No route optimisation report is complete without a few RPK, ASK and RASK metrics, but don't let them inform your strategy without considering other factors.
How much demand is there for your existing air route to Athens, and does your airline have enough weekly flights? If demand exceeds availability, then your airline could be missing out on a revenue opportunity.
How much demand will there be for your airline's new routes to the two recently expanded Greenlandic airports, which have enabled the island to accommodate bigger aircraft for the first time in its history?
These are two examples of when airlines might use metrics like Revenue Passenger Kilometres (RPK – number of revenue passengers multiplied by the distance they travel) and Available Seat Kilometres (ASK – number of available seats multiplied by the distance of the routes) to help them set key performance indicators (KPIs) such as the Passenger Load Factor (PLF – RPK divided by ASK) to optimise their routes.
After all, an airline with a tight RPK/ASK percentage margin on a route – so ideally the ASK is only marginally longer than the RPK – should have a recipe for success.
But is route planning really that simple?
RPK rates are soaring ... but not profits
If route planning was simple and all airlines needed to do was balance their RPK and ASK, then profitability would be assured. But it isn't. While some airlines are enjoying healthy profits again, after suffering horrific losses during the pandemic and post-pandemic restrictions, many are still struggling.
According to IATA figures for 2024, global RPK rates grew by 10.4 percent, global ASK rates by 8.4 percent, and the PLF to a new record level of 84.0 percent. But total airline profits did not shoot up. In 2024, the net profit margin of 2.7 percent was only marginally better than the 2.6 percent margin set in 2023. After all, margins remain incredibly tight in the industry following the hardship of the pandemic.
According to IATA, the average airline retains just $5.45 for every passenger carried – which according to Willie Walsh, IATA’s Director General, is “just enough to buy a basic ‘grande latte’ at a London Starbucks”.
Walsh is happy to see airlines back in the black, but remains cautious it is simply a matter of trusting their metrics:
“Airlines are far too burdened by onerous regulation, fragmentation, high infrastructure costs and a supply chain populated with oligopolies.
READ MORE: Taking a collaborative approach to supply chain challenges
Are KPIs dynamic enough?
KPIs and metrics are useful data. For example, a steady rise or fall in RPK over a sustained period is a good indicator of increasing or decreasing demand. And both RPKs and ASKs are useful for benchmarking, tracking performance (of airlines and regions) and overall revenue generation. But while these metrics will inform an airline’s decision to adjust capacity by deploying larger or smaller aircraft, or even introducing/suspending/discontinuing services, they won't help that much with dynamic pricing – the real-time adjustment of prices in response to market conditions as they happen.
Aviation will always be a dynamic industry, so it is vital airlines can dynamically adjust their fares and seat availability.
IATA cautions airlines against using the metrics to inform their decision-making regarding route planning, capacity adjustments and competitive pricing – a stance shared by most industry experts. Instead, airlines must take a more holistic approach encompassing broader market analyses, external considerations, competitive actions and regulatory changes.
One KPI to rule them all?
What if the metrics could do more than help airlines with routine planning? Increasingly, Average Coupon Value (ACV) – which is often referred to as the Average Fare – and Revenue per Available Seat KM (RASK) are helping airlines with their pricing. Calculated by dividing the total revenue earned from ticket sales by the total number of km flown, the ACV should theoretically help airlines to understand their pricing strategy and whether it is generating enough revenue to cover its costs.
For example, if an airline generates €20 million in revenue from flights travelling a total of 4 million km, the ACV would be €5 per km. The RASK, meanwhile, is calculated by dividing the total revenue by the total number of available seat kms (ASK). So, if an airline generates €20 million in revenue and has a total of 5 million available seat kms, the RASM would be €4 per km.
However, while the RPK, ASK, ACV and RASK are useful for informing airlines’ decision-making on a route-by-route basis, they should not be applied universally because they don’t factor in the distance of flights adequately.
Granted, long flights will always cost more than short flights, but there is no simple correlation. Rather the price will be determined by a long list of factors.
For a more universal approach to route planning and price setting, airlines need a KPI that takes into account the yields of each and every flight. Cost per Available Seat km (CASK) factors in both fixed and varied operating costs, and then the Profit per Available Seat km (PASK) is calculated by subtracting the CASK from the RASK, providing us with a figure that should resemble the actual profit/loss of an airline – or on a smaller scale the profit/loss of a route.
So is the PASK the piece of the puzzle that airline route planners have been searching for?
READ MORE: Passengers and airlines see eye-to-eye on data’s power to simplify travel
Useful in a stable market ...
Ultimately, PASK's effectiveness will depend on the market, and PASK will always have limitations because there is no such thing as uniformity in commercial aviation. The metrics and KPIs covered so far in this article do not adequately take into account important factors such as:
- Competition with other airlines
- Prevailing economic conditions
- Future market demand fluctuations
- Cost of fuel, labour and operations
- Potential damage to reputation
- Potential revenue sources, such as cargo operations
PASK is a useful metric when the market is predictable: like the US domestic market, where Delta, American, Southwest and United operate their own airports and dominate their respective micro markets. Overall, they respectively control 17.8, 17.5, 17.3 and 16.0 percent of the domestic US market – just under 70 percent.
Chart 1, based on data compiled by IATA, demonstrates how the growth in RPK (supply) exactly equalled the growth in ASK (demand) in the North American market, thus maintaining the comfortable PLF margin that has been typical of the market for many years.
... but not in a volatile market
But PASK is less useful in a volatile, fast-growing market like Asia-Pacific where airlines can quickly lose control of their price-setting in a bid to out-compete rivals, such as disruptive budget airlines. Unlike in the US domestic market, the closest any airline comes to a significant market share is Singapore Airlines Group with 9 percent.
In contrast to the North American market, the difference in growth between the RPK (supply) and ASK (demand) was 4.6 percentage points, further increasing the PLF margin by another 3.2 percentage points, and hitting profitability in the process.
In a race to the bottom, PASK becomes a precarious basis for setting fares, often perpetuating vicious circles in which airlines find themselves forever adding seats in search of new sales, which they end up having to offer on discount, and the aircrafts keep on getting bigger, raising costs in the process.
As the 2019 whitepaper 2019 OUTLOOK – Buckle Up observes:
"Full planes are not always cause for celebration. It should be no surprise that very low ticket prices will get ‘butts on seats’, but pricing power appears to have been lost. This leads to the conclusion that, although supply and demand is nominally in balance, there are simply too many cheap seats being sold in the market and too few expensive ones."
Factoring in the unexpected
Nevertheless, KPIs are still regarded as useful figures in commercial aviation – not least for AI-driven solutions that need data. The expert analysts in charge of a Revenue Management System (RMS) welcome all the KPIs and metrics they can get their hands on, as machines will always see patterns that humans cannot.
A RMS use algorithms to apply qualitative insights to quantitative data to predict demand and set optimal pricing strategies on a flight by flight basis.
A RMS enables Fare Class Management (FCM), a strategy that controls the number of seats available in each fare class, which helps the airline to strategically price its seats to maximise revenue
It sounds simple – when demand is low, more discounted fares are available; when demand is high, the fares will increase – but its application is anything but. Factors such as seasonality, economic conditions, special events and competitor pricing are all factored into segmenting distinct customer groups based on their travel patterns, price sensitivity and booking behaviour.
For example, business travellers are best targeted with flexible, premium fares, while leisure travellers can be offered discounted fares with stricter restrictions. The RMS is crucial to balancing occupancy rates and profitability. In this way airlines can be more resilient and adaptive to whatever the future throws in their way, making adjustments strategically to avoid price wars and maintain healthy profit margins.
And the future looks bright. New technologies like IoT, blockchain and advanced AI will only make RMSs smarter and more predictive.
READ MORE: Blockchain's potential role in providing USM origin stories
Satair Takeaway
It's important to understand the various metrics used in the airline industry, such is their prevalence. Certainly, they are useful for demonstrating growth and capacity, but they won't necessarily help airlines grow unless they are considered alongside a long list of other factors and variables. So yes, we need to understand metrics, but that doesn't mean we always have to trust them.