Alaskan Airlines SYST660 Airline Operating Costs and Airline Productivity Lorenzo Flores

 It is a Network Legacy Carrier (NLC).  It is covering regional (Horizon), domestic, and international services.  Has different types of aircraft (Q400s & B737s)  Has premium class & mileage program  It is codeshare member (one world) Alaskan Airlines Overview

 RPMs = Revenue Passenger Miles ∑(# of PAX per flight i)(distance flown by flight i)  ASMs = Available Seat Miles ∑(# of seats per flight i)(distance flown by flight i)  RASM = Revenue per Available Seat Mile (total revenue)/ASM  CASM = Cost per Available Seat Mile (total operating expenses)/ASM  Yield = average fare paid per passenger per mile (passenger airfare revenue)/RPM  PRASM = Passenger Revenue per Available Seat Mile (passenger revenue)/ASM Alaskan Airlines Terms

 Fuel Consumed = Amount of fuel consumed over some time  Fuel Costs per ASM = Cost of Fuel per ASM (total fuel cost)/ASM  Non-Fuel Costs per ASM = Non-Fuel Cost per ASM Wages, landing fees, depreciation and amortization, maintenance and other operating expenses Alaskan Airlines Terms

Alaskan Airlines Chart I

 After 9/11, ASM and RPM slowly have recovered.  Along with the increase in ASM supply, the airline has managed to maintain a System Load Factor of about 80% in the past 10 years. Alaskan Airlines Chart I - Analysis

Alaskan Airlines Chart II

 Total Operating Revenues and Total Operating Expenses have high correlation, which mean there is a thin margin of profitability.  In 2008, due to the increase of the price of oil the, at the end of the fiscal year the airline end up with deficit. Alaskan Airlines Chart II – Analysis

Alaskan Airlines Chart III

 RASM, CASM, Yield, and PRASAM have a high correlation.  In 2008, there is a significant increase on CASM due to the escalation in oil price. Alaskan Airlines Chart III – Analysis

Alaskan Airlines Chart IV

 The Non-Fuel Expenses are major operating costs and they out weigh Fuel Expenses.  Both expenses had a similar behavior. Alaskan Airlines Chart IV – Analysis

Alaskan Airlines Chart V

 Effect on Expenses: Oil is the variable cost with more weight in total operational expenses.  Effect on Airline Finance: The profitability of this industry depend s directly on the price of oil.  Effect on Airline Network Structure: Since airlines do not have any control on price of oil, the industry has had to improved efficiency and keep the costs from growing in other areas. (e.g. increasing Load Factor to reduce costs). Alaskan Airlines Analysis of Fuel Price