Must-know: Comparison of Southwest’s load factor with its peers

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Sep. 2 2014, Updated 9:15 a.m. ET

Load factor Vs. Break-even load factor

Load factor is capacity utilization or the percentage of the total number of available seat miles (or ASM) occupied. Break-even load factor is the percentage of seats that have to be filled for the airline to recover the cost of operation. Break-even load factor is calculated as Cost per available seat mile (or CASM) divided by the Yield (average fare per passenger per mile). The graph below shows the current load factor vs. breakeven load factor which differ for different airlines based on their individual cost structures.

 

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Southwest (LUV) has the lowest break-even load factor indicating that its cost structure is very efficient. For more details on the why load factor is low refer the next article. Hence in order to cover its cost it has to sell only 74.7% of the total available seat miles compared to its competitors , Delta (DAL) , United (UAL), American Airlines (AAL), and JetBlue (JBLU) who have to sell more number of seats (between 83.4% to 89.5% of their total seat capacity).

Capacity utilization over and above the breaking even load factor contributes towards the airline’s profitability. Southwest’s load factor is way beyond its break-even point with a highest spread (load factor minus break-even load factor) of 9.2%. Delta’s and JetBlue’s load factors are higher but with a relatively smaller spread. A negative spread implies that the airline is not able to cover its costs and hence is impacting its profitability. United (negative spread of 4.2%) and American (negative spread of 0.3%) however have lower load factors compared to their break-even load factors.

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