Must-know: Why available seat miles affect airlines’ revenue

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What does available seat miles measure?

Available seat miles (or ASM) is the measure of airline capacity. It’s calculated as the total number of seats multiplied by the total distance travelled. While RPM (or revenue passenger miles) is a measure of demand, ASM is the measure of supply.

Airlines have to try to match supply with demand for passengers’ benefit. While shortage of seats will often result in higher airfare, excess capacity can lead to reduced margins due to higher fixed costs. So increase in capacity is positive only if it’s supported by adequate rise in demand for air travel.

Trend in ASM growth

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ASM in July increased 6% year-over-year, driven by a 3.9% increase in domestic capacity. International capacity also increased by 2.9%. ASM grew at a faster rate from March until July when the monthly year-over-year growth rate was 5.4%, compared to the monthly growth rate of 2.9% in the first two months of the year. This could have been due to adverse weather conditions in the first quarter.

ASM is one of the main drivers of RPM. During 2014, rate of growth in capacity (or supply) has been higher than that of RPM (or demand). During the first seven months of 2014, ASM’s monthly average growth rate was 4.7% compared to RPM’s growth of 3.5%.

In July 2014, JetBlue (JBLU) had the highest mainline domestic ASM year-over-year growth of 3.5%. It was followed by Delta’s (DAL) 3.4%, Southwest’s (LUV) 2.6%, American Airlines’ (AAL) 1.8%, and United Continental’s (UAL) -0.2%.

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