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Understanding Airline Industry For your RAP


The mytuitions Coaching program is designed for candidates preparing the OBU RAP. This week’s Topic 8 Coach Class focused on UNDERSTANDING THE AIRLINE INDUSTRY.

Here I am sharing a summary of the key points from the coach class.

Some interesting fact about the Airline Industry.

  • Air travel remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization taking place in many other industries.
  • According to PWC 2015 Aviation Trend Report the airline industry is hampered by slim profit margins, forcing carriers to focus on both cost reduction and revenue growth through better customer interactions.
  • A British Airways Airbus states that Brexit and Trump both mean ‘dangerous new phase’ for its business (Guardian, 2015)
  • The Middle East carriers are highly dependent on connecting traffic, because their home markets are limited by the smaller population of their region. Yet their unique geographic positioning — most of the world’s population is within eight hours’ flying time — means they are able to capture a disproportionate share of long-haul market growth. (PWC, 2015)
  • The airline industry exists in an intensely competitive market. In recent years, there has been an industry-wide shakedown, which will have far-reaching effects on the industry’s trend towards expanding domestic and international services. In the past, the airline industry was at least partly government owned. This is still true in many countries, but in the U.S. all major airlines have come to be privately held. (investopedia, n.d.)
  • Key significant factors in the airline industry are the Airport capacity, route structures, technology and costs to lease or buy the physical aircraft, Weather, Fuel Cost and Labor (the number 1 cost of airline).
  • According the the Guardian Newspaper, the recent ban on Muslims in America poses threat to companies in the US airline industry. Interestingly American carriers may not employ many pilots and flight attendants from the seven named countries, (Iran, Iraq, Libya, Somalia, Syria and Yemen) but the impact could be considerable on Emirates, Etihad and Qatar, airlines with a large Arabic-speaking customer base and which fly to several cities in the U.S.It will be interesting to assess the impact of this decision on the performance and future outlook of your choose organisation.

Key Ratios and KPIs for Airline Industry

Available Seat Mile = (total # of seats available for transporting passengers) X (# of miles flown during period)

Revenue Passenger Mile = (# of revenue-paying passengers) X (# of mile flown during the period)

Revenue Per Available Seat Mile = (Revenue) / (# of seats available)

Air Traffic Liability (ATL): An estimate of the amount of money already received for passenger ticket sales and cargo transportation that is yet to be provided. It is important to find out this figure so you can remove it from quoted revenue figures (unless they specifically state that ATL was excluded).

Load Factor: This indicator, compiled monthly by the Air Transport Association (ATA), measures the percentage of available seating capacity that is filled with passengers. Analysts state that once the airline load factor exceeds its break-even point, then more and more revenue will trickle down to the bottom line. Keep in mind that during holidays and summer vacations load factor can be significantly higher, therefore, it is important to compare the figures against the same period from the previous year.

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