jhooper
Posts: 5560
Joined: Thu Dec 13, 2001 8:27 pm

### "Yield"

Could someone broadly define this term as it relates to the airline industry? I tried running a search, but didn't find anything useful. Thanks.
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Established02
Posts: 528
Joined: Mon Jan 14, 2002 4:30 am

### RE: "Yield"

Jhooper,

I'm not a pro, however I'll give it a try.

I understand that yield is a profit ratio expressed per seat-kilometer.

Yield = (Turnover minus all expenses) / total amount of available seat-kilometers

Available seat-kilometers: e.g. for an RJ100 on a flight BRU-MXP
= 100 available seats x 1000 flown kilometers = 100.000 seat-kilometers

e.g. airline X: +25 cent/seat-kilometer versus airline Y: -10 cent/seat-kilometer

This means that for every available seat that the airlines offer airline X actually earns 25 cent, while airline Y looses 10 cent for every kilometer that the seat is flown.

Who can explain more precisely?

Established02

swissgabe
Posts: 5147
Joined: Tue Jan 11, 2000 4:57 am

### RE: "Yield"

Most airline use the Yield on each sector and not on each mileage.
Example on a BG flight from BRU-DAC-BKK:
You pay EUR 1'000 for the total flight. Now BG would make a calculation as follows (just an example). BRU-DAC = 400 EUR, DAC-BKK = 100 EUR, BKK-DAC= 100EUR and DAC-BRU = 400 EUR gives a total 1'000 Euro. So your yield would be on sector DAC-BKK vv. 100 EUR and on the other long-haul 400 EUR.

They will use the average of every passenger a board on each sector ...
Smooth as silk - Royal Orchid Service /// Suid-Afrikaanse Lugdiens - Springbok

Established02
Posts: 528
Joined: Mon Jan 14, 2002 4:30 am

### RE: "Yield"

Swissgabe,

From your explanation I understand that the concept of yield only considers an average gross income per sector, however without considering the expenses. What is for the airline management then the value of the parameter "yield", if it does not give any indication about the final profits? So what to conclude if both BG and TG have a yield (average gross income) of 100 EUR on DAC-BKK? It could be that with the same income one airline turns a profit while the other has a loss, isn't it?

swissgabe
Posts: 5147
Joined: Tue Jan 11, 2000 4:57 am

### RE: "Yield"

Established02, right. High yield doesn't mean that a flight/route brings money since it doesn't say anything about costs.
The value of the yield? Good question and I'm pretty sure that there are plenty of answers out there:
- Yield should be higher than cost per passenger
- Yield is important for airline to compare within the internal network where they have potential and where not
- Yield does say "more" than load-factors but you need both, good yields, high loads and low costs to make money.

Right, with the same yield (example DAC-BKK) one airline could make profit and the other losses. Good example on the DAC-BKK. BG operates older 310/D10 which are more costly than the TG 330 so if TG would have lower costs they could make more money.

Actually the formula of yield is very easy. Revenue divided by Passengers on each sector = yield.
Smooth as silk - Royal Orchid Service /// Suid-Afrikaanse Lugdiens - Springbok

ScottB
Posts: 5697
Joined: Fri Jul 28, 2000 1:25 am

### RE: "Yield"

Yield is generally determined by dividing the fare paid by the distance flown by a given passenger. A fare of \$100 paid on a 1000 mile itinerary gives a yield of \$0.10/mile. The airline's aggregate yield is the amount of passenger revenue divided by revenue passenger miles/kilometers flown (i.e., the total number of miles/kilometers flown by paying passengers) in a given period.

Two other important metrics are CASM/CASK (cost per available seat-mile/kilometer) and RASM/RASK (revenue per available seat-mile/kilometer). RASM is related to yield in that yield multiplied by load factor gives you the airline's RASM. In order for an airline to show an operating profit, RASM needs to be higher than CASM.

Airlines that have lower CASM's can make a profit at lower yields than airlines with higher CASM's; in addition, an airline with comparable CASM and lower yields can still make more by running higher load factors -- since that will result in higher RASM.

jhooper
Posts: 5560
Joined: Thu Dec 13, 2001 8:27 pm

### RE: "Yield"

I am going to be doing a report on this in my "Antitrust Economics" class this semester. Here's an article I found; what do you think?

http://omg.simon.rochester.edu/omgHOME/shumsky/Yield_management_note.PDF

Here's another source I think I will use.
Last year 1,944 New Yorkers saw something and said something.

Air Taiwan
Posts: 1498
Joined: Fri Dec 03, 1999 3:06 pm

### RE: "Yield"

Yield = Revenue / RPK (revenue pax km)

Freight Yield = Revenue / FRTK (freight revenue tonne km)

RPK = no. of pax * distance flown.

Revenue = no. of pax * average ticket price (obvious enough)

Jimmy

Guest

### RE: "Yield"

Jhooper,

Your first article was quite interesting-I haven't yet read the second; interestingly, BA are using a slightly different strategy in the UK, to counter the increasing competition from the low-cost airlines in that country.

They refuse to use 'fare/seat-dumping' (probably because they can't afford to do this at the moment), and have made a point of telling us (the consumers), that they will not be offering fares which match, let alone undercut those of airlines such as Easyjet (I think it's impossible to undercut Ryanair, but that's another story).

Instead, they are trying to convey a message that by paying a (reasonable-sized, generally) premium over the LCCs, you will be getting much more value for your money-flights into more convenient airports, complimentary food and beverage service, FFP, a choice of schedules and routes to suit you, interlining and all the usual benefits of flying with full-service airlines (accommodation/compensation etc.)

Probably a better idea than trying to out-compete the low-costers.....in vain, and at massive cost to the flag-carriers. In any case, BA should start to hike up its fares in Economy, as there isn't anyone flying in First or Business to subsidise the lower-end of fares in Y, at the moment.......and if we go to war with Iraq, god knows what BA are going to have to do.

Shouldn't American carriers hike their fares up (in Y), and/or lower their costs....?

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