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Author Topic: Fleet Commonality Discount - Simplified Approach  (Read 2406 times)

Offline JumboShrimp

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Fleet Commonality Discount - Simplified Approach
« on: May 04, 2011, 07:04:32 AM »
Very simple:

The cost of every aircraft will be 99% of the cost of previous aircraft.
The cost of every engine will be 99% of the cost of previous engine.

(By cost I mean Maintenance, Administration, Training cost).

Picture (even better, Excel Spreadsheet) is worth 1,000 words:

Offline powi

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #1 on: May 04, 2011, 08:15:02 AM »
That would make fleet commonality totally irrelevant for that size airlines that I like to run. That is where a 10 aircraft fleet is considered as a large fleet.

Offline BobTheCactus

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #2 on: May 04, 2011, 12:07:47 PM »
no
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Offline JumboShrimp

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #3 on: May 04, 2011, 05:33:52 PM »
That would make fleet commonality totally irrelevant for that size airlines that I like to run. That is where a 10 aircraft fleet is considered as a large fleet.

The fleet commonality is irrelevant, if you have 500 aircraft in 5 fleets, 100 aircraft in each.  But it is an issue if you have 5 aircraft in 5 fleet types.  You would spend full amount of money on maintenance (the starting amount should be above what it is now).

All decisions in economics are made at the margin.  Meaning, "what is the cost of adding a new aircraft?"  Adding one more to existing fleet should always be ever cheaper compared to starting a new fleet type.  The above approach models exactly that.

Offline powi

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #4 on: May 05, 2011, 06:32:40 AM »
In the Early Days I operate an Airline with 12 aircraft in three fleet and engine groups. In the model presented in this thread I could get some 5% discount from my fleet commonality costs, if I operated a fully homogeneous fleet. My fleet commonality costs accumulate to around 20% of my total expenses. That would lead to 1% decrease in my total expenses -> Fleet commonality would be totally irrelevant. Doubling fleet commonality costs globally would rise this to 2%... Still nothing to plan for.

Offline Sigma

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #5 on: May 05, 2011, 06:57:15 AM »
The fleet commonality is irrelevant, if you have 500 aircraft in 5 fleets, 100 aircraft in each.  But it is an issue if you have 5 aircraft in 5 fleet types.  You would spend full amount of money on maintenance (the starting amount should be above what it is now).

All decisions in economics are made at the margin.  Meaning, "what is the cost of adding a new aircraft?"  Adding one more to existing fleet should always be ever cheaper compared to starting a new fleet type.  The above approach models exactly that.


Yes, but Powi's point is that, with the numbers you have, whetheryou have "5 aircraft in 5 fleets" or 50 aircraft in 5 fleets (10 of each) is almost immaterial.  You're giving an incredibly small decrease in costs per aircraft added.  You don't start acheiving any appreciable discount that's worthy of changing one's plans until one has at least 30+ of a particular plane.  Particularly considering that the margins are so large in AWS.  Only very large impacts to margin will change behavior.  I don't even get a 10% commonality discount on your chart until the 10th plane.  It seems to be rather blatant in supporting only the largest of airlines and overly harsh towards those that are smaller.

I may even go so far as to say that you actually are doing the opposite of what you really intend to achieve.

Since the discount is so small per plane, it doesn't really matter whether I purchase a 2nd one of the same fleet or go and purchase an all new type.  Particularly in the early-game, where this factor particular rears its ugly head, airlines are fairly small and, under your numbers, would have virtually zero opportunity to exercise any economies of scale whatsoever.  And if I have to choose between starting out between 10 all-different planes, or 10 planes of 10 different types under your figures, I would be much better off purchasing the 10 different types, simply because the commonality discount you have is so small.  The benefit of being able to operate whatever 10 planes I can grab in 2 game-weeks is infinitely superior to waiting for 10 planes of the same type and the small 1-10% commonality penalty I pay on each successive plane would be infinitesimally meager compared to the revenue it would generate.

The curve needs to be more logarithmic not linear.   There needs to be an extremely significant benefit to purchasing the 2nd aircraft of the same type (which there is today).  And a still significant benefit for the 3rd, 4th... And by the time you get to the 20th and 30th, the benefit itself is still fairly significant but it's not improving as you reach a point of diminishing returns.  So you get a curve that's more like this:

« Last Edit: May 05, 2011, 07:04:14 AM by Sigma »

Jps

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #6 on: May 05, 2011, 10:52:33 AM »
I'm starting to think that we will need both the carrot and the stick for this issue. And by this I mean, that players should get rewarded for adding more aircraft of the same fleet, whereas adding another fleet would raise their costs significantly. However, these costs could come down (fast) with new aircraft added to this group.

So  for example:
Each aircraft provides a logarithmic discount in fleet costs, eg
2     aicraft: -10%,
3     aicraft: - 8%,
4     aicraft: - 6%,
5+   aicraft: - 3%.

In addition, each fleet type would increase the fleet costs by, eg
2nd fleet:  +50%,
3rd  fleet:  +80%,
4th  fleet: +120%, and so on.

Then, by adding more aircraft to the fleet, the costs would quickly come down again.

For example, if a company has 20 aircraft in fleet 1 when he adds 2nd fleet, the costs for the 2nd fleet with 1 aircraft is 50% of the costs of fleet 1 with 20 aircraft, so his total fleet costs are 1.5* costs of fleet number 1. After adding 10 aircraft to the 2nd fleet, the fleet costs could be what the costs originally were just before adding 2nd fleet type, that is, 1.0* costs of fleet number 1. After adding more aircraft to any fleet groups, the fleet costs would be globally lower than what they were when the 2nd fleet type was introduced.

Now, there have been a lot of different suggestions regarding this matter, also by me, but I somehow feel that by using both these aspects - decreasing costs with added aircraft, and increasing prices with added fleet type - we could achieve the wanted effect, which is to stop airlines at the start of the game from acquiring all the fleet types they can find with 1-2 aircraft.
I also think, that this model would emphasize fleet planning more than now, for when adding a new fleet type would mean huge costs in the beginning, it could be turned around and gotten all the profit there is within few years.

Edit: Rephrasing
« Last Edit: May 05, 2011, 10:56:29 AM by Jps »

Offline JumboShrimp

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #7 on: May 05, 2011, 12:00:27 PM »
In the Early Days I operate an Airline with 12 aircraft in three fleet and engine groups. In the model presented in this thread I could get some 5% discount from my fleet commonality costs, if I operated a fully homogeneous fleet. My fleet commonality costs accumulate to around 20% of my total expenses. That would lead to 1% decrease in my total expenses -> Fleet commonality would be totally irrelevant. Doubling fleet commonality costs globally would rise this to 2%... Still nothing to plan for.

Powi, that;s a good point, the first aircraft should cost something like 5x and the formula should apply from the 2nd aircraft fowrard.

Offline JumboShrimp

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #8 on: May 05, 2011, 12:59:09 PM »
Yes, but Powi's point is that, with the numbers you have, whetheryou have "5 aircraft in 5 fleets" or 50 aircraft in 5 fleets (10 of each) is almost immaterial.  You're giving an incredibly small decrease in costs per aircraft added.  You don't start acheiving any appreciable discount that's worthy of changing one's plans until one has at least 30+ of a particular plane.  Particularly considering that the margins are so large in AWS.  Only very large impacts to margin will change behavior.  I don't even get a 10% commonality discount on your chart until the 10th plane.  It seems to be rather blatant in supporting only the largest of airlines and overly harsh towards those that are smaller.

I may even go so far as to say that you actually are doing the opposite of what you really intend to achieve.

Since the discount is so small per plane, it doesn't really matter whether I purchase a 2nd one of the same fleet or go and purchase an all new type.  Particularly in the early-game, where this factor particular rears its ugly head, airlines are fairly small and, under your numbers, would have virtually zero opportunity to exercise any economies of scale whatsoever.  And if I have to choose between starting out between 10 all-different planes, or 10 planes of 10 different types under your figures, I would be much better off purchasing the 10 different types, simply because the commonality discount you have is so small.  The benefit of being able to operate whatever 10 planes I can grab in 2 game-weeks is infinitely superior to waiting for 10 planes of the same type and the small 1-10% commonality penalty I pay on each successive plane would be infinitesimally meager compared to the revenue it would generate.

The curve needs to be more logarithmic not linear.   There needs to be an extremely significant benefit to purchasing the 2nd aircraft of the same type (which there is today).  And a still significant benefit for the 3rd, 4th... And by the time you get to the 20th and 30th, the benefit itself is still fairly significant but it's not improving as you reach a point of diminishing returns.  So you get a curve that's more like this:



Sigma,

I agree with your and Powi's points.  I overlooked the fact that there should be a much higher fee for the first aircraft in the fleet which I advocated to be higher than currently is in all my previous posts, in order to discourage multiple fleets.  I modified the formula to implement that below, by making the first aircraft 5x more expensive.  Of course the constants of 5x for first and 0.99 cost of previous aircraft might need to be tweaked.  Might as well be 10x for the first aircraft, but survivability of new players would be affected.  The step fee for aircraft might have to be waived for the first fleet to make it easier for new players to survive (for sake of game playability, in departure from RL).

One thing about my formula, it is not linear.  A linear function would cross zero, the formula above never does.  It is a hyperbolic function for the cost of 1 additional aircraft going into existing fleet (I think).

The incentive needs to always be to add aircraft to largest existing fleet, because that's where the cost savings are the greatest which is what my formula implements.

Offline JumboShrimp

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #9 on: May 05, 2011, 01:35:16 PM »
Now, there have been a lot of different suggestions regarding this matter, also by me, but I somehow feel that by using both these aspects - decreasing costs with added aircraft, and increasing prices with added fleet type - we could achieve the wanted effect, which is to stop airlines at the start of the game from acquiring all the fleet types they can find with 1-2 aircraft.
I also think, that this model would emphasize fleet planning more than now, for when adding a new fleet type would mean huge costs in the beginning, it could be turned around and gotten all the profit there is within few years.

Edit: Rephrasing

I agree.  The carrot is the decreasing maintenance cost of each additional aircraft in existing fleet.

The stick would be the high cost of first aircraft in any new fleet type.

One aspect I don't really like (and it is implemented in the current system) is that adding fleet type #2 makes fleet type #1 more expensive.  Yeah, it discourages adding the extra fleet type, but I don't think it is realistic.  Adding fleet type #2 should have no effect on fleet type #1.  The cost of fleet type #2 should only have its own costs, starting with a high cost of the first aircraft in that fleet.

And I agree about the fleet planning, even later in the game.  Suppose you want to fly an extra route for which you have an aircraft in mind that really fits the extra route.  But you already have a fleet type that can kind of do the job, but not ideally, and you already have 70 aircraft in that fleet.  You would see that 71st aircraft in the existing fleet gets a ~50% discount on the maintenance (due to fleet commonality) and new fleet type not only starts with full maintenance cost, there is a start up fee for the first aircraft in the new fleet, and the first handful of aircraft in that fleet get no material savings (due to fleet commonality), since the airline have very low number of that aircraft that are in common...

Jps

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #10 on: May 05, 2011, 04:25:03 PM »
One aspect I don't really like (and it is implemented in the current system) is that adding fleet type #2 makes fleet type #1 more expensive.  Yeah, it discourages adding the extra fleet type, but I don't think it is realistic.  Adding fleet type #2 should have no effect on fleet type #1.  The cost of fleet type #2 should only have its own costs, starting with a high cost of the first aircraft in that fleet.

This didn't happen in my example, either. Sure, I didn't explain exactly how the cost forms, but the idea was that the previous fleets' costs stay the same (or lower if more aircraft are added) while the new fleet is just more expensive compared to the previous ones.

A more accurate example:
Fleet 1 starts with some cost 1*X. Each plane reduces this, so that with 20 planes the cost could be 0.7*X. Now, when fleet 2 is added, the cost for that 1 plane could be y = 1.5X . And with every new airplane added, that would lower, so that with 10 aircraft in fleet 2 the cost could be 0.8*Y = 0.8*1.5*x = 1.2X. So even with 10 planes the aircraft of the 2nd fleet type would still cost more to maintain that the first plane of first fleet type. And, the price of the 1st fleet is not affected by the new fleets, it's just being used as a reference. So, after those 30 planes, the fleet cost would be 0.7X + 1.2X = 1.9X, which is with 30 planes double the starting cost.

Offline BobTheCactus

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #11 on: May 05, 2011, 08:32:29 PM »
I agree.  The carrot is the decreasing maintenance cost of each additional aircraft in existing fleet.

The stick would be the high cost of first aircraft in any new fleet type.

One aspect I don't really like (and it is implemented in the current system) is that adding fleet type #2 makes fleet type #1 more expensive.  Yeah, it discourages adding the extra fleet type, but I don't think it is realistic.  Adding fleet type #2 should have no effect on fleet type #1.  The cost of fleet type #2 should only have its own costs, starting with a high cost of the first aircraft in that fleet.

And I agree about the fleet planning, even later in the game.  Suppose you want to fly an extra route for which you have an aircraft in mind that really fits the extra route.  But you already have a fleet type that can kind of do the job, but not ideally, and you already have 70 aircraft in that fleet.  You would see that 71st aircraft in the existing fleet gets a ~50% discount on the maintenance (due to fleet commonality) and new fleet type not only starts with full maintenance cost, there is a start up fee for the first aircraft in the new fleet, and the first handful of aircraft in that fleet get no material savings (due to fleet commonality), since the airline have very low number of that aircraft that are in common...

There really isn't another way to do this, because otherwise a person who picked an A380 first and then a A320 would be at an advantage over a person who got the A320 first.
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Offline EYguy

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #12 on: May 05, 2011, 11:10:34 PM »
What I can't understand is the fact that everybody keeps complaining that AWS misses some realism. Now... Why don't we ask someone who works in the industry to give us some hard figures about admin, maintenance and other fees associated with a type? As you already know, we're just trying to sort out this problem of commonality cost/benefits (according to the point of view), but as you may know, the higher the quantity, the lower the costs. We keep showing nice logaritmic curves, nice formulas, but actually no one know crap about these costs and their pattern... IMHO, we're just wasting time talking without the minimal real knowledge of this issue... :)

Edo

Offline BobTheCactus

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #13 on: May 05, 2011, 11:12:48 PM »
What I can't understand is the fact that everybody keeps complaining that AWS misses some realism. Now... Why don't we ask someone who works in the industry to give us some hard figures about admin, maintenance and other fees associated with a type? As you already know, we're just trying to sort out this problem of commonality cost/benefits (according to the point of view), but as you may know, the higher the quantity, the lower the costs. We keep showing nice logaritmic curves, nice formulas, but actually no one know crap about these costs and their pattern... IMHO, we're just wasting time talking without the minimal real knowledge of this issue... :)

Edo

And a voice of reason finally shows up.

Great point Edo

Although, I think everyone agrees that the cost per plane reduces as more planes get added, and that the first plane is really expensive to maintain.
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Offline JumboShrimp

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #14 on: May 05, 2011, 11:48:11 PM »
As you already know, we're just trying to sort out this problem of commonality cost/benefits (according to the point of view), but as you may know, the higher the quantity, the lower the costs. We keep showing nice logaritmic curves, nice formulas, but actually no one know crap about these costs and their pattern... IMHO, we're just wasting time talking without the minimal real knowledge of this issue... :)

We are trying to figure out the best way it could be modeled, and that's why I started this thread - which is that, as you said, higher the quantity, lower the cost.

Feel free to add your 2 cents if you have some hands on industry experience, and see something we are missing here.

Offline EYguy

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #15 on: May 06, 2011, 12:36:31 AM »
When I was still living in Europe my company supplied Agusta Westland with some machinery... What my contact there told me (and this applies for every flying machine, because AW is a Finmeccanica's company, that also manufactures the EF-2000) is that NO ONE, and they meant NO ONE, will ever buy an a/c (rotary/fixed wing) if they can't get an idea of their maint/admin costs first.

So, I think that most of the people in this topic are missing the point: no one knows the costs per type and per a/c before buying the a/c. We have maint costs for A,B, C and D checks, but not the "share" of fleet admin cost per a/c.
And all the calculations that you and many other people are doing are ok, but useless until we do not know the real costs. I have an idea of how much an A32X a/c is going to cost me, because I've been playing this game since 2 yrs ago, but sometimes I blow my calculations because I can't go through the numbers and see how much are the fixed costs and how much the "single a/c" costs.

I reckon that when you'll have those data, then you'll probably be able to fit them into your formulas and charts so that everybody can benefit of your work. If you do not have any "hard data", it will be like designing a building without knowing how big it should be once it is finished! :)

Do not get me wrong, I really do appreciate yours work, but I studied business administration and a business plan can't be done without knowing your real costs... :)

Edo

Offline EYguy

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #16 on: May 06, 2011, 12:46:54 AM »
Yes, but Powi's point is that, with the numbers you have, whetheryou have "5 aircraft in 5 fleets" or 50 aircraft in 5 fleets (10 of each) is almost immaterial.  You're giving an incredibly small decrease in costs per aircraft added.  You don't start acheiving any appreciable discount that's worthy of changing one's plans until one has at least 30+ of a particular plane.  Particularly considering that the margins are so large in AWS.  Only very large impacts to margin will change behavior.  I don't even get a 10% commonality discount on your chart until the 10th plane.  It seems to be rather blatant in supporting only the largest of airlines and overly harsh towards those that are smaller.

I may even go so far as to say that you actually are doing the opposite of what you really intend to achieve.

Since the discount is so small per plane, it doesn't really matter whether I purchase a 2nd one of the same fleet or go and purchase an all new type.  Particularly in the early-game, where this factor particular rears its ugly head, airlines are fairly small and, under your numbers, would have virtually zero opportunity to exercise any economies of scale whatsoever.  And if I have to choose between starting out between 10 all-different planes, or 10 planes of 10 different types under your figures, I would be much better off purchasing the 10 different types, simply because the commonality discount you have is so small.  The benefit of being able to operate whatever 10 planes I can grab in 2 game-weeks is infinitely superior to waiting for 10 planes of the same type and the small 1-10% commonality penalty I pay on each successive plane would be infinitesimally meager compared to the revenue it would generate.

The curve needs to be more logarithmic not linear.   There needs to be an extremely significant benefit to purchasing the 2nd aircraft of the same type (which there is today).  And a still significant benefit for the 3rd, 4th... And by the time you get to the 20th and 30th, the benefit itself is still fairly significant but it's not improving as you reach a point of diminishing returns.  So you get a curve that's more like this:



I really miss the option "I like it" as we have on FB! :) Saving 10% is nothing and, as Sigma says, this solution favours huge airlines. Btw, we're also missing the point of training costs for both cabin crews and flight deck crews, which is probably the biggest cost after fleet management fees...

Edo

Offline Sigma

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #17 on: May 06, 2011, 12:54:40 AM »
What I can't understand is the fact that everybody keeps complaining that AWS misses some realism. Now... Why don't we ask someone who works in the industry to give us some hard figures about admin, maintenance and other fees associated with a type? As you already know, we're just trying to sort out this problem of commonality cost/benefits (according to the point of view), but as you may know, the higher the quantity, the lower the costs. We keep showing nice logaritmic curves, nice formulas, but actually no one know crap about these costs and their pattern... IMHO, we're just wasting time talking without the minimal real knowledge of this issue... :)

Edo

It's extremely unlikely you're ever going to get anyone to give you any figures as to what the costs of obtaining a new fleet are versus additional units of an existing fleet.  For one, it's be highly proprietary, but there are also so many additional variables involved that a single company's experience on a single model decision would be extremely difficult to apply on any wider scale outside of that singular decision.  It would depend on how different the particular plane was to existing models (both manufacturer and model), what agreements were in place in regards to maintenance and/or parts, whether any additional infrastructure changes were required, and a litany of other considerations.

One doesn't have to work in the airline business to have extensive knowledge on the particular concept of economies of scale and costs of new models into a lineup.  It doesn't matter if you're in the Printer business or, in my case, the railroad business, the same economic principles apply, just to different magnitudes.  We run through the same considerations when deciding what locomotive models to purchase.  And I couldn't tell you even if I wanted to.  It isn't, and never was, as simple as "ES44AC versus SD70ACe" in terms of any raw blanket statement of "Buying an SD70ACe is going to cost us $XX million to start and $XX million per unit more than buying an additional ES44AC".  Because it depended on what maintenance agreement was purchased, what the lease terms were, where the units were used at, and a host of other considerations.  You almost never get an "apples to apples" comparison unless you're talking about very basic items -- large capital purchases are never straight considerations, the suppliers do that on purpose.

Just as an example of one very common consideration when these discussions come up in real-life:   Where will these new, "different" units be used at?  

That's something that isn't even a consideration in AWS at all.  But in reality it means everything.  It's probably the single most important consideration when deciding whether to purchase a new fleet.   If your new plane is used airline-wide, you have to train all your employees, significantly increase your material at all your locations with parts, etc (this is how AWS considers new fleets today).  If your new plane is used at very limited locations or even a single location, and supplementing your existing units, it's only moderately more expensive than using an existing fleet because you're only stocking duplicitous material and training employees at one point.  If you use this new plane on routes/bases where it's the only plane operating out of a base (so either an all-new base or you move existing models to other bases), you have almost no additional costs at all because you aren't duplicating parts inventory or training at any location at all.  At that point the larger consideration isn't what the new model is going to cost you at all, but rather what you give up in future discounts by not buying even more of your current model and/or lose in goodwill by purchasing from an additional supplier.

Regardless, we're never going to get exact figures in AWS even if we wanted.  That's never been the point.  All we can ask if that behaves realistically, not that it is realistic.  And not every thing done here we necessarily want to be straight "realistic".  For a host of reasons that don't exist in real-life we purposely want to make adding additional fleets a hinderance regardless of what happens in real-life.  Most importantly is the consideration that since our income/revenue side of things is wholly unrealistic (we make WAY more money in AWS than airlines do in real-life) you can't necessarily use straight realistic numbers in AWS if you're intention is to attempt to mirror some of the considerations that real-life airlines have.  The only way to make that same decision that real-life airlines make in regards to the costs involved of an additional fleet, is to make those costs the same hinderance they are in real-life, which is a wholly different sum of money in our game than it is in reality.
« Last Edit: May 06, 2011, 12:59:37 AM by Sigma »

Offline BobTheCactus

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #18 on: May 06, 2011, 01:04:24 AM »
I agree with both Sigma and EYGuy.

I agree with Sigma that apples to apples comparisons are not going to be available, and that we will need apples to apples comparisons in AWS because it's too difficult to code otherwise.

At the same time, I agree with EYGuy that the commonality costs which we decide on (whatever system we use) should be realistic, and that we MUST know what the upfront TRUE cost of doing any action is, even a general estimate, because otherwise, we're making blind decisions, something which NO airline in their right mind would do.
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Offline Sigma

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Re: Fleet Commonality Discount - Simplified Approach
« Reply #19 on: May 06, 2011, 01:11:16 AM »
There's absolutely no question that we need to know the costs of purchasing any additional fleets upfront.  This should be in there now regardless of whether we ever see a change in the calculation or not.  There's simply too many people who get slaughtered by purchasing an additional fleet type without realizing the true costs.

This along with the true personnel costs of opening a new base absolutely have to be shown to the player for them to be able to make an informed decision.

 

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