Financial Assignment 代写:Measuring Airline Performance
Measuring Airline Performance
Airline performance measurement is very vital in identifying the progress of the airline, due to increasing competition and growing industry, the performance indicators play very important role in decision making, forecasting, and management operations. The approach of the Mr. Andrew Boss was to give an idea of the performance factors in general. In my report I will classify the performance in a well arranged manner for better understanding.
Identifying what is needed to be measured is most important, according to United States Department of Transportation, Bureau of Transportation Statistics; the following are the three main performance factors:
· Financial Measurement
· Employment and Traffic Measurement
· Operating Expenses Measurement
Financial Measurement
These are the measures that give the financial aspects of the airline performance, an airline not fulfilling the financial goals is not going to last long, and these are often considered as primary performance measures. These indicators are further divided into four sub measures as given below:
a) System Operating Profit/(Loss) per Originating Passenger: Shows profit or loss per passenger
b) System Operating Expenses (excluding Regional Jet Contract) per Originating Passenger: it measures how much each airline spends in relation to the originating passengers it carries. All expenses necessary to operate an airline excluding contracted expenses relating to regional jet activity are included in this measurement.
c) System Operating Expenses (excluding Regional Jet Contract) per Aircraft: This measure spreads the total expenses to operate an airline over each of the carrier’s individual operating aircraft excluding non-mainline Regional Jet contract expenses.
d) Passenger Revenue per Originating Passenger (excluding Regional Jet Contract Revenue): it measures the average amount of revenue received by the airline for each originating passenger.
Some examples of these factors are given below:
In year 2007, America West was the leading airline in low cost carrier with over $15 per passenger profit while ATA was in maximum loss of $66.35 per passenger. Similarly ATA had the highest expenses per passenger at around $459 while Southwest was operating at the lowest cost of $104 per passenger.
Financial Assignment 代写:Measuring Airline Performance
Employment and Traffic Measures
These indicators are essential in measuring the traffic density (passenger per certain time) and employment turnovers and the mix of the two. These are the secondary measures to evaluate the popularity and market penetration of the airline. The greater the Traffic density of an airline is the more passengers it is taking hence occupying more market share. There are a total of four measures in this category given below:
a) Full-Time Equivalent Employees (FTEs) per Aircraft: Employees per aircraft provide one measure of an airline’s efficiency with respect to the average number of all its employees per unit of production. The smaller the number of employees per aircraft indicates greater efficiency
b) Average monthly Available Seat-Miles (ASMs) per Full-Time Equivalent Employee (FTE): ASMs (one aircraft seat flown one mile) are the basic unit of production in the airline industry. This measure is the simplest gauge of FTE productivity.
c) Average Monthly Revenue Aircraft Minutes per Full-Time Equivalent Employee (FTE): The most neutral common denominator in evaluating production performance is revenue aircraft minutes per employee. Irrespective of an airline’s business model (long haul or short haul routes) or type of aircraft it utilizes, flight time is what the aircraft were designed to do.
d) Average Monthly Originating Passengers per Full-Time Equivalent Employee (FTE): It is a basic measure reviewing how many unique passengers are transported compared to the size of the airline’s workforce.
These indicators are the performance indicators of the airline’s traffic and employment. A stable airline would have good values for these indicators. Like for example, in year 2007 Northwest and United reduced FTEs per aircraft by 22 percent and in the same year the low-cost carriers generated 166 originating passengers per FTE employee compared to 69 passengers per FTE for the network airlines.
Operating Expense Measures
These are the operating cost handled by the airline to operate successfully, few of these indicators are explained below:
a) Fuel Cost Per Originating Passenger: A measure of how much airlines pay for fuel compared to the number of unique passengers they transport.
b) Average Full-Time Equivalent Employee (FTE) Compensation per Originating Passenger: A basic measure of how many passengers are carried compared to the compensation of the workforce.
c) Average Annual Full-Time Equivalent Employee (FTE) Compensation: It is a basic measure of employee compensation. Compensation includes salary + benefits + payroll taxes.
In year 2008 Alaska Airlines’ cost of $62 per passenger (for fuel cost per passenger) was the least of the network group while ATA paid $131 for fuel per originating passenger the maximum fuel cost per passenger.
The performance evaluation is a blend of all these three main factors and any airline which is not evaluated for the above indicators cannot be evaluated for performance. A simple table below shows the operating profit from year 2002 to 2007 and Figure 1 shows the graph:
In conclusion the airline performance cannot be evaluated only by financial means but by the factors that play a long role in the airline business like flight hours, personnel per flight, expenses (fuel) etc. So by analysis of financial indicators the performance cannot be evaluated completely hence in this report I have given the details of the indicators and their description. Any airline adopting the indicators suggested can evaluate the performance and can also forecast the future performance based upon a forecasting model.
Financial Assignment 代写:Measuring Airline Performance
