Route Profitability Tool
The Airline Zone’s Route Profitability Tool is the flagship of our analytical tools.
Important: How to Effectively Use This Tool
We spend a great deal of developing and maintaining this tool and it is important that you know its strengths and weaknesses in order to use this correctly.
The tool is made using data collected by the Department of Transportation. The revenue side is from a survey taken of every tenth ticket issued. It is easy to realize that on routes with high traffic that this sample will yield incredible information about the distribution of fares. In another route we will explain in detail, why metrics such as average fares tell us little about pricing.
We have benchmarked the revenue data against the total domestic revenue in the DOT form 41 data and it is reasonably close.
The cost data is another matter. Here, we have average data on costs and know absolutely nothing about the standard deviation. This is very problematic in allocating this data to the route level. There are two problems:
1. We do know that the standard deviation of airport operating costs is very high.
2. We do know that in some airlines the standard deviation of labor costs is very high.
For example, Southwest Airlines has been reasonably consistent in hiring new people over a longtime. Therefore, you have some who are at the top of the pay scale and some at the bottom (new hires): A high standard deviation. Thus on any one route, when you allocate these costs, you will either be too high or too low. Thus the profitability estimate can be off.
In terms of operating costs, small airports with low frequency have high unit costs which get averaged with lower operating costs at bigger airports. Also some airports with a lot of traffic also have higher fees and wages such as in the New York area.
Consider this, in good years, airline makes about a three or four percent return. So if you are off by a little, you are off by a lot.
If you use the profitability estimates as a gauge as to how the airline is doing (more or less), then you will enjoy this. If you do not understand this page, then call me and I will go over it again with you until you do understand it.
