Lecture 1 The Language of the

Airline Business
By
Dr Tony Webber

PSF PBT RPTK

ASK AFTK
AFTK EBIT
RFTK
APTK ATK
YIELD RPK
PAX
RTK PRASK
About Me
Airlines for which I have worked or Consulted
Airports, Aviation Organisations, and Tourism Agencies
for which I’ve consulted
Organisations outside aviation I’ve consulted for
Universities I’ve worked for
Media I’ve been interviewed by
Assessment
Assessment

Task % of Total Mark Assessment Date and Duration

Criteria
Assessment 1: Quiz 15% Covers Topics 1- The first hour of the
3 lecture in week 4
Assessment 2: Individual 25%    Friday of week 10 at
Assignment 5pm
Assessment 3: Group Assignment 20%   Various times during
week 8 to be advised

Assessment 4: FINAL EXAM 40% Covers topics 4 Exam period (Time and
to 10 date to be advised)
Topics
Topics and Schedule (approx.)
Week Topic Reading
1 Introduction to Airline Economics and the Textbook chapters 1-2
Language of the Aviation Business
2 Aviation Data and Related Statistics Textbook chapters 1-2
3 Aviation Demand Textbook chapters 3
4 Aviation Revenue 1 Textbook chapter 4
5 Aviation Revenue 2 Textbook chapter 5
6 Study Week
7 Aviation Costs Textbook chapter 6
8 Aviation Profit Textbook chapters 7-8
9 Airline Relationships Textbook chapter 10
10 The Economics of Oil and Jet Fuel Textbook chapter 12
Markets
Meet Your Group Members
You have been placed into specific airline groups for the
purpose of completing the group assignment – see Moodle for
details
Get in touch with your group. Form a group chat.

• Last year groups formed chat groups on

facebook and whatsapp

• Follow the instructions in relation to the

Group Assignment in your course outline
carefully. Note that you need to meet at least
5 times and diarise each meeting
LOAD METRICS
(Let’s get started)
Passengers carried
• Denoted PAX

• Measures the number of passengers carried over a

single leg

• A return journey represents two passengers carried

One Passenger Carried

CDG JFK

Two Passengers Carried

Passengers carried
• When a passenger travels over multiple legs or segments
this creates multiple passengers carried.

One Passenger Carried Two Passengers Carried

HBA MEL PER

Three Passengers Carried

Aircraft Movements

• The notation MOV is often used for

this metric

• It represents a take-off or a landing

of an aircraft.

• A related metric is the number of

flights or departures or sectors.
These represent only the take-offs.
Revenue Passenger Kilometres

• Notation = RPK

• A measure of the distance that revenue passengers are carried.

• The most popular measure of passenger load.

• Calculation:

RPK = PAX  PASL

where PASL = average distance flown by passengers in kilometers 

Passenger Average Sector Length

• We often wish to find the average distance that an airline flies on its
passenger network.

• This can be estimated with knowledge of RPKs and PAX as follows:

𝐑𝐏𝐊
Passenger Average Sector Length =
𝐏𝐀𝐗

• One of the best websites for determining the flying distance between two
city pairs is http://www.greatcirclemapper.net. 
Cargo Carried

• Simplified by the notation FRT

• The number of tonnes of freight

carried over a single leg.

• Independent of the distance that the

freight is flown.

• It is measured by weight (tonnes).

Revenue Freight Tonne Kilometres
• Summarised using the shorthand notation RFTK

• Is the preferred metric for the amount of freight that the airline
carries. 

• Is a distance and weight related statistic. 

• Calculated according to the following formula

RFTK = FRT x FASL

• Freight average sector length (FASL) can be determined as
follows given RFTK and FRT:
𝐑𝐅𝐓𝐊
Freight Average Sector Length =
𝐅𝐑𝐓
Revenue Passenger Tonne Kilometres
• A passenger load metric that includes the
distance that passengers are carried and the
weight that passengers carry onto the
aircraft in tonnes.

• Not often published by airlines, with the

exception of  Chinese and Indian carriers.

• Calculated using the following formula:

RPTK = RPK x APW

where APW = average passenger weight in tonnes brought onto
the aircraft by the passenger, including own body weight,
checked-in baggage and cabin baggage.
Revenue Passenger Tonne Kilometres
• Often airlines don’t publish RPTK statistics, but they publish RTK
and RFTK statistics from which the RPTK statistic can be derived: 

RPTK = RTK – RFTK

where RTK is revenue tonne kilometres, which we will define shortly.

•  The average passenger weight in kilograms is then:

    APW = RPTK x 1000  RPK

 Revenue Tonne Kilometres

• Notation = RTK.

• RTK is the statistic that is used to describe the total

freight and passenger load of the airline. It is a distance
and weight statistic defined as:

         RTK = RPTK + RFTK

•  The big Chinese and Indian carriers publish this statistic

routinely, while airlines in the US and Europe almost
never publish data on RTKs.
CLASS ACTIVITY 1
 Air China monthly operating statistics
Click on this website 45 minutes

http://www.airchina.com.cn/en/investor
_relations/traffic_data.shtml
For the following metrics :

(i) RPTK (ii) PAX ASL (iii) Freight ASL

(iv) Implied average passenger weight (APW) in kgs

find the most recent data for the domestic, international

and regional flying businesses of Air China
CAPACITY METRICS
Seats Carried

• Usually denoted SEATS

• Represents the total number of seats carried over a

single leg.

• It is the capacity equivalent to passengers carried. 

• A return journey represents two seats carried.

• The seats carried includes all revenue earning seats on

the aircraft, excluding cabin crew seats and seats in the
cockpit. 
Available Seat Kilometres
• Denoted ASK.

• Calculated as:

    
 ASK = SEATS x PASL

• ASKs can increase because

(a) The airline increases the number of flights

(b) The same aircraft with the same number of seats travels
over a longer distance
(c) A flight travels the same distance but with a bigger aircraft
with more seats. 
 Available Freight Tonne Kilometres
• Denoted AFTKs

• This is the most popular metric for

the capacity to carry air freight
over a certain distance.

• This statistic is the maximum

amount of freight that is available
for the aircraft to carry multiplied
by the average distance that the
aircraft carries this available freight
Available Passenger Tonne Kilometres
• This is a measure of the capability of the aircraft to carry
the weight of the aggregate of passengers over a certain
distance.

• APTK is determined according to the following

calculation:

APTK = APW x ASK  1000

•  This is simply the seat capacity of
the aircraft defined in seat
kilometres multiplied by the
average weight brought onto the
aircraft by the passenger.
Available Tonne Kilometres
• Shorthand notation is ATKs

• This is the total available capacity of the airline including

both passengers and freight.

• It is a popular measure of capacity for airlines in which

both passengers and freight are an important part of the
business.

•  ATK is defined according to the following identify:

ATK = APTK + AFTK

Block Hours

• This is a measure of the total time that it takes for a plane

to leave one gate and arrive at another.

•  The total number of block hours for a route can be

computed using the following formula:

HOURS = MOV x AVR Time

where AVR Time is the average flight time.

 Fleet Units

• The number of fleet units is defined

as the number of aircraft that are
operated by the airline. 

• The airline may also own aircraft that

it leases to other airlines, or that are
simply not used. These aircraft are in
the airline’s fleet but not operated by
the airline. 

• Airlines often have both passenger

fleet and dedicated freighter fleet (ie
they only carry freight).
ANA Fleet Units
CAPACITY UTILISATION
METRICS
Passenger Seat Factor
• This represents the
percentage of seats on the
aircraft that are occupied by
revenue earning passengers.
The passenger seat factor is
defined as follows:

𝐑𝐏𝐊 𝐏𝐀𝐗
PSF = =
𝐀𝐒𝐊 𝐒𝐄𝐀𝐓𝐒

• The passenger seat factor increases when capacity

increases at a slower rate than passenger load increases.
Freight Load Factor
• The freight load factor represents
the percentage of freight capacity
on the aircraft that is occupied by
revenue earning freight. It is
defined as follows:

𝐑𝐅𝐓𝐊
Freight Load Factor =
𝐀𝐅𝐓𝐊

•  The freight load factor increases when the demand for

air freight increases at a faster rate than capacity.
Total Load Factor
• The total load factor represents the
percentage of total tonne capacity on the
aircraft that is occupied by revenue
earning passengers and freight tonnage. 

• It is defined as follows:

𝐑𝐓𝐊
TLF =
𝐀𝐓𝐊
•  The total load factor increases because capacity or ATKs
fall and/or the demand for revenue earning space on the
aircraft rises.
CLASS ACTIVITY 2
 Air China monthly operating statistics
Click on this website
20 minutes

http://www.airchina.com.cn/en/inv
estor_relations/traffic_data.shtml
Find passenger seat factor, freight load factor and the
total load factor for the total network, domestic,
international and regional for the most recent month of
data.
PRODUCTIVITY
Labour Productivity
• The number of labour units employed by the airline is
usually described by a metric called the number of full
time equivalent (FTE) labour units.

• The FTE is used as an input into determining the

productivity of labour:

       FTE
Average Product of Labour =  ASK
• In this case the measure of output is ASKs but it can
also be ATKs. 

• The measure of input is the number of FTE labour units

but it can also be the number of block hours
Fuel Productivity
• This is a measure of the average product of fuel:

Average Product of Fuel = ASK  Fuel Consumption

• The average product of fuel is a measure of output divided by

a measure of fuel consumption.

• In this case the measure of output is ASKs but it can also be

ATKs. 

• Fuel is usually measured in gallons, barrels or tonnes. 

Fleet Productivity
• This is a measure of the extent to which fleet units are
used.

• It is calculated using the following formula:

Fleet Productivity = Block Hours/ ( Fleet Unitsx Number of Days)

•  This measure determines the average number of hours that

aircraft are used per day. 

•  The higher is this number the more that aircraft are used,
which allows the airline to reduce unit costs.
AIRLINE PERFORMANCE AND
PROFITABILITY
 On-Time Performance
• a measure of the extent to which an airline arrives
at its destination and/or departs from its origin on-
time.

• It is computed using the following formula:

 On-time Performance = ( On-Time Departures + Arrivals ) / 2 x Sectors Flow

• "On-time" means departures and arrivals that are within 15 minutes of

the scheduled departure and arrival times. 

• The on-time performance statistic is incredibly important for airlines

with a high business-purpose, high net-worth passenger demographic
because these passengers value their time more than other
passenger types.
Regularity

• Regularity is a measure of the extent to

which an airline sticks to its schedule.

• It is computed according to the following

formula:

𝐒𝐞𝐜𝐭𝐨𝐫𝐬 𝐅𝐥𝐨𝐰𝐧
𝐑𝐞𝐥𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐲 =
𝐒𝐞𝐜𝐭𝐨𝐫𝐬 𝐒𝐜𝐡𝐞𝐝𝐮𝐥𝐞𝐝

• Regularity is an important metric in terms of understanding the

impact on the customer and their brand loyalty as customers that
are faced with a cancelled flight may not fly on the airline again, or
for some time, unless they can be placed on a flight that runs at an
adjacent time
EBIT
• This is a measure of earnings that stands for Earnings
Before Interest and Tax.

• It is calculated as follows:

           
EBIT = Operating Revenue – Operating Cost

• EBIT excludes tax expenses and any non-operating

income and expenses, such as interest income, interest
expenses and gains or losses from hedging and asset
sales.
EBITDAR
• This stands for Earnings Before Interest Tax Depreciation
Amortisation and Rentals.

• It is calculated by adding back to EBIT depreciation

expenses, amortisation expenses and operating lease
costs:

           
EBITDAR = EBIT + Depreciation + Amortisation + Rentals

• It is a measure of earnings that can be interpreted as

the contribution to fixed costs.
PBT

• PBT stands for Profit Before Tax.

• It is calculated by subtracting net finance costs plus other 

net non-operating costs from EBIT as follows:

interest – interest + Other net non-

PBT = EBIT + costs operating income
income

• The other net non-operating costs could include, for

example, losses or gains from fuel or foreign exchange
hedging, or losses and gains from selling assets or
writing off assets. 
PAT

• This is profit after tax.

• It is found by subtracting income tax expense from

profit before tax as follows:

Profit after tax (PAT) = PBT – Tax expense

CLASS ACTIVITY 3 (30 mins)
Southwest Airlines
• Google “Southwest airlines SEC filings”

• Go into “Select Forms” and choose “Quarterly Reports”

• Choose the most recent quarterly report

• Find the table of operating statistics in the report, which is

just past half-way through the report

• Use this table to find the following

(i) Fuel productivity over the quarter

(ii) Labour productivity over the quarter

Southwest Airlines
(iii) Fleet productivity (you may need to use an alternative to block
hours)

(iv) Average seat count

• Now find the profit and loss statement or income statement, which
will be towards the front of the document. Use this information to
find

(v) EBIT

(vi) EBITDAR

(vii) PBT

(viii) PAT
CLASS ACTIVITY 4 (30 mins)
On-time Performance
• Go to https://www.bitre.gov.au/

• Click on “Statistics” and then “Aviation”

• Choose “Domestic on time performance”

• Choose “latest monthly report” then “complete monthly

report”

• Open the spreadsheet entitled “Current Time Series

Data”

• With this data you are going to learn how to use a pivot
table. Follow these steps:
OTP
1. Choose the tab that holds the most recent data (the first
tab)

2. Place your mouse in cell A1

3. Click on “Insert” in the main menu and then choose the

first sub-menu which is “PivotTable”. Then click ok.

4. In the PivotTable Fields place your curser over “Route”

and drag it down into the “Columns” display box

5. Now drag “Sectors Scheduled” into the “Values” display

box. Take the resulting data and place it into a new
worksheet.
OTP
7. Drag “Sectors Scheduled” out of the “Value” display box
and drag “Sectors Flown” into the “Value” display box

8. Copy this data into your created spreadsheet

9. Use this data to find the reliability across the different

routes. Comment on your results.

10. Drag “Sectors Flown”, out of the “Value” display and

replace it with “Departures on time” and then “Arrivals On
Time”. Copy your results into your spreadsheet and use the
data to find on-time performance across the different
routes.

11. Graph your results and comment.

YIELD
 Passenger Yield
• Is a measure of the price that passengers
pay for air travel. 

• Airlines measure fares in per kilometre

terms rather than per passenger terms
because the per passenger measure will
differ depending on the average sector
length. 

• Calculated using the following formula:

assenger Yield =         Passenger Revenue /  Revenue Passenger Kilometres

= PAX x Average Airfare / (PAX x PASL) = Average Airfare / PASL

• In jurisdictions in which miles are used (eg USA and Canada),

passenger yield is computed using revenue passenger miles in the
denominator.
 Passenger Revenue per ASK
• Simplified to PRASK

• Another measure of the price that

passengers pay. 

• Incorporates information about both the seat

factor and the passenger yield.

• It is computed using the following formula:

RASK =      Passenger Revenue / ASK = Passenger Yield x Seat Factor

PAX REV / (ASK) = PAX REV / (RPK / PSF) = PAX REV x PSF / RPK = (PAX REV / RPK) x PSF

• Like passenger yield, PRASK is usually defined in terms of

cents. 

• In the US it is referred to as PRASM

 Freight Yield
• The freight yield of the airline is determined as follows:

eight Yield = Freight Revenue / Revenue Freight Tonne Kilometre

• This is the price that the

airline receives on a per
tonne kilometre basis, for the
transport of air freight.

• Freight yield is often defined

in terms of cents where it is
possible to do so.
Revenue per Available Seat Kilometre
• Shorthand notation is RASK

• Or in countries like the US that use

miles it is called RASM.

• RASK is defined as total operating

revenue divided by the number of
available seat kilometres:

RASK = Total Revenue / Available Seat Kilometres

• RASK is affected by both the total load factor and the

yield obtained from the combined load of passengers and
freight.
Total Yield

• Total yield is a measure of the effective

price of the combined freight and
passenger load on the aircraft.

• It is computed by dividing operating

revenue into revenue tonne kilometres
as follows:

Total Yield = Total Revenue / Revenue Tonne Kilometres       

RTK = RPTK + RFTK            z
UNIT COST
Cost per ASK
• The shorthand notation is CASK

• Most common measure of unit

cost in the airline business

• It is computed as follows:

CASK = Total Operating Cost / Available Seat Kilometres

CATK = Total Operating Cost / ATK
• For many airlines that have a significant freight
business, it is better to use ATKs in the denominator
of this expression since the activity driver of cost is
more closely aligned with ATKs than ASKs. 
Cost Ex Fuel per ASK
• Often we wish to exclude fuel costs from our
CASK calculation because it can be
significantly affected by movements in fuel
prices.

• In this case the numerator of the CASK

expression is total operating costs less fuel as
follows:

NFCASK = Total Operating Cost Excluding Fuel / Available Seat Kilometres

• For businesses that have a significant component of their business in

freight the superior measure of unit cost has ATK in the denominator.

• Some airlines also exclude other one-off, volatile items from operating
cost in order to estimate CASK. For example, airlines often exclude
asset write-offs when they calculate CASK.
CLASS ACTIVITY 5 (30 mins)
China Southern
• Google search “china southern financial reports”

• Click on the first entry in the google response which

should be “2021—CSAIR”

https://www.csair.com/en/about/investor/yejibaogao/2021/

• Click on “Interim Reports”

• Find the interim report for 2020 by clicking into the down
arrow box and choosing 2020.

• Find the “SUMMARY OF OPERATING DATA” in this

report and use this to find the following:
China Southern
(i) Passenger Yield for Domestic, Hong Kong, Macau and
Taiwan, and International

(ii) PRASK for Domestic, Hong Kong, Macau and Taiwan,

and International

(iii) Freight Yield for Domestic, Hong Kong, Macau and

Taiwan, and International

(iv) Total Yield for Domestic, Hong Kong, Macau and Taiwan,
and International

(v) CASK and CATK for the total network

(vi) Fleet productivity