Why Delta Air Lines beats competitors in operational efficiency
Passenger revenue per ASM above industry average—a measure of efficiency
Although Delta’s revenue passenger miles, or RPM, and available seat miles, or ASM, are lower than its peers’, Delta’s PRASM is high, reflecting its operational efficiency. From the below formula, we can conclude that two factors contribute to Delta’s above-average PRASM.
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- Load factor: Load factor is a measure of capacity utilization, so a high load factor is more important than higher capacity (or ASM) in terms of number of seats. Although Delta’s ASM is lower than its peers’, its high load factor (DAL – 83.8%) contributes to increasing the company’s revenue per ASM. This essentially means that in an aircraft with 100 seats, Delta carries 83 passengers, compared to United Continental, which carries only 82 passengers, leaving Delta with higher revenue to the extent of one extra passenger.
- Yield: Yield is the average price per unit. Delta’s yield ($16.9) is higher, as it attracts more corporate travelers owing to its number-one rating for the third consecutive year in the BTN Annual Airline survey. Frequent corporate travelers prefer Delta, as it scored highly on reliability and customer service, although its price is high compared to its peers’.
Delta’s competitors have higher RPM (AAL with 205.2 billion and UAL with 215.5 billion) and ASM (AAL with 245.4 billion and UAL with 259.9 billion). But these competitors have lower yields (AAL with $16.1 billion and UAL with $16.5 billion) and lower load factors (AAL with 83.6% and UAL with 82.9%).
Southwest (LUV) and Jet Blue (JBLU) have lower capacity, with ASM of 130 billion and 43 billion, respectively. But their yields and load factors differ. Southwest (LUV) has a higher yield of $16.02 but a lower load factor of 80.1%, resulting in a PRASM of $12.8. Jet Blue’s (JBLU) yield is low, at $13.87, but it has a high load factor of 83.7%, resulting in a PRASM of $11.6.