A good example of the capacity utilisation calculation

Here’s a topical example of capacity utilisation in action…

Easyjet increased the capacity of its low-cost airline by 6.7% during the last three months of 2008. It did this by adding new aircraft to the fleet and by increasing the number of flights and destinations. That means an increase in operating costs.

The good news for Easyjet - it increased passenger volumes by 10% - i.e. more than the increase in capacity. That means that Easyjet increased its capacity utilisation - the proportion of total potential output that was actually achieved.

In the airline industry, capacity utilisation is commonly measured by a term known as “load factor”.

EasyJet’s load factor, or the amount of seats sold per flight, rose from 80.8% in the same period in 2007 to 83.4%.

Total revenue grew by 32% to £550m while the average revenue per passenger, a key indicator of whether easyJet is slashing prices and profits just to fill its expanding fleet, rose by 23% to £45.57.

A great example of capacity utilisation in action!