What Is Revenue Per Available Seat Mile (RASM)?
Revenue per available seat mile (RASM) is a unit of measurement commonly used to compare the efficiency of various airlines. It is obtained by dividing operating income by available seat miles (ASM). Generally, the higher the RASM, the more profitable the airline under question. Revenue is represented in cents and is not solely limited to ticket sales, as other factors of efficiency and profitability are taken into account.
Key Takeaways
- Airlines use revenue per available seat mile (RASM) to measure the total operating revenue they generate per seat (empty or full) per mile flown.
- Airlines favor using RASM as a metric to show their financial performance because it includes additional sources of revenue, such as baggage fees, reservation change fees, and inflight meals.
- The calculation for revenue per available seat mile (RASM) is total operating revenues divided by the available seat miles.
Understanding Revenue Per Available Seat Mile (RASM)
Revenue per available seat mile (RASM) is a term airlines use to describe and evaluate their financial performance. Revenue per available seat mile (RASM) is more encompassing than total revenue because it factors in all operating revenue, in terms of capacity, rather than just passenger revenue.
Revenue per available seat mile (RASM) has been adopted as a favorite standard unit of measurement by most airlines and investment analysts that follow the airlines. Critics contend, however, that airlines, like most businesses, have traditionally favored the use of metrics that can cast them in the best possible light.
By explicitly including all sources of revenue, RASM includes the myriad of revenue sources air carriers have experimented with including fees or charges for baggage, seat selection, food and drink, and Wi-Fi. Airlines list their RASM—also referred to as "operating unit revenue"—in their quarterly and annual financial statements.
Calculating Revenue Per Available Seat Mile (RASM)
The RASM represents the total operating revenue per seat (empty or full) flown per mile. In order to calculate their RASM for a given period, an airline divides its total operating revenues by the available seat miles:
RASM = Total Operating Revenues/Available Seat Miles.
Total operating revenue is the income the airline generates from its primary business activities. This includes the money airlines make from selling tickets and money from seat upgrades, baggage fees, food and beverages, and reservation change fees.
Available seat miles (ASM) measures the carrying capacity of an airplane that's available to generate revenue. To calculate seat miles, the airline multiplies the available seats on a plane by the number of miles that plane will fly per flight.
Airlines include income derived from their normal everyday business operations in their RASM calculation and exclude one-time operating adjustments or events, such as the sale of company assets.
Revenue Per Available Seat Mile (RASM) vs. Cost Per Available Seat Mile (CASM)
Cost per available seat mile (CASM)—also known as "unit cost" or "operating expenses per ASM"—is another common metric airlines use to measure efficiency and performance. CASM is a measure of cost efficiency and represents the average cost to fly an aircraft seat (either empty or ticketed) one mile. CASM differs from RASM in a significant way. While RASM focuses on revenues earned, CASM focuses on expenses impacting an airline's bottom line.
Airlines include various operating costs in their CASM calculation, such as operating expenses, maintenance expenses, administration, and overhead. One criticism of CASM is that some airlines exclude fuel costs in their calculation, which then calls into question the accuracy of the metric.
To calculate CASM, the airlines divide their operating costs by the available seat miles. The CASM is measured in cents. Airlines generally report this metric on their quarterly and annual financial statements. A low CASM indicates the airline is efficient at managing its costs, which could lead to higher profit margins.
This contrasts with RASM, which measures the revenue or income the airline generates. Airlines aim for a high and growing RASM as a measurement of financial strength.
Special Considerations
Revenue per available seat mile (RASM) is an especially important metric for low-cost airlines. Many of these airlines discount the cost of their basic fares significantly in order to attract customers. Very similar to the loss leader strategy common in retail sales, the airlines know the revenue they generate from these basic fares will probably not be enough to maintain profitability.
Instead, the airline will need to become adept at upselling, or enticing the customer to purchase additional items, such as inflight entertainment, meals, and beverages. Because RASM includes these forms of revenue, it's an important metric in tracking an airline's financial performance.
