What Is Cost Per Available Seat Mile?
Cost per available seat mile (CASM) is a common unit of measurement used to compare the efficiency of various airlines. It is obtained by dividing the operating costs of an airline by available seat miles (ASM). Generally, the lower the CASM, the more profitable and efficient the airline.
- Cost per available seat mile (CASM) is a widely used unit of measurement to compare the efficiency of various airlines.
- Available seat miles (ASM) refers to how many seats on a plane on a given route are actually available for purchase on an airline.
- CASM divides an airline's operating costs by ASM to get the cost to fly a single seat by one mile.
- Since CASM excludes several important non-operating expenses, it is not as reliable a figure as one might desire.
Understanding Cost Per Available Seat Mile (CASM)
Cost per available seat mile (CASM) is usually a more comprehensive measurement of airline costs, but it's still important that investors are aware of what items comprise this measurement. Many carriers exclude fuel costs from operating expenses, making the CASM an unreliable metric. Cost per available seat mile, as the name suggests, reflects the costs incurred by an airline to fly a single-seat one mile.
A natural extension of CASM is RASM, or revenue per available seat mile, which helps facilitate a revenue to expense comparison, particularly helpful when comparing rival airlines or results to a benchmark. Other methods of calculating an airlines cost to fly includes looking at cost or revenue miles per passenger or per ton of fuel.
More general, the available seat mile, or ASM, tends to be the preferred measure of capacity within the airline industry. This metric is found by multiplying the number of seats on each plane by the number of miles that plane flies during a particular period of time (such as a month, quarter, or year) and summing up the results. Hence, an airline with a single plane of 170 seats that travels 4,500 miles per day is generating 765,000 ASMs each day.
There are numerous capacity measures available, such as the number of flights or the total number of seats on each flight, but neither is as effective for comparative purposes as ASMs. For example, tallying the total number of flights does not differentiate between a 50-seat plane and a 500-seat plane, and counting the number of seats on each flight treats a 700-mile flight the same as a 5,000-mile flight.
Example: Southwest Airlines
Southwest Airlines (NYSE: LUV) is a regional airline in the U.S. known for its no-frills but low-cost flights. It's ticket prices are low because Southwest has a low operating cost structure. In fact, its management states that unit costs are among the lowest in the industry. based on CASM.
Let's take a historical example: After posting a CASM of 12.5 cents in 2014, the airline managed to shrink that to 11.48 cents last year. This allows the company to profit even as it offers low fares to its customers. The figure is also lower than its major competitors. For instance, operating expense per ASM was 15.15 cents for the first quarter of 2018 for American Airlines. At Delta Airlines, the figure was 15.07 cents for the fourth quarter of 2017. With United, its CASM for 2Q 2018 was 13.08 cents.