Capacity and yield increased Alaska Airlines’ 2Q14 passenger revenue

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The passenger segment

Alaska Airlines’ (ALK) growth in passenger segment revenue contributes to a maximum of the total revenue growth, as it accounts for more than 80% of the total revenue. In this article, we’ll see what led to the growth in this segment in the second quarter of 2014 (or 2Q14).

Passenger segment revenue growth

Alaska’s passenger revenue increased by 7.9% during the second quarter due to an increase in both traffic—or revenue passenger miles (or RPMs)—and yield—or price paid per passenger per mile. Alaska was able to serve more revenue passengers due to an increase in capacity.

The company expanded its service by adding new routes in a few of its markets, including Seattle, Salt Lake City, and Portland.

Part3 Passenger revenue drivers

Revenue reallocation between mainline and regional service

Unit passenger revenue—the measure of total passenger revenue generated per available seat mile—increased by 2.6%.

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Yield increased by 4.1% in Alaska’s mainline service but decreased by 5.9% in the regional service. This led to a 4% increase in mainline passenger revenue per available seat mile (or PRASM) and a 6.4% decrease in regional PRASM. Mainline passenger revenue comprises more than 80% of Alaska’s revenue, so there was an overall increase in Alaska’s unit revenue.

The company reported that the difference in yield between mainline and regional service was due to change in revenue allocation between mainline and regional service because of certain industry pricing changes. Yield also increased due to Alaska reallocating its capacity to markets with stronger demand.

Improvement in on-time performance

Alaska has won J. D. Power’s award for getting the highest score in customer satisfaction among traditional carriers for the seventh consecutive year. For more details on the survey, refer to Must know: Why JetBlue ranks first in customer satisfaction.

On-time performance is important for an airline, as it boosts customer satisfaction. According to the U.S. Department of Transportation (or DOT), Alaska ranked second in on-time performance with 88.5% of flights arriving on-time during the second quarter.

For the last few quarters, Hawaiian (HA) and Alaska maintained the top two positions. But in July, Alaska’s on-time rate slipped to 84.1% and was overtaken by Delta (DAL), with 86.3%, in the second position.

American Airlines (AAL) ranked seventh, United (UAL) ranked eighth, Southwest (LUV) ranked tenth, and JetBlue (JBLU) ranked sixth in 2Q14. For more details on other measures of operational performance in the second quarter refer to Must know: Major US airlines’ operational performance. 

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