What Is Revenue Per Available Seat Mile (RASM)?
You need to know that revenue per available seat mile, or RASM, is a standard metric airlines use to compare their efficiency. I calculate it by dividing operating income by available seat miles, or ASM. In my experience with these figures, a higher RASM generally means the airline is more profitable. Remember, revenue here is in cents and includes more than just ticket sales—it accounts for various efficiency and profitability factors.
Key Takeaways
Let me break this down for you: Airlines rely on RASM to measure the total operating revenue generated per seat, whether empty or full, per mile flown. They prefer this metric because it captures additional revenue streams like baggage fees, reservation changes, and inflight meals. The straightforward calculation is total operating revenues divided by available seat miles.
Understanding Revenue Per Available Seat Mile (RASM)
When I look at RASM, it's a term airlines use to describe and evaluate their financial performance. It's more comprehensive than just total revenue because it considers all operating revenue in terms of capacity, not only passenger revenue. Most airlines and investment analysts have adopted RASM as their go-to unit of measurement. Critics point out that airlines, like many businesses, tend to favor metrics that present them positively. By including all revenue sources explicitly, RASM covers fees for baggage, seat selection, food, drink, and Wi-Fi—things airlines have been experimenting with. You'll find airlines reporting their RASM, sometimes called operating unit revenue, in quarterly and annual financial statements.
Calculating Revenue Per Available Seat Mile (RASM)
Here's how it works: RASM represents the total operating revenue per seat, empty or full, flown per mile. To calculate it for a period, divide total operating revenues by available seat miles—so the formula is RASM = Total Operating Revenues / Available Seat Miles. Total operating revenue is the income from primary business activities, including ticket sales, seat upgrades, baggage fees, food and beverages, and reservation changes. Available seat miles, or ASM, measure the airplane's carrying capacity available for revenue; you get it by multiplying available seats on a plane by the miles it flies per flight.
Important Note
Keep this in mind: Airlines include only income from normal everyday operations in RASM calculations and exclude one-time adjustments or events, like selling company assets.
Revenue Per Available Seat Mile (RASM) vs. Cost Per Available Seat Mile (CASM)
Now, compare RASM to cost per available seat mile, or CASM, which is also known as unit cost or operating expenses per ASM—it's another metric for efficiency and performance. CASM measures the average cost to fly an aircraft seat, empty or ticketed, one mile. The key difference is that RASM focuses on revenues earned, while CASM looks at expenses affecting the bottom line. Airlines factor in operating costs like maintenance, administration, and overhead in CASM. One issue is that some exclude fuel costs, which questions the metric's accuracy. To get CASM, divide operating costs by available seat miles; it's measured in cents and reported in financial statements. A low CASM shows efficient cost management, potentially leading to higher profits. In contrast, airlines target a high and growing RASM for financial strength.
Special Considerations
Pay attention here: RASM is especially critical for low-cost airlines. These carriers often discount basic fares heavily to attract customers, similar to loss leader strategies in retail. They know basic fares alone won't sustain profitability, so they must excel at upselling items like inflight entertainment, meals, and beverages. Since RASM includes these revenue forms, it's essential for tracking their financial performance.
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