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Author Topic: Why i am not profiting?  (Read 1674 times)

munipandita

  • Former member
Why i am not profiting?
« on: May 17, 2010, 03:43:28 AM »
hi sami

could you take a look at my company and tell my why i am not profiting?

i have an all EMB-120 fleet.. flying routes less than 500nm... and i tried to cut all my costs but still, i keep closing the week on the red!!

http://www.airwaysim.com/game/Info/Others/Airline1310

Offline Sigma

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Re: Why i am not profiting?
« Reply #1 on: May 17, 2010, 04:27:04 AM »
Because it's damned hard to make a profit with 30pax planes.  Doubly so when you're flying them such long ranges leading to so few turns.

Offline Maarten Otto

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Re: Why i am not profiting?
« Reply #2 on: May 17, 2010, 07:10:34 AM »
our EMB's need at least 8 take off's a day to be profitable.

Talentz

  • Former member
Re: Why i am not profiting?
« Reply #3 on: May 17, 2010, 08:07:48 AM »
our EMB's need at least 8 take off's a day to be profitable.

Mmm.. not necessarily. At some point, there is a diminishing returns line between frequencies and the amount of routes flown.

Let me explain:

The core problem with small capacity aircraft is the amount of revenue they bring in. Even though most regional aircraft offer higher operating profit margins, the volume of income is far less then larger aircraft.

So, to off set this fact, smaller aircraft must fly many more rotations then there larger cousins. However, there are two main problems you encounter by flying more rotations: marketing costs and route fee costs.

Too many single routes and you'll drown in higher marketing costs needed to operate those routes.
Too many frequencies and you'll drown in very high route fees per flight.

This is why many players fail at making a successful regional airline. They either fly too many routes, thus creating a huge overhead (marketing costs). Or they fly too many frequencies, thus causing unsustainable routing costs per flight (route fees).

Its a balancing act most are not aware of. You can't fly everywhere... you can't fly ATL-CLT 25x daily w/ EMB-120s... yet all of this must tie in with the fact we already established: Smaller aircraft must fly more rotates to bring in more volume. This makes regional airlines tough to operate.

"Damned if you do, damned if you don't. F****d if you do not."

 8)

Hopefully this gives you a bit of insight.


Talentz


Grimvisage

  • Former member
Re: Why i am not profiting?
« Reply #4 on: May 17, 2010, 01:07:35 PM »
Too many single routes and you'll drown in higher marketing costs needed to operate those routes.

Or, if you follow Sigma's philosophy, you ignore route marketing altogether. I think that makes sense after a point where your airline is so large that marketing expenses really begin to cut into the revenue of a route, but the point at which that happens is dictated by the size of your airline and the number of flights assigned to that route pair. That is to say, the more total revenue you're drawing from the route pair, the more value you derive from an ad campaign. For a regional airline, I'd guess that point is reached very quickly.

auerbacs

  • Former member
Re: Why i am not profiting?
« Reply #5 on: May 17, 2010, 01:43:59 PM »
You should always avoid route marketing no matter what airline. The difference in regional airlines is that you have to also avoid marketing altogether (perhaps one tiny campaign just to sustain positive CI).

Grimvisage

  • Former member
Re: Why i am not profiting?
« Reply #6 on: May 17, 2010, 02:17:59 PM »
You should always avoid route marketing no matter what airline. The difference in regional airlines is that you have to also avoid marketing altogether (perhaps one tiny campaign just to sustain positive CI).

An even more extreme philosophy than Sigma's. What's your reasoning on avoiding general marketing campaigns? Isn't higher CI good for LF% all around?

munipandita

  • Former member
Re: Why i am not profiting?
« Reply #7 on: May 17, 2010, 02:42:35 PM »
About route marketing.. If i am the only airline flying this route, so, do i really need the marketing?

auerbacs

  • Former member
Re: Why i am not profiting?
« Reply #8 on: May 17, 2010, 02:48:32 PM »
Again, route marketing only accelerates your RI's ascent to 100. It will get there anyway without the heavy expenditure of route marketing. Route marketing only makes sense at the beginning of a game and only then for airlines that are trying to stake their success on very few, even one, high density route. In other words, forget about RI entirely if you're a regional airline, and consider dropping general campaigns to a bare minimum also.

auerbacs

  • Former member
Re: Why i am not profiting?
« Reply #9 on: May 17, 2010, 02:51:27 PM »
An even more extreme philosophy than Sigma's. What's your reasoning on avoiding general marketing campaigns? Isn't higher CI good for LF% all around?

It is good for LF% all around. But the cost for general marketing campaigns is dependent on the number of routes one has. Because regional airlines have many low-density routes, marketing is proportionally much more expensive for them than it is for a larger airline that has several high-density routes. Higher CI is certainly good, but it costs too much to maintain for a regional airline, and it's not even that useful when you're flying routes that have little to no competition. I believe that Sigma would agree with me on this point, no?

pattN

  • Former member
Re: Why i am not profiting?
« Reply #10 on: May 17, 2010, 03:11:31 PM »
i encounter the same problem right now.....was pretty healthy with 737īs a320īs and few lh 747īs, started to build up an do328 fleet to serve the regional market and the bigger it grows the less i get income, pls sami you wrote sth to change for this small a/c fleets... donīt let it take to long......

auerbacs

  • Former member
Re: Why i am not profiting?
« Reply #11 on: May 17, 2010, 03:36:01 PM »
i encounter the same problem right now.....was pretty healthy with 737īs a320īs and few lh 747īs, started to build up an do328 fleet to serve the regional market and the bigger it grows the less i get income, pls sami you wrote sth to change for this small a/c fleets... donīt let it take to long......

Indeed, once you have a non-regional airline, adding smaller regional routes might make you a profit on those routes but produce a net-loss through the incremental increases in marketing costs for CI. And if you run a regional airline, it is very hard to transition to a non-regional one because marketing is so expensive that it's hard to bring your CI up to the necessary levels to compete on higher-density, more competitive route.

Offline Maarten Otto

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Re: Why i am not profiting?
« Reply #12 on: May 17, 2010, 03:50:57 PM »
I think the system has to be changed from number of routes to Number of seats available. By doing so a regional airliner might have a chance to get a fair profit. Same goes up for personnel.

Offline swiftus27

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Re: Why i am not profiting?
« Reply #13 on: May 17, 2010, 04:13:56 PM »
One of the most overlooked items in this game also comes from the accounting world.  Some people call it contribution amount.  That is the amount of money each plane will contribute to your fixed costs.   Those are the costs of ground staff and HQ staff, the HQ itself.  Basically everything not involved DIRECTLY with the operation of the A/C. 

Small A/C contribute very little to the bottom line and it takes many of them to cover a company's costs.  Most small airlines will fail before getting profitable.

Offline Sigma

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Re: Why i am not profiting?
« Reply #14 on: May 17, 2010, 04:48:02 PM »
An even more extreme philosophy than Sigma's. What's your reasoning on avoiding general marketing campaigns? Isn't higher CI good for LF% all around?

No, I would agree that a regional, particularly one focused on tiny 30pax planes, must avoid all Marketing contributions altogether except what is absolutely necessary to maintain a positive CI.  Marketing expenditures scale by the number of routes you have, and a regional is (almost by definition) going to have a LOT of routes.  Problem is the formula scales very quickly until, after a couple dozen routes, you're now spending more money on the CI spending increase for every route than you could ever even dream of making on it.  And from there on out, every route you open actually loses money.  LOADS of it.

CI doesn't affect LF (except the note below), RI does.  And RI will get to 100 regardless of route marketing expenditures.  CI affects LF only if there is competition on the route.  Chances are almost 100% that you won't be facing competition on the routes any 30pax plane is going to be flying on unless you're throwing a dozen flights a day onto something, in which case your frequency and the pax preference for smaller planes will counteract most of the LF hit you'd take from having a low CI if competition ever showed up.

Note: CI does affect initial LF when setting up a route.  People will flock to your routes quicker with a higher LF; i.e. you lose that 60% LF figure you often get with larger aircraft for several weeks in the beginning of the game.  But this is a moot point to regionals because small planes fill up on Day One in AWS anyway since pax love 'em, and also because the Marketing expenditures required would be absurd simply to speed up the pace at which you get higher LF (similar to why Route Marketing is a waste).
« Last Edit: May 17, 2010, 04:52:44 PM by Sigma »

L1011fan

  • Former member
Re: Why i am not profiting?
« Reply #15 on: May 17, 2010, 05:03:46 PM »
You should always avoid route marketing no matter what airline. The difference in regional airlines is that you have to also avoid marketing altogether (perhaps one tiny campaign just to sustain positive CI).
I am of the belief you have to have at least a general campaign. If its in the really modern times, leave out the radio. I honestly wonder if anyone actually listens to it anymore. Come to think of it, I don't even notice billboards any more. So, maybe just a general campaign with newpapers (cheap and I ,for one, still read newpaparers), TV, and internet, depending on the games time frame. Just my view, but I don't know if you can really make without any campaign at all. If its that small of an airline, how about ONLY newspapers and billboards in a general campaign?

Offline [ATA] Sunbao

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Re: Why i am not profiting?
« Reply #16 on: May 17, 2010, 05:31:34 PM »
Well i am in the same situtation atm, and is only running internet ads, because i can afford newspapers etc. if i want to just nearly running the company around.

But well i'am a newbie so only one way to learn it trying alot of stuff and learn from that.
I agree that there is a lot of expenses there is not fair and realistic for at little company.
« Last Edit: May 17, 2010, 05:36:16 PM by Sunbao »

L1011fan

  • Former member
Re: Why i am not profiting?
« Reply #17 on: May 17, 2010, 06:56:02 PM »
Well i am in the same situtation atm, and is only running internet ads, because i can afford newspapers etc. if i want to just nearly running the company around.

But well i'am a newbie so only one way to learn it trying alot of stuff and learn from that.
I agree that there is a lot of expenses there is not fair and realistic for at little company.
I'm kind of middle aged at this and learning new things all the time! Experiment!!! :)

Offline [ATA] Sunbao

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Re: Why i am not profiting?
« Reply #18 on: May 17, 2010, 11:39:33 PM »
Are there anyone there have a link to a post or something there can tell my how much i have to earn  on each type of plane, if it shall could make money overall.

Offline Sigma

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Re: Why i am not profiting?
« Reply #19 on: May 18, 2010, 12:10:56 AM »
Are there anyone there have a link to a post or something there can tell my how much i have to earn  on each type of plane, if it shall could make money overall.

That's just WAY too dependent on how many routes you're flying with that plane (more routes mean more indirect costs means more gross profit needed to cover) or what sort of CI you're attempting to achieve (i.e. acheiving a CI of 90 could cost you several times your net profit, so it makes a HUGE difference to your margin, and therefore how much each plane needs to make to break evem).

It also depends on whether you're talking about your 2nd plane or your 20th plane.  There's a lot of overhead costs you've got to cover early on, whereas by the 20th plane that overhead has been covered and the maintenance costs have been reduced, allowing a higher margin with the same revenues.
« Last Edit: May 18, 2010, 12:17:08 AM by Sigma »

 

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