The Hindu Business Line : Does it pay more to fly empty than full?

IF, ON reading about Kingfisher's plans to buy Air Deccan's ASKMs or available seat kilometres, you're asking for a quick grounding in airline jargon, rest assured that you aren't alone. "A seat-kilometre is available when a seat is flown one kilometre," explains an air transport glossary on http://forum.europa.eu.int. "Seat-kilometres available are equal to the sum of the products obtained by multiplying the number of passenger seats available on each flight stage by the stage distance." Seats not actually available for the carriage of passengers because of the weight of fuel or other load should be excluded in the calculations, reminds http://dgca.nic.in, the site of the Directorate General of Civil Aviation (DGCA).

ASKM is thus no different from other common operating metrics such as passenger-kilometre, kilowatt-hour or patient-days. For instance, www.publicpurpose.com has a section on `urban transport' with charts comparing `capital and operating cost per passenger mile' for `light rail and bus rapid transit', with data drawn from the US GAO (Government Accountability Office).

"You cannot improve something you cannot measure - Dr. Deming." Thus begins a page titled `The Use of Metrics in Quantifying Performance Measurement' on www.msc.navy.mil, the site of Military Sealift Command of the US. "Dr Edward Deming is often incorrectly quoted as saying: `you can't manage what you can't measure,'" points out http://curiouscat.com. "In fact, he stated one of the seven deadly diseases of management was running a company on visible figures alone." The Sealift site's page compares the metrics used by different industries. "The airline industry measures unit costs, and therefore productivity, through the use of a metric called the seat mile. This is a standard unit, called an ASM (available seat mile), consisting of one seat (empty or filled) flying one mile. A 129-seat MD-80 flying a 500-mile segment, for example, creates 64,500 ASMs," it says. ASM is, thus, a variation of ASKM. "The container industry uses a metric called the TEU-mile, which is similar to the airline industry's ASM in that it is the act of moving one twenty-foot container (empty or full) one mile," says www.msc.navy.mil. TEU means `Twenty-Foot Equivalent Units (intermodal shipping container)' explains www.acronymfinder.com.

ASM is "basically a measure of an airline's traffic," states www.investopedia.com. "If all of the seats on the plane are not sold, then the ASM indicates the overall capacity the airline is operating at," it adds. "Revenue Passenger Miles, or RPMs, refer to how many of those seats were actually sold," supplements www.thestreet.com.

"In 20 years, China's RPKs (revenue passenger kilometres) will rocket from 126.87 billion in 2002 to 627.7 billion, informs http://english.people.com.cn. ""To satisfy the RPK growth, China's civil aviation industry is expected to provide 871.8 billion available seat kilometres (ASKs) in 20 years from 198.1 billion in 2002," is a snatch from a report of the Aviation Industry Development Research Centre of China cited in the story.

"Unit revenue per available seat kilometre (RASK) was up 0.3 per cent, despite a negative currency impact of 1.4 per cent," informs Air France (www.airfrance.co.uk) about fiscal 2004-05. "Capacity (as measured by ASKs) increased by 40 per cent... Cost per ASK 7.49 cents," reports Virgin Blue for the 12 months ended March 31, 2005, on www.globenettravel.com.au. "Revenue passenger miles (RPMs) increased 10.8 per cent to 573,610,000 for November 2005 from the same period last year," notes a December 6 posting of Frontier Airlines on www.prnewswire.com. "Available seat miles (ASMs) increased 7.5 per cent to 780,087,000 for November 2005 from the same period last year. This resulted in a load factor for November 2005 of 73.5 per cent, an increase of 2.2 points from November 2004, when the airline reported a load factor of 71.3 per cent."

Load factor is percentage of seats occupied, or simply RPM upon ASM. "Air Deccan, hitherto India's only no-frills airline, now boasts of a 90 per cent passenger load factor when most airlines are registering 65 per cent by average," reads a Feb 2, 2005 posting on www.jeffooi.com. PLF or passenger load factor means "the percentage of available seats occupied by fare-paying passengers," as a communiqué of Alaska Airlines on www.redorbit.com explains.

PLF is "Passenger-kilometres performed expressed as a percentage of seat-kilometres available," according to `terms and definitions' available on http://dgca.nic.in. "A passenger kilometre is performed when a passenger is carried one kilometre," explains the site. "Calculation of passenger-kilometres equals the sum of the products obtained by multiplying the number of revenue passengers carried on each flight stage by the stage distance. The resultant figure is equal to the number of kilometres travelled by all passengers."

The entry for `passenger weight' reads thus: "For converting aircraft passenger load into weight load, the number of passengers is multiplied usually by 90 kilograms which allows for the weight of the passenger plus both free and excess baggage."

The site has useful statistics on air transport; the latest, `operating traffic statistics and other performance indicators of all Indian scheduled carriers during 2003-04', mentions 65.5 per cent as `Average Pax. Load Factor' (domestic 58.4 per cent and international 72.5 per cent). Operating revenue per RPKM is shown as Rs 4.94, while operating expenses per RPKM are Rs 4.80. The Parliamentary Standing Committee on Transport and Tourism, in its Thirty-Fifth Report (February 1999) on the `Functioning of Air India' (http://rajyasabha.nic.in), noted that Air India was operating on some uneconomical routs where passenger load factor was not sufficient. "Thai Airlines is bringing in more than 80 per cent of cargo from Hong Kong to Delhi. The Committee feels that Air India can also lift this cargo at lower rates which, would be better than flying at half capacity," observed the report.

"Indiscriminate expansion of air services has resulted in increasing short haul operations, which have further raised fuel consumption per available seat kilometre," stated the Seventh Five Year Plan (http://planningcommission.nic.in). "Coupled with poor occupancy factor on these routes, fuel consumption per revenue passenger kilometre has increased even further," it rued.

That in 2004, average PLF on total scheduled services went up to 73 per cent, from 71 per cent in 2003, is an input from International Civil Aviation Organisation (www.icao.int). "CASM = cost per available seat mile, the essential unit of production in passenger air transportation," informs Paul Stephen Dempsey in a seminar paper posted on the site. "The down-gauging of aircraft (substitution of relatively smaller for larger aircraft) increases CASM, but usually reduces block-hour operational costs and results in higher load factors. Higher CASM, however, requires higher RASM (revenue per available seat mile) to break even," explains Dempsey. In January 2005, the ICAO released a five-page document titled `Regional Differences in International Airline Operating Economics: 2000 and 2001.' It speaks of "a marginal increase of 0.5 per cent in the estimated passenger cost per available seat-kilometre, from 5.55 to 5.58 cents," between 1999 and 2001.

Catch up also with region-wise numbers on www.iata.org, the site of the International Air Transport Association; these show growth in RPK and ASK, apart from FTK (Freight Tonne Kilometres measuring actual freight traffic) and ATK (Available Tonne Kilometres measuring available total capacity, that is, combined passenger and cargo). DGCA's Civil Aviation Requirements (CAR) classify routes as categories, and stipulate that every operator provide a minimum of scheduled air transport service, "with a view to achieving better regulation of air transport services and taking into account the need for air transport services of different regions in the country."

For rendering the prescribed minimum service on routes in Category II and III (such as routes connecting stations in North-Eastern region, Jammu and Kashmir, Andaman and Nicobar and Lakshadweep), "an operator may at his option provide the service either by aircraft in his fleet or with aircraft in any other operator's fleet on mutually agreed terms." Which is where the buying of ASKM comes in, because the alternative for Kingfisher would be to fly its own aircraft on un-remunerative routes.

One may argue that the social objective of CAR isn't achieved through a selling of extra ASKMs for money, as much as total pollution level doesn't come down with carbon trading. Should we, therefore, ask for a rethink on regulatory compulsions on ASKM?

From an accounting perspective, sale of empty seats may fetch incremental revenue to the seller at Rs 2 per kilometre, and add to the contribution for the recovery of fixed costs, assuming break-even has been reached. For consumers, though, Rs 2 per km may seem cheaper than auto-rickshaw fare. Still, from the operator's angle, if revenue per passenger kilometre is less than that amount, it may well be more profitable to fly an empty seat than a filled one.

ZeroBase@TheHindu.co.in

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