Discussion about expanding too fast
Catita Bill:
Hi dudes..
I think it's a "philosophycal" question..
Why isn't good when you expand too fast?
I am talking about numbers... Because, in a straight logic, as more planes you buy, more money you get.
Of course your costs with maintenance, personnel and so, but those costs should increase in the same ratio as the number of aircrafts..
Of course it's not that simple, and this is what i am trying to understand here.. hehe
So, anyone can explain?
I think it will be useful for newbies users too.
takasito:
It is always important to take a notice how much leasing cost will be like after 5 months initial payment.
GoGreenCEO:
Quote from: Catita Bill on July 26, 2010, 10:06:12 PM
Hi dudes..
I think it's a "philosophycal" question..
Why isn't good when you expand too fast?
I am talking about numbers... Because, in a straight logic, as more planes you buy, more money you get.
Of course your costs with maintenance, personnel and so, but those costs should increase in the same ratio as the number of aircrafts..
Of course it's not that simple, and this is what i am trying to understand here.. hehe
So, anyone can explain?
I think it will be useful for newbies users too.
The key here is "too fast" ... as opposed to just "fast" ...
Expansion needs to be done in a stabile manner - picture construction of a building ... if expansion progresses at a rate the foundation can support than all is good. If expansion exceeds the stability of the foundation then all will come crumbling down.
I think the most common mistake in expanding too fast is not waiting for your foundation to "cure" (i.e., waiting for routes to mature and become profitable in order to support the expense of new growth). With leases requiring pre-payment of 4 or 5 months in advance, a lot of players see huge profits when these aircraft are first received and fail to realize that those profits are going to be hugely impacted by monthly leases once they kick in a few months down the road. Also, not taking into account the additional expenses associated with growth - such as advertising and (most importantly) fleet commonality when new aircraft models are needed for longer routes. Additionally, relying too heavily on borrowed money to support new growth instead of exercising the patience it takes to let that growth money accumulate from profits.
ekaneti:
Say you buy 10 used planes:
1. If you create schedules, youll have staff costs with no revenues for a couple of weeks
2. Start up load factors are low, so youd have 20+ routes with poor load factors that are probably losing money
Curse:
To be honest, I don't think such a problem exists.
At the start of all game worlds fuel is very cheap. Even if you ignore fleet commonality a bit (for example: Order 4x A, than 2x B and 4x C until you order A, B, C at the same time) you will have no problems.
Every large or very large aircraft pays for themselves, eben with low RI and CI. You might only have LF of 60% or 70%, but this is enough if the route is not over fullfilled.
There are many ways why airlines fail and I could name a lot of them, but nearly all of them make no difference between time - if you do it wrong at the start or after five years doesn't matter.
But to go for some points called here in this thread;
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It is always important to take a notice how much leasing cost will be like after 5 months initial payment.
No. Normally a route is profitable at the first moment you create it. So the profit after this pre paid month is only not this much, but you shoudln't lose money. If you lose money, your aircraft is bad (too thirsty), your route is bad (not enough demand, too far, too much competition) or your marketing expenses aren't enough (CI!, not RI).
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Additionally, relying too heavily on borrowed money to support new growth instead of exercising the patience it takes to let that growth money accumulate from profits.
That's a good point. For myself I don't borrow money and than look what to do with it. If a perfect aircraft appears on the used market, I will borrow the exact amount I need. Also you should never borrow more than 5x your starting money.
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1. If you create schedules, youll have staff costs with no revenues for a couple of weeks
Because of that you must schedule aircraft not if they appear in the list... you must wait until they arrive or only one or two days before. In most cases it is cheaper to let a leased aircraft unflown until you stand up/have time for AWS, instead of scheduling it and employee staff with nothing to do for two or three weeks.
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2. Start up load factors are low, so youd have 20+ routes with poor load factors that are probably losing money
At CI ~50 even with standard prices LF are good enough to make profit from the first day.
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