Just like aeroplanes have different indicators that help the pilots determine the performance of the flight, such as an airspeed indicator, attitude indicator, altimeter, turn coordinator, heading indicator, and vertical speed indicator, businesses also need indicators that help the FP&A determine the business's performance.

These indicators are known as Key Performance Indicators (KPIs). While we already know what KPIs are, let us refresh our memory.

KPIs provide a clear and measurable way to assess progress towards organisational goals. By tracking KPIs, businesses can identify trends, measure performance against benchmarks, and make informed decisions to optimise operations.

FP&A teams play a central role in monitoring KPIs within organisations. By focusing on relevant KPIs, FP&A teams can provide senior management and stakeholders with actionable insights.

They track performance over time, identify deviations from expected outcomes, and recommend corrective actions when necessary.

This proactive approach helps manage risks and enhances the organisation's financial health and stability.

While many KPIs are common across industries, such as debt-equity ratio and PE ratio, there are also many industry-specific KPIs. This blog will examine the important KPIs for the airline industry.
 

Important KPIs for the airline industry

Revenue KPIs

Revenue KPIs are crucial for measuring an airline's revenue-generating performance. These indicators help assess how effectively the airline sells its services and maximises passenger income. Some of these KPIs are:
 

Revenue passenger kilometres (RPK)

RPK measures the total distance travelled by paying passengers. It is calculated by multiplying the number of revenue passengers by the distance travelled.

RPK is vital for FP&A teams, reflecting passenger demand and revenue potential. By analysing RPK trends, FP&A teams can forecast future revenues, assess market performance, and make informed route planning and capacity management decisions.

RPK data also helps evaluate the effectiveness of marketing strategies and optimise resource allocation to enhance profitability.
 

Passenger yield

Passenger yield measures the average revenue received per passenger kilometre flown, calculated by dividing total passenger revenue by the total number of revenue passenger kilometres (RPK).

It reflects the airline’s ability to generate revenue from its passenger traffic and is a key indicator of pricing strategy effectiveness and market competitiveness.

Passenger yield is crucial for FP&A teams as it helps evaluate routes' financial performance and profitability.

By monitoring yield trends, FP&A teams can optimise fare pricing, assess revenue management strategies, and identify opportunities to maximise revenue from existing capacity, ensuring the airline’s financial health and strategic growth.

Example: If an airline's passenger revenue is $500,000 and it flies 1,000,000 passenger kilometres, the yield is $0.50.
 

Revenue per Available Seat Kilometer (RASK)

Revenue per Available Seat Kilometer (RASK) measures the airline's revenue generated per kilometre for each seat available for sale. It's calculated by dividing total passenger revenue by available seat kilometres (ASK).

RASK provides insights into how efficiently an airline monetises its capacity and helps evaluate route profitability, pricing strategies, and overall revenue management effectiveness.

For FP&A teams, RASK is crucial for forecasting revenue, optimising flight schedules, and making strategic decisions to enhance financial performance and competitiveness in the market. It aids in aligning operational decisions with financial goals and improving overall revenue generation per capacity unit.

Example: If an airline generates $150,000 in revenue and its ASK is 300,000, the RASK is $0.50.
 

Finance KPIs

Finance KPIs provide insights into an airline's financial health and efficiency. These indicators help understand cost management, profitability, and overall financial performance. Some of these indicators include:
 

Yield or Revenue per Kilometer (RPK)

As explained in the previous category, RPK is both a sales and finance indicator. It indicates how effectively an airline monetises the distance passengers travel, reflecting pricing strategies and revenue generation efficiency.

For FP&A teams, yield is pivotal as it helps assess the financial impact of pricing decisions, evaluate route profitability, and optimise revenue management strategies.

Monitoring yield trends enables FP&A teams to forecast revenues accurately, make informed decisions on capacity utilisation, and enhance overall financial performance and profitability.
 

Cost per Available Seat Kilometer (CASK) 

Cost per Available Seat Kilometer (CASK) measures the operating expenses incurred by an airline for each available seat kilometer (ASK), calculated by dividing total operating expenses by ASK.

It provides a critical insight into the cost efficiency of airline operations, helping to assess and compare expenses across different routes and operational aspects.

For FP&A teams, CASK is essential as it guides cost control efforts, supports budgeting and forecasting activities, and enables strategic decision-making to optimise operational efficiency and profitability.

Monitoring CASK trends allows FP&A teams to identify cost-saving opportunities, manage financial resources effectively, and maintain competitive pricing in the market.

Example: If an airline's operating expenses are $100,000 and its ASK is 200,000, the CASK is $0.50 per ASK.
 

Break-even load factor (BLF)

Break-even Load Factor (BLF) is the passenger load factor at which an airline covers all its costs with revenue, resulting in neither profit nor loss. It helps determine the minimum occupancy level required for flights to break even financially.

For FP&A teams, BLF is crucial as it guides pricing strategies, capacity planning, and route profitability analysis. By calculating and monitoring BLF, FP&A teams can optimise revenue management, adjust pricing to achieve profitability, and make informed decisions on resource allocation and cost management to ensure financial sustainability and competitiveness in the airline industry.

Example: If an airline's total costs are $100,000 and total revenues at a 70% load factor are $100,000, the BLF is 70%.
 

Operational KPIs

Operational KPIs focus on the efficiency and effectiveness of airline operations. These indicators measure capacity, utilisation, and operational performance, helping to optimise service delivery.
 

Available seat kilometers (ASK)

Available Seat Kilometers (ASK) quantifies the total passenger-carrying capacity offered by an airline over a specified period, calculated by multiplying the number of seats available on each flight by the distance flown.

It is a critical metric for assessing the airline's capacity utilisation and planning. For FP&A teams, ASK is pivotal as it forms the basis for route profitability analysis and resource allocation decisions.

By monitoring ASK trends, FP&A teams can optimise fleet deployment, adjust pricing strategies, and maximise revenue potential and operational efficiency in the competitive airline industry.

Example: If an airline has 200 seats available on a flight that travels 1,000 kilometers, the ASK is 200,000.
 

On-time performance (OTP)

On-Time Performance (OTP) measures the percentage of flights that depart and arrive within a specified timeframe of their scheduled times, typically within 15 minutes.

For airlines, OTP is a crucial indicator of operational efficiency and service reliability. For FP&A teams, OTP is important as it directly impacts customer satisfaction, operational costs, and revenue. Airlines with high OTP attract more passengers and enhance brand reputation, increasing revenue.

Monitoring OTP helps FP&A teams optimise scheduling, minimise disruptions, and allocate resources effectively to maintain high service standards and profitability in the competitive airline industry.

Example: If an airline operates 1,000 flights in a month and 850 are on time, the OTP is 85%.
 

Baggage handling performance

Baggage Handling Performance measures the rate at which baggage is mishandled, encompassing lost, delayed, or damaged luggage incidents. It directly reflects the effectiveness of an airline's baggage handling processes and operational efficiency.

This KPI is crucial for FP&A teams, as mishandled baggage incidents can lead to increased operational costs, compensation claims, and customer dissatisfaction.

Monitoring and improving baggage handling performance not only enhances operational efficiency but also contributes to improved customer experience, loyalty, and, ultimately, financial performance by reducing costs associated with mishandled baggage and enhancing overall service quality.

Example: If an airline handles 50,000 bags and 50 are mishandled, the mishandled baggage rate is 0.1%.
 

After-sales KPIs

Customer satisfaction KPIs assess the quality of service provided by the airline from the passenger's perspective. These indicators are critical for understanding and improving passenger experience and loyalty.
 

Customer satisfaction index (CSI)

Customer Satisfaction Index (CSI) is a metric that quantifies passengers' satisfaction levels with various aspects of airline services, including check-in, onboard experience, and customer service interactions.

It provides a comprehensive assessment of service quality and customer experience, crucial for maintaining loyalty and competitive advantage in the airline industry.

For FP&A teams, CSI is vital as it directly correlates with revenue through repeat business, positive word-of-mouth, and brand reputation. Monitoring CSI allows FP&A teams to identify service areas needing improvement, allocate resources effectively to enhance customer satisfaction, and ultimately drive profitability by fostering customer loyalty and retention.

Example: If an airline surveys 1,000 passengers and 850 report high satisfaction, the CSI is 85%
 

Net promoter score (NPS)

Net Promoter Score (NPS) assesses customer loyalty and satisfaction based on the likelihood of passengers recommending the airline to others. It categorises customers as promoters (loyal enthusiasts), detractors (unhappy customers), or passives (neutral customers).

NPS provides actionable insights into customer sentiments and loyalty, guiding strategic decisions to improve service quality, enhance customer retention, and drive revenue growth.

For FP&A teams, NPS is crucial as it correlates with business growth and profitability. It influences resource allocation, marketing strategies, and operational decisions aimed at maximising customer satisfaction and long-term financial success in the competitive airline industry.

Example: If 60% of respondents are promoters, 20% are detractors, and 20% are passive, the NPS is 40 (60% - 20%).
 

Conclusion

In conclusion, Key Performance Indicators (KPIs) are essential tools for airline FP&A teams to gauge and improve operational efficiency, financial health, and customer satisfaction.

Each KPI plays a pivotal role, from sales metrics like RPK, yield, and RASK that drive revenue strategies to financial indicators such as CASK and BLF crucial for cost management and profitability analysis.

Operational metrics like ASK, OTP, and baggage handling performance ensure smooth service delivery and customer satisfaction. Meanwhile, customer-centric KPIs such as CSI and NPS help maintain loyalty and brand reputation.

By leveraging these KPIs, airlines can navigate challenges, optimise performance, and foster sustainable growth in a competitive industry landscape.