Industry Q&As
Q: How does the airline industry measure its volume of business?
Airline payload, in other words revenue-earning traffic, essentially consists of passengers, freight and mail. For AEA airlines, revenue from these three sources amounted in 2005 to 86.7%, 12.7% and 0.6% respectively of total operating revenue.
Passenger traffic is measured in passenger boardings, or more commonly passenger-kilometres, which are calculated by multiplying the number of passengers by the distance each one flies. This statistic is normally referred to as Revenue Passenger-Kilometres, or RPK, since non-revenue traffic, for example airline staff travelling on duty, is not included.
Freight and mail traffic, similarly, may be measured in tonnes, but more usually tonne-kilometres. Freight and mail together constitute cargo, which is sometimes presented as a single statistic.
The entire payload may be expressed as Revenue Tonne-Kilometres by multiplying the number of passengers by a notional weight (which includes their baggage) and adding it to the cargo traffic before making the distance calculation.
Passenger capacity is normally measured either as Available Seat-Kilometres (ASK), calculated by multiplying the number of saleable seats by the sector distance. An aircraft’s overall carrying capacity is measured in Available Tonne-Kilometres. It is not normal practice to measure cargo capacity because this will vary from flight to flight depending on the passenger load. It is also very sensitive to cargo density – passenger aircraft will normally run out of cargo space before they reach their weight limits.
The relationship between traffic and capacity is called load factor and is of critical importance to airlines. For the AEA airlines collectively, a single point of load factor gained or lost, over the course of a year, is worth about $1.2 billion.
Q: How seasonal is the airline business?
Business travel, short-haul leisure travel and long-haul leisure travel all have different seasonal profiles.
Airlines operate to distinct Summer and Winter timetables, between April-October and November-March respectively, although there is fine-tuning of operations within each season. Measured in seat-km, the level of activity in Summer is about 10% above Winter levels.
Traffic shows rather more variation. In terms of 2005 passenger boardings, the busiest month (September) was almost 37% higher than the quietest (January). For passenger-km, the busiest (July) was 29% higher than the quietest (February).
AEA monthly figures often show an anomaly in March/April as traffic variations associated with the movable Easter holiday are more pronounced in one month or the other.
Airfreight is much less seasonal, tending to follow capacity trends but with a noticeable drop in December/January.
Q: Is the airline industry still growing?
Since comprehensive records have been kept – about 50 years – AEA airlines’ traffic has grown consistently, year-on-year, with very few exceptions; there was a downturn in passenger-km in 1991 coinciding with the first Gulf War and again in 2002 following the September 11th 2001 attacks. Passenger boardings are slightly more volatile (short journeys tend to be more discretionary) and in addition to those two years, declined also in 1980 (fuel crisis), 2001 and 2003 (second Gulf War and SARS outbreak).
Compared with the level in 1975, AEA airlines’ passenger-km doubled by 1987 (average annual growth 6%) and doubled again by 1997 (average 7% per annum). The current growth rate is just over 5% and if this is maintained, the 1997 level will be doubled in 2012
All AEA’s regional markets had by 2004 recovered to surpass pre-2001 levels.
Q: Which Markets bear most potential?
AEA collects data from its members’ operations, sorted by region. Quantitatively, the most important regions are Intra-European, North Atlantic and Europe – Far East/Australasia. Of these, in recent years, Europe has grown at close to the overall average rate, North Atlantic somewhat below and Far East somewhat above.
Market liberalisation in Europe has been a major factor in maintaining buoyancy in the market. Barriers to entry are low and there is pricing freedom, leading to a highly-developed competitive situation.
Far Eastern growth is largely fuelled by the booming economies in the region, with the huge potential markets of China and India in the forefront.
The North Atlantic, which for AEA airlines splits about 88:12 between the USA and Canada, is for the time being at least a relatively stable market, in which growth is largely conditioned by the modest capacity increases which the airlines choose to introduce year-on-year.
The other regional markets, being smaller, tend to show more volatility both up and down. However the South Atlantic route had, by late 2006, racked up three years of continuous month-by-month growth at very high levels. North Africa and Middle East, in contrast, tend to be more influenced by geopolitical developments than underlying market forces.
Q: How much of traffic do Low-Cost airlines represent in Europe?
Low Cost Carriers … Low Fare Airlines … No-Frills Carriers … These are self-adopted labels for airlines which operate a business model which differs in some fundamental aspects from the ‘traditional’ carriers. It is probably easier, in fact, to define the latter group, as ‘network carriers’, because amongst their range of products is a comprehensive portfolio of origin/destination possibilities making use of the connecting possibilities inherent in their route networks.
It is difficult if not impossible to define, and consequently to measure, the size of the ‘no-frills’ sector. Nevertheless, it is clearly dominated by two airlines, Ryanair and EasyJet, each of which is four or more times the size of any of the other contenders. Although, if you read down through the next question, you will see that we try.
Q: How important is “charter” traffic?
That’s even more difficult, since European liberalisation completely blurred the distinction between ‘scheduled’ and ‘charter’. Many of Europe’s major leisure carriers publish their schedules and market seats to individual travellers. No comprehensive statistics exist on how much of their traffic is ‘seat-only’ and how much is sold in packages by tour operators.
However, in its 2006 Yearbook, AEA produced a rough estimate of how traffic within Europe in 2005 was distributed amongst the various airline groupings – 250 million for the AEA airlines, 100m for ‘no-frills’, 100m for the ‘traditional’ leisure airlines, and 25m for the regionals.
Q: Does AEA collect data on reason for travel?
No. Passengers don’t ‘check a box’ when they buy a ticket. Their reasons for travel can only be ascertained by sample surveys, something AEA doesn’t get involved in. UNWTO (United Nations World Tourism Organization) does at world level. Latest available data for 2004, indicates 50% of passenger boardings arise for ‘leisure, recreation and holidays’, 16% for ‘business and professional’, 26% for ‘visiting family and relatives, health and religion’ with the remainder not specified
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