Must-know: Why revenue passenger miles are an important measure

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Sep. 16 2014, Updated 8:00 a.m. ET

Revenue passenger miles

Revenue passenger miles (or RPM) is a measure of demand for air transport. It’s calculated as the number of revenue passengers multiplied by the total distance travelled. It’s also called airline “traffic.”

An increase in RPM is positive for an airline company, as it means more passengers are using its services, resulting in top line growth, provided that yield also increases. Yield is another airline indicator, which will be discussed in Part 7.

How can companies improve their RPM?

To support RPM improvement, companies should add more number of seats or increase capacity. Another way to do this without adding capacity is to improve utilization efficiency for existing capacity.

An available seat mile (or ASM) is the measure of airline capacity. Load factor is the measure of capacity utilization. Both indicators will be discussed in detail in Part 5 and 6.

Trend in air passenger traffic growth and RPM

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According to the IATA (or the International Air Transport Association), growth in worldwide air transport during the first half of 2014 was 5.9% compared to an overall growth of 5.2% for the full year of 2013.  Although air traffic volumes slowed down in the first quarter, it picked up again in the second quarter of the year. Improvements in trade and business activity supported this pickup.

In July, air volumes rose 5.3% year-over-year, international RPMs increased by 5.5%, and domestic RPM increased by 4.9%. The IATA also confirmed that the outlook for air travel remains positive, as business activity in the beginning of 3Q14 is in line with the four-month high reached in June.

In the U.S. mainline, revenue passenger miles in July increased 3.9% year-over-year, supported by a 4.3% increase in domestic capacity. International capacity increased by 3.1%. Monthly RPMs grew at an average rate of 3.5% year-over-year in 2014, the highest growth being in April (5.1%) and May (4.0%).

In July 2014, Southwest Airlines (LUV) had the highest mainline domestic RPM year-over-year growth—6.6%. It was followed by Delta Air Lines’ (DAL) 6.4%, JetBlue Airways’ (JBLU) 4.3%, American Airlines’ (AAL) 1.7%, and United Continental Holdings’ (UAL) -0.4%.

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