Friday, January 27, 2012
Volume is good but fundamentals are essential
when perusing commentary on the airline industry there is a lot of talk about passenger figures (see the previous post, for example). However, less common is the talk about yields. And even less common than that is to see discussion about the right yield and use of assets. Too many people give off the impression that airline executives are wearing blindfolds and recklessly handing out seats at ridiculously low prices to anyone and everyone. Low prices are part of the game and a worthwhile tool to stimulate demand, but the real art is the ability to maximize those ticket prices and ensure that your assets are being used effectively. If a route is flying with a high load factor and high yields should it be cut? Well, an argument could be that it should be cut if those high yield passengers will stay in the system by taking another departure on your airline or are willing to go to another airport to fly with your airline. That way the asset can be used more effectively on another route. The point is that observers of the industry need to look beyond the passengers numbers but to consider the yield and asset utilization. Nobody said this was going to be easy.