1.

Calculation of key performance indicators

1.1 Introduction In addition to the Budgeting described above, the Budgeting module should calculate the whole range of airline key performance indicators (KPIs). The calculation methods for these KPIs are described below. 1.2 Available Seat Kilometres (ASK) / Available Tonne Kilometres (ATK) ATK/ASK can be defined as output generated by the airline. There are three types of ASK/ATK:


Passenger ASK; Cargo ATK; and Total ATK (ASK+ATK).

1.3 Passenger ASK Passengers ASK is calculated separately per cabin class (first/business/economy) as well as for the whole seat capacity for particular aircraft by following formulae:

ASK F / C ! GCD seat _ configuration F / C ASK B / C ! GCD seat _ configurat ion B / C ASK T / C ! GCD seat _ configurationT / C ASK Total ! GCD seat _ configurationTotal
F/C = first class B/C = business class T/C = economy (touristic) class For the purposes of the demonstrator of model the information about seat configuration is taken from QR Business Operating Plan provided by QR Operations Planning Department. The report encompasses seat configuration, number of cabin and cockpit crew, maximum take-off weight (MTOW), cargo payload and maximum payload for each aircraft defined by its tail number. The list comprises of QR owned and leased aircraft together with information about their lessors. 1.4 Cargo ATK Cargo ATK is calculated for the whole cargo capacity for each aircraft identified by its tail number by using following formula:

cgo _ ATK Total ! GCD cgo _ payload

For the purposes of the demonstrator, cargo payload data for each aircraft are taken from QR Business Operating Plan provided by QR Operations Planning Department. 1.5 Total ATK Total ATK represents overall output which is generated by the particular aircraft (from transporting passengers as well as cargo). The calculation is based on following formula:

total _ ATK ! ASK Total std _ pax _ weight  cgo _ ATK Total
std_pax_weight = standard passenger weight (weight of average passenger together with his/her personal luggage). The industry widely used standard is 0.1 t (100 kg). However, the parameter is set as variable hence can be tailored to QRs current needs. ASKTotal and cgo_ATKTotal are taken from previous calculations. 1.6 Revenue Passenger Kilometres / Revenue Tonne Kilometres RPK/RTK are defined as output sold, i.e. it is a proportion of total generated ASK/ATK, which was actually utilized by revenue passengers/revenue cargo on the particular flight.
  

Passenger RPK; Cargo RTK; and Total RTK.

1.7 Passenger RPK Passenger RPK is calculated per each cabin class (first/business/economy) as well as for the whole aircraft for each flight by following formulae:

RPK F / C ! GCD PAX F / C RPK B / C ! GCD PAX B / C RPK T / C ! GCD PAX T / C RPK Total ! GCD PAX Total
A complication may arise when a flight consists of two or more legs with a possibility to join the flight in each / some of the intermediate landings. In such case passenger can buy a flight ticket for origin and destination pair which is not covered by one single movement, but with two or more consequent flight legs. Passengers ASK for such flight is calculated for existing legs only.

1.8 Cargo RTK Cargo RTK are calculated separately for mail and freight as well as together for the overall amount of cargo carried on a particular flight by following formulae:

cgo _ RTK Mail ! GCD cgo _ tonnageMail

cgo _ RTK Freight ! GCD cgo _ tonnage Freight

cgo _ RTK Total ! GCD cgo _ tonnageTotal

1.9 Total RTK Total RTK represents overall sold output which was generated by the particular aircraft (from transporting passengers as well as cargo). The calculation is based on following formula:

total _ RTK ! RPK  cgo _ RTK Total

The formula is similar to calculation of total ATK 1.10 Passenger Load Factor (PLF) Passenger Load Factor expresses the percentage of the seats available on a flight that has been sold. PLF is calculated per each cabin class for every flight and is expressed as ratio of revenues per kilometre to available seat kilometres per each flight:

PLFF / C !

RPK F / C 100 ASK F / C

RPK B / C 100 ASK B / C RPK T / C 100 ASK T / C RPK Total 100 ASK Total

PLFB / C !

PLFT / C !

PLFTotal !

The given formula returns distance-weighted PLF expressed as percentage. This methodology is the most appropriate and wide-spread way of expressing PLF, or any type of load factor, for network analyses and comparisons. PLF is used for passenger flights only. 1.11 Cargo Load Factor (CLF) Similarly to PLF, CLF expresses load factor of mail and freight for each flight leg as follows:

CLFMail !

cgo _ RTK Mail 100 cgo _ ATK Total cgo _ RTK Freight cgo _ ATK Total 100

CLFFreight !

CLFTotal !

cgo _ RTK Total 100 cgo _ ATK Total

Because of the fact that there is usually no designated compartment for carriage of mail, the denominator in the formulae is overall cargo ATK only. Hence CLFMail and CLFFreight have mostly an informative character and CLF Total is the true KPI in case of belly-hold cargo. 1.12 Budgeted Cost per ASK Unit cost, or Cost per ASK, is calculated from the total operating costs divided by the produced output ASKTotal/total ATK:

TOC  cgo _ cst

CASK ! ASK Total

TOC = total operating costs (sum of all costs per flight) cgo_cst = cargo related operating costs (cargo handling costs) It has to be noted that cargo related costs (cargo handling costs in particular) have to be deducted from TOC due to the fact that CASK deals only with passengers on board and hence passenger related/overhaul costs. An improvement in this KPI can be achieved either through lowering absolute input costs while maintaining the same output, or through increased total productivity (output) measured in ASK / total ATK while the unit cost remains constant. 1.13 Revenue per ASK Similar to unit cost, unit revenue, or Revenue per ASK is calculated from the total operating revenues divided by the output sold

RASK !

OR  cgo _ rev ASK Total

OR = total operating revenues cgo_rev = cargo revenue (revenue from belly-hold cargo services)

Similarly to CASK, RASK has to be lowered by the amount of revenues connected with cargo services (belly-hold cargo in particular) in order to get proper picture of purely passenger-related services. Improving unit revenue requires generation of more revenue from the same amount of performance output, or reducing output (ASKTotal/total ATK) keeping the same revenue level. At a given constant level of output, the level of revenues can be raised by three ways:


improving yield and holding the load factor constant; improving load factor while holding yields steady; or ideally improving both yield as well as load factor.

However, the latter option is not likely to happen in the real market environment one would have to have either a strong origin & destination (O&D) market for the given route, or make significant cuts in output (ASKTotal/total ATK). Rising load factor within the given output and hence capacity range should not be expensive in general, although it will necessarily involve marginal traffic, distribution, and likely marketing & sales costs as well. Improved yield should not have large impact on the cost side unless the improvement of yield is supported by expensive product upgrade (e.g. acquisition of new aircraft). In order to maintain positive RASK / RATK, if the yield is declining, load factor must rise. Conversely, if the load factor has a declining trend, yield must rise. However, the latter situation is difficult to be solved due to the fact that in most cases declining load factor indicates excess supply on the particular market. 1.14 Yield (Y) Yield represents revenue per unit of output sold (RPKTotal/total RTK). Yield can be mathematically defined as ratio of operating revenue and weight load factor:

YPassengers !

ASK Total RASK RASK OR ! ! RPK Total RPK Total PLF

YOverall !

OR total _ ATK RATK RATK ! ! total _ RTK total _ RTK WLF

Because of the fact that a denominator in the calculation is RPKTotal/total RTK instead of ASKTotal/total ATK, yield is not suitable to be directly compared with unit cost. However, yield is an important KPI in terms of understanding of interaction between price and traffic figures. These general assumptions apply:


Yield will decline when:

raise in supply exceeds raise in demand and low prices are used to hold load factor constant;

one or more competitive airlines lower prices in order to stimulate market or increase their market share,

Yield will remain constant or rise when:



demand grows faster than supply and achieved load factor is already high; there is no sharp price competitiveness on the market.

Yield can be affected also by the different allocation to each booking class. Raising the number of low-yield booking classes comparing to high-yield class can result in lower yield and vice versa. An additional point is that higher the unit cost is, the more it is vulnerable to negative yield fluctuations. 1.15 Inter-airline comparisons One of the options to compare different airlines is to confront directly their unit costs and unit revenues (CATK and RATK). However, these figures cannot be used to compare airlines with different product strategies or brand positioning. Therefore two major inter-airline comparison KPIs are identified in the model:


Revex Ratio, and Operating Margin.

Both KPIs are dependent on the value of TOC and therefore they are different for each PC level. 1.16 Revex ratio (RR) The Revex Ratio describes how much revenue has been earned by each unit of expenditure. The ratio is commonly expressed in percentage:

RR !

OR

100

TOC
100% figure represents break-even point where operating revenues equal operating costs. Figures higher than break-even point represent the fact that the particular route generates an operating profit.

1.17

Operating margin (OM) Operating Margin represents one of the most important macro-level KPIs. Operating Margin is calculated as a rate of operating profit ( OP expressed as percentage:

! OR  TOC ) to operating revenues and is

OR  TOC OM ! OR 100 !

OP OR

100