do price wars have a real world effect, i.e. do the game customers notice?
Absolutely. But it's not quite as elastic as the lowest price automatically wins. Ignoring CI and RI, Equipment plays the largest role in my experience -- passengers prefer smaller (but not too small) planes over larger ones in a very considerable way. Larger planes are great for density and therefore profit, but leave you open to what I call "sniping" by carriers using lots of small aircraft on a route as the pax will flock over there. Frequency of flights would be a close 2nd -- the more flights per week, the more pax will prefer you. Time of day is also big -- pax will choose a superior flight time over a better price most of the time. Personally I use price competition as an absolute last resort and/or only as an introductory move to a new route because low pricing raises RI quickly.
And if prices on a route are low enough you can actually create a far amount of new demand as well. Your analysts only give you estimated demand at the standard price
. But if you lower the price you can draw a lot more people to the route than your demand charts indicate because suddenly you've increased the market of people wanting to go on that route if the price is low enough. With a perfect RI/CI and low enough pricing, you can actually push demand to as much as 150% of what the charts indicate. Also, low pricing increases the rate at which pax growth occurs from year to year; so if you consistently offer lower pricing you will get faster growth than routes where pricing is consistently high.
This, just like in real-life, can actually be somewhat counter-productive if your goal is to take away pax from your competition. Take prices too low, and your planes fill up with new
customers, meanwhile your competitor's planes are still flying pretty full as well. So all you managed to do is incur more costs with less revenue, which can actually impact you
more than your competition.