royalswazi
Topic Author
Posts: 41
Joined: Mon Oct 21, 2013 1:27 am

Route Profitability

Sat Dec 21, 2013 5:37 am

This is my first post on here after having been a "groupie" for years and I have been wondering about how route profitability is calculated. I work with a different mode of transportation and it would be interesting to see how airlines and shipping lines compare.


a) Overheads (HQ, capital costs, training etc) - is this done per ASK, RASK, per seat, aircraft type or something else?
b) Transfer passengers - how is revenue split over the various segments?
c) Crew changes/hotel costs etc - on longhaul routes where crew need mandated rest this would be easy, but what about shorthaul flights where crews are changed at more random locations? Is this allocated to the specific flight, or does it form part of the general overhead costs?
 
KFlyer
Posts: 320
Joined: Mon Mar 19, 2007 1:05 pm

RE: Route Profitability

Sat Dec 21, 2013 6:42 am

It depends on the airline and the basis used. But in general, overheads are allocated to routes in terms of block hours. Transfer passengers' revenues are pro-rated to both routes, unless you use the beyond profitability method which uses a different basis. Crew accommodation costs are often allocated to the actual route as otherwise it would be disadvantageous to those routes which do not have crew changes.
The opinions above are solely my own and do not express those of my employers or clients.
 
royalswazi
Topic Author
Posts: 41
Joined: Mon Oct 21, 2013 1:27 am

RE: Route Profitability

Wed Jan 01, 2014 4:38 am

Thank you Kflyer,

Just regarding crew changes on shorthaul locations - say an airline one week changes crews at outstation A and the week after at outstation B, assuming neither require it due to RON. Would they still assign it to the route the change was made, meaning the cost would fluctuate from week to week?

Apologise for my nerdy question, I'm just curious - and happy new year every body  
 
TW
Posts: 71
Joined: Fri Jul 29, 2011 9:38 am

RE: Route Profitability

Wed Jan 01, 2014 2:14 pm

Quoting KFlyer (Reply 1):
But in general, overheads are allocated to routes in terms of block hours.

It really depends on the type of costs. Marketing expenses or Sales and Distribution can be allocated using passenger numbers; whereas for maintenance, crew costs and capital costs block hours make more sense.

Since the fixed costs are allocated to each route then if you start a new route it will bear some of the fixed costs thus reducing the costs of the other routes.
 
jjsilver
Posts: 26
Joined: Thu Aug 04, 2011 12:13 am

RE: Route Profitability

Mon Jan 06, 2014 3:46 am

A very interesting question, I was hoping someone in airline accounting would be on the board. The revenue split on connecting flights has intrigued me as you can find examples of connections at lower cost than p2p for competitive reasons but on the financial management side how is that allocated?
 
TW
Posts: 71
Joined: Fri Jul 29, 2011 9:38 am

RE: Route Profitability

Mon Jan 06, 2014 12:16 pm

Quoting jjsilver (Reply 4):
inancial management side how is that allocated?

Revenue is usually allocated per distance if both legs are flown by the same airline.

If you use 2 different airlines then the split is done based on a prorate agreement between these 2 airlines.

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