RAMESH LUTCHMEDIAL

THE AIRLINE industry is a major catalyst for social and economic development, particularly in countries with tourism-based economies. Air transport linkages facilitate the rapid movement of people, goods and services.

The airline industry is the most highly regulated industry in the world. Tremendous costs are incurred during the design, manufacture, certification and operation of public transport aircraft which must conform to the highest levels of international safety standards.

All flight crew, engineers and some support staff are highly trained and qualified in the required airline disciplines in accordance with regulatory standards. They undergo statutory periodic recurrent proficiency checks to demonstrate continued competencies to perform their duties. Therefore, the airline industry is both highly capital and labour intensive.

Airlines are in business to make profits. The industry is highly dynamic as the environment in which it operates is rapidly changing due to regulatory changes, technological improvements and shifts in the global economy. Airline business plans define the strategies for achieving sustained economic viability and profitability.

An airline fleet may consist of all-cargo aircraft, all-passenger aircraft and combi-aircraft carrying both passengers and cargo.

Airline costs are both fixed and variable. Fixed costs are unaffected by hours flown and include aircraft lease charges, employee costs, insurance and other fixed overheads such as property rental, computer reservations system (CRS), etc.

Maintenance costs are both fixed and variable as maintenance tasks are driven by calendar time, hours flown and take-offs and landings (cycles). During the covid19 pandemic when some airline fleets were grounded, maintenance work had to be carried out as some maintenance checks were controlled by calendar time.

Variable costs include fuel, catering, landing fees, ground handling, flight crew allowances, and air navigation charges.

Some of the key metrics airlines use for revenue management are seat miles (SM), available seat miles (ASM), cost per available seat mile (CASM), and revenue per available seat mile (RASM). These metrics are used to calculate the breakeven load factor for a flight which is the passenger loads that generates revenues that equal the cost of operating the flight.

A seat mile is one seat flown over a distance of one mile. ASM measures the aircraft passenger-carrying capacity to generate revenues and is determined by multiplying the number of seats on the aircraft by the number of miles the seats have flown. An aircraft with 100 seats flying a route with a sector length of 1,000 miles generates 100,000 ASM.

The CASM is the cost of one seat mile flown on a particular route using a specific aircraft type. It is obtained by dividing the cost (both fixed and variable) of the flight by the ASM. For example, if it costs $40,000 to operate an aircraft with 100 seats