared with the preceding year. Revenue-passenger-miles, however, declined 5%, primarily as a result of weakened economic conditions. Meanwhile, the yield per passenger-mile increased 32% as a result of several fare increases made to counter spiraling costs.”
1. a. Compute the total passenger revenue in the second quarter of the preceding year.
1044697× 577,071= 602,864,342,487
b. Also compute the passenger load factor.
(Revenue- passenger-miles / Available seat- miles) × 100
(577,071/ 839,720) 100 = 68.7 %
2. Compute the yield per revenue-passenger-mile in the current year.
Total passenger revenue = 946603× 549179 = 519,854,488,937
Total passenger revenue generated / rpm
519,854,488,937/ 549,179= 946603
3. Assume that variable costs during the current quarter were 5cents per revenue-passenger mile. Also assume that the yield per revenue-passenger-mile was unaffected by the increase in the load factor. Suppose the passenger load factor had increased from 56.6% to 57.6%;
• Compute the increase in operating income that would have been attained.