Posted in Operations and Supply Chain Terms, Total Reads: 411
Definition: Revenue Passenger Miles (RPM)
Revenue Passenger miles is a common but major metric in the airline transportation industry depicting number of miles travelled by paying passengers. Revenue passenger miles (RPMs) and revenue passenger kilometers (RPKs) are airline flight traffic measures which are equally applicable for bus, train journeys, etc. Airlines use RPMs to assess performance, because RPM is a measure of sales volume of passenger traffic. Revenue passenger miles also measures air transport demand. RPM is also known as ‘airline traffic’, i.e it is airline industry’s basic measure of “traffic”. Airline passenger traffic growth and Revenue Passenger Miles are closely tied, in fact RPM is the backbone of airline transportation metrics.
Here, RPM or Revenue Passenger Mile combines two data measures: miles flown by the airline and number of seats sold. RPMs are calculated by taking the product of the number of revenue passengers/filled seats aboard the plane (also known as paying passengers) and the total distance travelled. A revenue passenger-mile is flown when a revenue passenger is transported for one mile, i.e one RPM(Revenue Passenger Mile) is one paying/revenue passenger flying 1 mile. On long haul flights, passengers board and disembark at intermediate stops, therefore, RPM has to be calculated for each segment separately.
A related measure is Revenue seat miles (or available seat miles), measured by the number of miles flown multiplied by the number of passenger seats available per flight. RPMs when compared to revenue seat miles show total passenger miles possible to be generated so as to compare with the realized revenue. Through this we can determine the overall passenger load factor, which can further be used to measure unit revenues and costs.
A revenue passenger is a passenger for whose transportation an airline receives commercial remuneration. Following are considered revenue passengers
• Passengers travelling on published fares, or using publicly available promotional offers.
• Passengers with tickets from frequent flyer miles, or travelling on corporate discounts, etc.
Non revenue passengers are:
• Passengers travelling free, infants.
• Passengers using airline-employee exclusive fares or discounts.
Significance of RPMs
• An increase in RPM is a positive sign for an airline company, indicating more passengers are using their service. This increases the topline—assuming the yield also increases.
• After determining RPMs, airlines can calculate revenue per passenger mile, dividing the passenger revenue by the total RPMs. Low RPM for a route may indicate time to cut short the service in that route.
• Investors into the airline industry can use RPM to get a sense of the airline’s yearly business. If revenue is the same, but RPM has dropped, this indicates that business is declining and the airline is compensating through higher rates/fees. If a smaller airline posts increasing RPMs, it indicates a growing business.
• RPM also reflects an airline's consumer confidence index.
Steps to improve an Airline’s RPM
• Increase capacity or increase seats.
• An alternative to this is to improve efficiency by utilizing existing capacity.
Example: An airplane flies a distance of 2967 miles there are 129 passengers on the flight. What is the RPM? Revenue passenger miles is calculated by multiplying total revenue passengers by number of miles travelled. RPM = Revenue passengers flown*miles travelled or P*D
RPM = 129*2967 = 382743, i.e, the airline has 382743 revenue passenger miles.
In calculating cumulative RPM, the number of passengers and the distance flown are usually expressed in thousands (000).
Hence we see that rpm measures the number of revenue passengers flown for each mile, along with revenue this measurement is also used to calculate yield. Revenue can be generated by transporting either passengers or cargo or both FTM or freight tonne miles is the equivalent of rpm for freight. Along with rpm, is also used to calculate yield. Yield is another airline indicator. Yield is beneficial in assessing changes in fare rates in the long run.
Passenger yield = Total passenger revenue generated/RPM
Yield per revenue passenger mile represents the average amount that a passenger pays to fly one mile. The amount of revenue earned per RPM is known as the airline's yield.