Embracing Flight Profitability

I started my aviation career as a Financial Planning analyst at US Airways, shortly after graduating from business school. It didn’t take me very long to realize that there were two P&Ls in an airline: the traditional GAAP P&L created by FP&A and the Flight Profitability (Flight Prof) one. The Flight Prof P&L came with its own esoteric metrics and language, which few of my peers seemed to really understand. It was also a very manual intensive process that created a large, unwieldy result set … think millions of pieces of data.

I was used to dealing with complexity and data but Flight Prof seemed like a different challenge entirely, and I quickly resolved to never be involved in the Flight Prof group. As is often the case, the universe disregarded my well-laid plans and I ended up managing the Flight Prof group at American for five years, a third of my career at the airline.

Luckily this is the Corporate Finance equivalent of a 90’s high school movie where the protagonist misunderstands the school outcast but befriends them once they see their true essence :). I am now one of the most ardent fans of Flight Prof … maybe second only to Riley Cooney (my fellow MAS team member).  

 Flight Prof Quick Hits

I wish I had gotten involved with Flight Profitability early on in my career and I hope anyone starting his/her career in aviation really considers it. It is a great place to learn about airline economics and, more importantly, about the heart of the airline, the network.

What is Flight Profitability?

The official take probably sounds something like, “an activity-based costing tool that allocates traditional GAAP financial statements into a network centric view of profitability.”

What does that actually mean?

Aircraft are factories producing seats that move between two points (aka Available Seat Miles or an ASM). Unlike actual factories, aircraft can be easily moved to different markets, thereby creating new products. Optimizing this product portfolio (aka network) generates higher profits. Flight Prof provides profitability views of each individual component of an airline’s network, flight, market, entity, hub, etc., which leads to better overall decision-making.

Yes, that’s a lot to unpack and we’ll work through it over a few more blog posts!  

Why is it important?

A number of capital and operating decisions are made based on Flight Prof data like what aircraft to buy, when/where to start flying, etc.

But the real value comes from having a deep understanding of an airline’s cost structure - knowing what costs are fixed and variable and over what time periods. The timing piece being the most critical.

Most base airline networks don’t change significantly (except in the case of a hub closure). Consequently, a well thought out Flight Prof methodology ensures that airline planning groups allocate marginal capacity efficiently.

What is challenging about it?

For starters, there is the fundamental question of deciding where Flight Prof lives in the airline. Every group has its own views when it comes to their portion of the business and most often, the group that owns the model owns the methodology. Which leads into the next challenge – there is no industry standard for Flight Prof, meaning that each airline is left to create its own methodology to allocate expense and revenue.

Flight Prof also requires a complicated skillset – you need people who understand accounting, airline P&Ls, network planning and ultimately economics. It’s a skillset that’s not easy to find and I would know! The Flight Prof team must also be adept at managing the millions of pieces of data that are being created which is challenging to say the least.

Those are just the baseline challenges. There are more complex ones that come with deciding how to allocate peak costs and what it means to make decisions based on one view of profitability (Flight Prof) but report using another (GAAP).

Clearly, I have a lot to talk about when it comes to Flight Prof, and we’ll be posting a new article every month or so on the topic. But in the meantime, I’m more than happy to connect with anyone who is interested in learning more.