Daric Megersa

• Is an airline based in the Seattle suburb of SeaTac, Washington
• Major, low-fare U.S. carrier
• Seventh-largest U.S. carrier
• Founded: 1932, in Anchorage, Alaska
• Hubs: Seattle (main hub); Anchorage, Alaska; Los Angeles;
Portland, Ore.

• RPMs = revenue passenger miles
– ∑(number of passengers per flight i)(distance flown by flight i)
• ASMs = available seat miles
– ∑(number of seats per flight i)(distance flown by flight i)
• RASM = revenue per available seat mile or unit revenue
– (total revenue)/ASM
• CASM = cost per available seat mile or unit cost
– (total operating expenses)/ASM
• Yield = average fare paid per passenger per mile
– (passenger airfare revenue)/RPM
• PRASM = passenger revenue per available seat mile or passenger unit revenue
– (passenger revenue)/ASM

• Fuel Consumed = amount of fuel consumed over some time t
– e.g., gallons/quarter, pounds/hour
• Fuel Costs per ASM = cost of fuel per available seat mile
– (total fuel cost)/ASM
• Non-Fuel Costs per ASM = non-fuel cost per available seat mile
– Wages, salaries, etc.
– Other rentals and landing fees
– Depreciation and amortization
– Maintenance materials and repairs
– Commissions, booking fees, credit card expense
– Aircraft rentals
– Food service
– Other operating expenses/special charges/grants

3,000,000
RPM ASM and LF
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Year and Quarter
60
50
40
30
20
10
0
80
70
100
90
RPM
ASM
LF

– ASM is always greater than RPM (load factor is less than 100%); logical as the number of enplaned passengers cannot exceed the number of available seats.
– Seasonal correlation; business appears to improve during the months of April through September; logical as many people take vacations during this time period and students are available to travel.
– Load factor appears to improve steadily over time

OP-REV, OP-Exp and Income
1400000
1200000
1000000
800000
600000
400000
200000
0
-200000
2006 2007 2008 2009
Year and Quarter
2010 2011 2012
OP_REVENUES
OP_EXPENSES
INCOME_PRE_TAX

– Total operating revenue minus total operating expenses = operating income (different parameter in data file). Income before taxes includes the following:
• Operating income
• Interest income, interest expense, interest capitalized and some other costs
• The trend shows that Alaska airlines has shown significant improvement in showing profitable quarters
• Alaska has shown some positive gains in income compared with the early years on the graph such as 2006-2008

0.5
0.4
0.3
0.2
0.7
0.6
0.1
0
2006
RASM, CASM, Yield and PRASM
2007 2008 2009
Year
2010 2011 2012
PRASM
Yiel/RPM
CASM
RASM

• Cost per available seat mile CASM) tends to exceed revenue per available seat mile (RASM)
• The overall trend shows that the Yield per RPM has increased since 2006 which shows the increase in fares and the cost exceeding the revenue
• CASM > RASM

Operating Expence (fuel and nonfuel) 180000000
160000000
140000000
120000000
100000000
80000000
60000000
40000000
20000000
0
2006 2007 2008 2009
Year
2010 2011 2012
OP_EXPENSES
SDOMT_COST
SDOMT_GALLONS

• Overall, Non operating fuel expenses shows fluctuation
• However, fuel related cost which covers the large amount for airlines, has shown an increase starting from 2006
• fuel operating expenses continued to climb significantly increasing total operating expenses

0.04
0.03
0.02
0.01
0
0.07
0.06
0.05
Fuel related costs /ASM
2006 2007 2008 2009
Year
2010 2011 2012
4
3.5
3
2.5
2
1.5
1
0.5
0
FuelOpEXp/ASM
NONFUELOpExp/ASM
Q3 fuel cost/g
Observation form that chart
Non-fuel expenses per ASM tend to remain fairly stable; fuel operating expenses per ASM tend to continuously increase

• Effects of fuel prices
• Charts 3,4,5 have shown that the operating expenses, CASM and aircraft operating cost related with fuel prices shown increase through the years
• Airlines Finance
• Chart two indicated that Alaska Airlie's net income before related with operating expense and revenue has show an increased since
2006. This is an indication that the Alaska is in the making the right decisions to make improvements for profit maximization.
• Airline Network structure
• Increased load factor can result from use of smaller aircraft (less seats available for some given passenger demand) or reduction of number of flights