Basic Airline Profit Equation

[Ref. The Global Airline Industry Edited By Peter Belobaba, Amedeo Odoni and Cynthia Barnhart © 2009 John Wiley & Sons, L td. ISBN: 978-0-470-74077-4]

Operating profit = RPK x Yield – ASK x Unit cost

The equation is applicable for any industry – operating profit is the total revenue minus total operating expense. Please be careful that high yield is often (incorrectly) used as an indicator of airline success.

Operating profit = Traffic x Yield – Capacity x Unit cost

If you don’t know what is RPK (traffic)? and ASK(capacity)? It doesn’t matter – You can see RPK as as how many ticket being sold and ASK as the seats can be sold by an airline.

To simplify, the more the seats being sold, the more the yield. Meanwhile, the more the seats are available, the more the operational cost. One more important thing have to remember is that both traffic and capacity are related to the distance flown.

In short, the profit of an airline has various factors:

  1. distance flown
  2. seats being sold (revenue)
  3. seats available
  4. unit cost

The highest profit can be achieved when the yield is high and the unit cost is low with more distance flown.

Actually, airlines also monitor the load factor (traffic/capacity) to adjust their strategy.


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