Must-know: Why yield is another key driver for airline revenue
Yield is the average fare per passenger per mile. Passenger revenue is calculated by multiplying RPM (or revenue passenger miles) with yield. Yield varies based on demand and supply factors. Since demand for air travel is seasonal, yield is higher during peak seasons.
Yield also varies for different market segments and different seat classes—first class, business class, or economy class. Airlines adopt price discrimination and product differentiation strategies to charge different fares based on passengers’ requirements and willingness to pay. Business travelers, for example, are willing to pay higher fares in return for better service and convenience compared to the price-conscious leisure traveler.
Yield management involves determining the number of seats to be made available to each fare class. This is done by setting up booking limits on advanced booking when fares are low and saving seats for last-minute booking when higher fares can be charged.
The U.S. passenger yield has improved in the second quarter of the year compared to lower yield during the first quarter due to weather-related challenges. But global yield continues to remain weak due to weakness in Asia.
In 2Q14 (or the second quarter of 2014), among the top U.S. airlines, Delta (DAL) had the highest yield of 17.37 cents. This was followed by American’s (AAL) 17.34 cents, United’s (UAL) 16.66 cents, Southwest’s (LUV) 16.62 cents, and JetBlue’s (JBLU) 14.25 cents.
Higher yields translate into higher revenue and improvements in margins.