FM Traffic Fare Proration Methodology

Our FM reports give both Segment and O&D fares. The Segment fare is "prorated" portion of revenue from a ticket to a particular segment. Prorating is the process of taking a ticket fare and attributing it to the trips (or segments) in the ticket, based on distance. A common way of doing proration is using the square root of miles to allocate the fare, which is what we do in this FM Traffic report.

   There are a few proration methodologies out there, straight rate, international prorate factors, mileage , square root of miles, and special prorate agreements (SPA) to name a few. All have their respective advantages and disadvantages but its our view that square root of miles method has a distinct advantage.

     In cases of multiple segments of a trip, and one stage length is significantly longer than the other, mileage allocates the short stage length a miniscule amount of the fare while square root of the miles allocates a bit more and tends to be more consistent with prorate agreements between airlines.

    For example, in a hypothetical 850-mile trip with two Flight-Stages that are 425 miles distant, both techniques will give each 425-mile stage one half of the fare amount. In another hypothetical 850-mile trip with one flight stage of 729 miles and one of 121 miles, the mileage prorate gives 85.8% of the fare amount to the longer leg and 14.2%to the shorter stage. The square root of the miles on that same itinerary gives the longer stage 71 %of the fare amount while the shorter stage gets 29%. The square root of the miles prorate calculation mimics typical Carrier revenue allocations more closely than does the mileage prorate.