No I'm not joking. If you assume the same revenue and spread it across fewer available seat miles, RASM is going to go up. But if you disagree with me, do the math and then start poking holes.
I don't disagree with the effect on RASM, but would an increase in RASM under those conditions really be a good thing? It's sort of like comparing the load factor of 120 passengers on a 180 seat 757 (67%) with the MRTC 757 with 168 seats (71%) and claiming you've raised your load factor. Yes, but have you increased revenue or lowered costs? No, you've just raised your break even point.
Actually, you will have lowered costs in one respect (albeit marginally) - you're hauling around 12 fewer seats, which means less weight, leading to lower fuel costs. Plus, you'll save a very slight amount on maintenance (fewer seats to break or tear). Of course, your CASM will probably still rise, as the other costs will probably outweigh these savings.
There's always going to be a distribution to your demand. You may average 120 passengers, with a given standard deviation. The smart approach would be to offer enough capacity to be able to carry all the passengers who want on except for maybe a small percent of the time (the upper tails of the demand distribution). So for example, if you average 120 passengers with a standard deviation of 20, you may want to equip your aircraft with 160 seats, so that you only turn away passengers 2.275% of the time. If you put 180 seats on with that distribution, you end up reducing this to turning away passengers only 0.135% of the time. This improvement probably only means a few lost sales, but you're saving 20 seats in weight and maintenance, which can add up over time.
I don't disagree with you either. Maybe the whole thing illustrates the fallacy of the system the airlines use to determine all of the revenue projections.
It really doesn't matter how many seats are in any given aircraft, or how many passengers are on board. All that matters is how much it costs to fly that plane from point A to point B, and how many dollars have been collected from the passengers taking that flight. There's a million different combinations to make that work, and there's a million different combinations to make that fail.
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On 11/22/2002 6:52:57 AM MrMarky wrote:
Hi Mark,
I don't disagree with you either. Maybe the whole thing illustrates the fallacy of the system the airlines use to determine all of the revenue projections.
It really doesn't matter how many seats are in any given aircraft, or how many passengers are on board. All that matters is how much it costs to fly that plane from point A to point B..........(operating costs)...., and how many dollars have been collected from the passengers taking that flight.......(revenue)..... There's a million different combinations to make that work, and there's a million different combinations to make that fail.
Take care,
Marky
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True enough. If the operating costs are less than revenues, you make money. I still don/t understand why people think that CASM is the all important factor on what will make a particular plane profitable on a route. But you will hear it again and again in the RJ versus large jet argument.
