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Author Topic: Where am I going wrong?  (Read 2125 times)

Offline pndsc

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Where am I going wrong?
« on: February 05, 2012, 12:53:22 PM »
Hi folks.

Im treating this session of MT6 as an iterative process for relearning the game after last playing about a year ago. I've had a few relative success (for me, at least!) with airlines based in the same place before they went wrong but this current one is baffling me since I feel like I'm doing everything right but I'm just not getting the revenue that should be mine.

My last 2 airlines went bust after getting 14 aircraft, one because I was hit with about 6 c checks in a row that bankrupted me and the other a combination of C-checks and fleet commonality expenses.

This current airline I was planning to get a small fleet of eight old aircraft on lease and then switch to newer, more fuel efficient aircraft.

My first step was to get three 737-2Adv's and fill a short domestic route with an obscene number of pax that meant in my previous airlines I could still turn a very healthy profit even though I was up against a huge competing airline and discounting the default price by ~10%. This time, it didnt work, with my LF's peaking at about 60%, market share about 40% of the route and then slowly dropping away and as a result my profits have either been quite small for three aircraft or negative.

Where I think I've gone wrong is in my advertising. Since I was planning to fill other domestic routes first (always very profitable in the previous airlines) I sunk about 225k/week into general marketing in the country and then spent only 22k/week on promoting the route itself (newspapers/billboards/internet). If I had put radio on there as well it would have taken it to about 60k/week.

In the interests of full disclosure I also took one of the cheapest fuel contracts I could for about 150k/month knocking off 9% on fuel thinking that it would pay itself back fairly quickly.

Heres a link to my balance sheet at the minute:

http://i.imgur.com/KGCxa.jpg

Am I right in analysing where I've gone wrong or is there something I've missed? Thanks.


vitongwangki

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Re: Where am I going wrong?
« Reply #1 on: February 05, 2012, 01:18:15 PM »
The 737-200Adv maybe too old that the maintenance cost is high. And the B-checks are all done within the same week so the sales revenue dropped significantly.

Wait for a week and check back. The situation maybe better.

Offline ZombieSlayer

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Re: Where am I going wrong?
« Reply #2 on: February 05, 2012, 01:53:27 PM »
Also, skip the route advertising. Not worth the money because the overall effect is almost nil.
Co-Founder Elite Worldwide Alliance
CEO PacAir
Designated "Tier 1 Opponent"

Offline TerryMcKenna

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Re: Where am I going wrong?
« Reply #3 on: February 05, 2012, 01:53:45 PM »
Hi buddy,
Your profits don't seem to be that bad  and your negative is proberly because of monthly B checks.

In my experience with regard to advertising.....I would just do base city general advertising with newspapers, billboards and internet. Radio and Tv are too expensive and will boost your company image but once this gets over about 45 it seems to have little effect on load factors or profits.
Forget route advertising,this has no effect at all or perhaps it's not working??

Re fuel contracts.... I have never been able to work them out and unless you have a huge airline the cost savings don't seem to be of any consequence or they could cost you extra money.

Re Fleet..... I would only be looking in the 10-15yr age range for older aircraft and the 737-200 has generally high costings.
« Last Edit: February 05, 2012, 02:18:26 PM by TerryMcKenna »

Offline schro

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Re: Where am I going wrong?
« Reply #4 on: February 05, 2012, 02:01:44 PM »
1.fuel contract is probably costing you more than your entire fuel bill at this point. Were you really spending more than 150k for 9% of your in-base fuel? I doubt it.

2. Your flights between 0000-0455 are expected to have very poor loads.

3. Best way to start an airline is to AVOID competition. You are currently whizzing on an electric fence.

4. 732adv has very poor economics in the MT era. Ok. Even in other eras it has poor economics. If you want something better with availability, consider the md 90.

5. Route advertising is generally a waste.

6. I aim to spend about 10% of revenues on general advertising. Any more is wasted due to the upper limit on ci climb rate.

Offline pndsc

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Re: Where am I going wrong?
« Reply #5 on: February 05, 2012, 02:46:45 PM »
Wow, thanks for all the responses guys. I wasnt expecting so much so quickly, but then I guess its sunday and all we have to do is play internet planes. :P

Hi buddy,
In my experience with regard to advertising.....I would just do base city general advertising with newspapers, billboards and internet. Radio and Tv are too expensive and will boost your company image but once this gets over about 45 it seems to have little effect in boosting profits.
Forget route advertising,this has no effect at all or perhaps it's not working??

Re fuel contracts.... I have never been able to work them out and unless you have a huge airline the cost savings don't seem to be of any consequence or they could cost you extra money.

Re Fleet..... I would only be looking in the 10-15yr age range for older aircraft and the 737-200 has generally high costings.
Also, skip the route advertising. Not worth the money because the overall effect is almost nil.

Thanks for this, I didnt realise the route advertising was pretty useless. Thats actually quite irritating since with the successful airlines I had that money could have been enough to keep me afloat.

The bolded ties in with the next bit after the quote...

1.fuel contract is probably costing you more than your entire fuel bill at this point. Were you really spending more than 150k for 9% of your in-base fuel? I doubt it.

2. Your flights between 0000-0455 are expected to have very poor loads.

3. Best way to start an airline is to AVOID competition. You are currently whizzing on an electric fence.

4. 732adv has very poor economics in the MT era. Ok. Even in other eras it has poor economics. If you want something better with availability, consider the md 90.

5. Route advertising is generally a waste.

6. I aim to spend about 10% of revenues on general advertising. Any more is wasted due to the upper limit on ci climb rate.

1. I think when I did the calculation I was just short of breaking even on fuel each month if I took the 9% decrease. I thought that like in previous airlines I would expand quickly enough to make it worthwhile. Its something I'll be more cautious of in future.

2. Yep, no disagreements there.

3. Like I said, in previous airlines running domestic routes with 10 aircraft I was pulling in 1.4million a week. While its generally true starting against entrenched competition is difficult I was undercutting enough to take a good percentage of their business away.

4. I've thought about going for either the MD-80 or 90 series but the high lease prices worry me. And my maths based purely on costs of leasing and maintenance for a year still leads to the 737 being cheaper than any of the MD80/90 series although the MDs are cheaper per passenger. I'll probably take a stab with MD82s for the next one, but is this a wasted effort if frequency is needed to get market share? Or can I simply lower my ticket prices to account for the difference between running a 150 seat aircraft on a route I would otherwise do with a 120 seat to get a better LF?


Offline schro

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Re: Where am I going wrong?
« Reply #6 on: February 05, 2012, 03:07:51 PM »
3. Once you are somewhat established by ci, there isn't an advantage to cut prices as it won't increase profit. Goodwill carry more passengers for less money.

4. Load factor is irrelevant if your trip costs are higher on the smaller plane. An m90 @ 60% load is the same revenue as a 732 @ 75% load, but the m90 burns 25% less fuel on average (your biggest expense in mt). I don't understand the basis for your economic analysis if md vs Boeing vs Airbus. Can you provide your assumptions used to make that calc?

Offline pndsc

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Re: Where am I going wrong?
« Reply #7 on: February 05, 2012, 03:36:36 PM »
Yeah I realise now that I was making assumptions and coming up with a lot of ratios but not tying them together to get a good idea of what was going on.

I was using:

(Cost of A+B+C checks/year) + (Cost of lease/year) = x

x/ Y Pax carried.

I discounted the fuel ratios for kg/hr burned/seats since I was just ballparking it and assumed they would all burn around 3300 kg/hr, and didnt bother to work out that 3300/seats.

Having done that now I see I get 15% better fuel economy/seat using an MD82 over a 737.

737 = 3150 kg/hr / 120 seats = 26.25
MD82 = 3370 kg/hr / 150 seats = 22.46

22.46/26.25 = 85.5%.
« Last Edit: February 05, 2012, 03:40:15 PM by pndsc »

Offline schro

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Re: Where am I going wrong?
« Reply #8 on: February 05, 2012, 06:42:01 PM »
I think you're focusing on maint costs too much. Its really hard to track those because they change depending on the age of the aircraft - basically they go up over the course of time, however, the lease rates go down which compensates for it. In general, for Airbus, Boeing and McD aircraft, your  maintenance costs will not be materially different across the types for planes of the same age, thus, I do not use it as a selection criteria.  Where it does become important is the rapid escalation of maint costs on Russian planes, but you don't seem to have a fancy for those.

I  would assume that when you state 737 that you mean 737-200Adv.

Your calculations are also assuming that the planes travel the same rate per hour, which they do not. Fuel burn is given in a per hour metric, yet the MadDogs will fly farther in that hour, therefore increasing its relative fuel economy per seatmile flown. The faster cruise speed also translates into being able to potentially fly more passengers more places, which would then negate some of the costs of ownership.

Either way, planes smaller than 150 seats in MT scenarios generally can't produce enough revenue to support paying the fixed costs of running an airline, as you have found with your 732's.

Offline ZombieSlayer

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Re: Where am I going wrong?
« Reply #9 on: February 05, 2012, 06:59:03 PM »
I think you're focusing on maint costs too much. Its really hard to track those because they change depending on the age of the aircraft - basically they go up over the course of time, however, the lease rates go down which compensates for it. In general, for Airbus, Boeing and McD aircraft, your  maintenance costs will not be materially different across the types for planes of the same age, thus, I do not use it as a selection criteria.  Where it does become important is the rapid escalation of maint costs on Russian planes, but you don't seem to have a fancy for those.

I  would assume that when you state 737 that you mean 737-200Adv.

Your calculations are also assuming that the planes travel the same rate per hour, which they do not. Fuel burn is given in a per hour metric, yet the MadDogs will fly farther in that hour, therefore increasing its relative fuel economy per seatmile flown. The faster cruise speed also translates into being able to potentially fly more passengers more places, which would then negate some of the costs of ownership.

Either way, planes smaller than 150 seats in MT scenarios generally can't produce enough revenue to support paying the fixed costs of running an airline, as you have found with your 732's.

Schro,

I agree in general with this post, except the 150 seat comment. There are several 70-150 seat planes that can be solid work horses in MT scenarios, including the A318/319, 737-600/-700, EMB-170/175/190/195 (although arguably the 170 and 175 are shaky over ~500nm stage length), Q400, ATR's, and even 2 specific Russian (well, Ukrainian now) planes, the AN-140 and AN-148/158. It is all in how you use them! A good rule of thumb, though, is avoid anything with less than 50 seats and limit the length of the sectors served with any individual aircraft to the number of seats installed x 10 (ie. a 150 seat M80 -generally- should not have an average stage length of over 1500nm).

Don
Co-Founder Elite Worldwide Alliance
CEO PacAir
Designated "Tier 1 Opponent"

Offline schro

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Re: Where am I going wrong?
« Reply #10 on: February 05, 2012, 07:11:41 PM »
Schro,

I agree in general with this post, except the 150 seat comment. There are several 70-150 seat planes that can be solid work horses in MT scenarios, including the A318/319, 737-600/-700, EMB-170/175/190/195 (although arguably the 170 and 175 are shaky over ~500nm stage length), Q400, ATR's, and even 2 specific Russian (well, Ukrainian now) planes, the AN-140 and AN-148/158. It is all in how you use them! A good rule of thumb, though, is avoid anything with less than 50 seats and limit the length of the sectors served with any individual aircraft to the number of seats installed x 10 (ie. a 150 seat M80 -generally- should not have an average stage length of over 1500nm).

Don

It does have a lot to do with how you use them - I don't want to complicate things for the OP for suggesting planes that he can't get at this time. Out of the ones you've mentioned, I'd only suggest the E190/195, Q400, ATR72, and CRJ 900/1000s (bonus added by me) when used on short stage length flights. It is far to easy to misuse these fleet types as it always seems like a good idea to send them on a 1000nm mission when fuel is over $1000.... then another thread like this pops up.

The problem with the 318/319/736/737s is that they have virtually identical capital and operating costs as their larger siblings within the same family. So in most cases,  you'd make the same profit flying a full 319 as you would an 80% full 320 as you would a 60% full 321 (I ballparked the percentages for example purposes).


Offline JumboShrimp

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Re: Where am I going wrong?
« Reply #11 on: February 05, 2012, 07:28:32 PM »
It does have a lot to do with how you use them - I don't want to complicate things for the OP for suggesting planes that he can't get at this time. Out of the ones you've mentioned, I'd only suggest the E190/195, Q400, ATR72, and CRJ 900/1000s (bonus added by me) when used on short stage length flights. It is far to easy to misuse these fleet types as it always seems like a good idea to send them on a 1000nm mission when fuel is over $1000.... then another thread like this pops up.

The problem with the 318/319/736/737s is that they have virtually identical capital and operating costs as their larger siblings within the same family. So in most cases,  you'd make the same profit flying a full 319 as you would an 80% full 320 as you would a 60% full 321 (I ballparked the percentages for example purposes).

One advantage to flying smallest members of 737ng and A320 fleets is fleet commonality - not having to add an extra fleet.  As the total number of aircraft grows (keeping the current algorithms for cost in mind) it is important to stay within 3 fleet types...

Offline schro

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Re: Where am I going wrong?
« Reply #12 on: February 05, 2012, 07:41:25 PM »
One advantage to flying smallest members of 737ng and A320 fleets is fleet commonality - not having to add an extra fleet.  As the total number of aircraft grows (keeping the current algorithms for cost in mind) it is important to stay within 3 fleet types...

But what I'm proposing is that there's no point to flying the smaller members of the family because it costs the same per trip to fly the larger members at a lower load factor.  The only time I could see it worth grabbing the smaller members is if there's no other plane available for expansion... but assuming the availability of planes, there's no reason to fly them.

<counter for those that will say you need the range of the smaller variants>
If you need to fly a 100-120 seat plane further than 2000nm, you're going to lose your shirt on it, so range is not a valid reason to purchase/lease the smaller types.
</counter>

Offline Mnemic

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Re: Where am I going wrong?
« Reply #13 on: February 05, 2012, 08:27:05 PM »
About your discount compared to your competitors, then don't do it, in general I normally just use the default pricing, which follows the fuel prices and that way you are pretty competitive. I have in general taken huge amounts of customers from competitors without offering better seats or discounted seats. Over time you'll be able to gain more and more advantages over your bigger competitors. Also business seats does a difference.

Offline Sami

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Re: Where am I going wrong?
« Reply #14 on: February 05, 2012, 09:00:59 PM »
But what I'm proposing is that there's no point to flying the smaller members of the family because it costs the same per trip to fly the larger members at a lower load factor.

Incorrect, since the larger the plane, the higher the operating costs are.

Enroute and landing fees (mtow based). Higher fuel consumption. Etc.

Offline JumboShrimp

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Re: Where am I going wrong?
« Reply #15 on: February 05, 2012, 10:04:40 PM »
But what I'm proposing is that there's no point to flying the smaller members of the family because it costs the same per trip to fly the larger members at a lower load factor.  The only time I could see it worth grabbing the smaller members is if there's no other plane available for expansion... but assuming the availability of planes, there's no reason to fly them.

<counter for those that will say you need the range of the smaller variants>
If you need to fly a 100-120 seat plane further than 2000nm, you're going to lose your shirt on it, so range is not a valid reason to purchase/lease the smaller types.
</counter>

There is some (small) difference in maintenance cost, and there is also a difference in aircraft acquisition cost.  Let's say, 318 might be in ~50 mil range and 320 in ~60 mil range.  So I think there is a valid argument for flying them.  But let's say the friday peak demand is ~150, average ~129, I would rather fly A320 on a route like that than 318 or 319, since you get that higher demand on Monday and Friday, and you have a room to grow, as the demand goes up...

As far as flying 100-120 > 2000nm, yeah, it is more difficult to make profit on those, but if you have a lot of cash, and nothing better to do with it, you will make more money flying those routes with a purchased plane than with money sitting in the bank...

Offline schro

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Re: Where am I going wrong?
« Reply #16 on: February 06, 2012, 03:19:25 AM »
Incorrect, since the larger the plane, the higher the operating costs are.

Enroute and landing fees (mtow based). Higher fuel consumption. Etc.

When you compare the stats between the families of planes, MTOW doesn't typically vary by more than 10-15% as you move up in size, and fuel varies 5-10% tops, sometimes being about the same depending on the MTOW variant you're  making the comparison on. The incremental costs are trivial tothe point where they are moot, especially as you're more likely to pick up a couple of bonus passengers that you wouldn't have with the smaller plane. The other thing this helps an airline towards is future demand growth, as with the exception of 9/11, its pretty much assured that demand will increase over the course of time (of course, watch this comment trigger demand to start dropping randomly from here on out). The additional revenue potential from having a 33% larger plane for a few percentage points higher in operating costs will likely keep profits at the same level, if not higher...

Of course, disagreeing on the technical merits of the simulation with the author who coded the it is usually a futile effort - I'm just trying to get people to understand the relative inefficiencies of shrunken variants of aircraft families...

There is some (small) difference in maintenance cost, and there is also a difference in aircraft acquisition cost.  Let's say, 318 might be in ~50 mil range and 320 in ~60 mil range.  So I think there is a valid argument for flying them.  But let's say the friday peak demand is ~150, average ~129, I would rather fly A320 on a route like that than 318 or 319, since you get that higher demand on Monday and Friday, and you have a room to grow, as the demand goes up...

As far as flying 100-120 > 2000nm, yeah, it is more difficult to make profit on those, but if you have a lot of cash, and nothing better to do with it, you will make more money flying those routes with a purchased plane than with money sitting in the bank...

Capex is certainly something to watch - a 10 million dollar spread might make it economical to pursue the option. I'd personally have a really hard time forking over north of 50 million for a 318 with an MD90 is going for less...

Offline Sad-anorak

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Re: Where am I going wrong?
« Reply #17 on: February 06, 2012, 09:16:00 AM »


Hi folk's,

   Thank's for this thread, it's just answered probably most if not all
of the question's that I was going to raise as a new thread on "why
am I not makink any profit"?, I too in the past have opted for the
737-200adv over leasing cost's and found that I'm getting nowhere.

   Having read through the above I hope to have taken on board what
has been said and hope to have an airline of some standing in the
future.

Thank's Guy's,


Steve.

Offline JumboShrimp

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Re: Where am I going wrong?
« Reply #18 on: February 06, 2012, 08:39:54 PM »
Capex is certainly something to watch - a 10 million dollar spread might make it economical to pursue the option. I'd personally have a really hard time forking over north of 50 million for a 318 with an MD90 is going for less...

In current MT6, they are both roughly 50mil (at least the 318 with PW engines).  MD90 has 20+% higher fuel consumption and higher maintenance costs as well...

Offline pndsc

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Re: Where am I going wrong?
« Reply #19 on: February 12, 2012, 12:45:39 PM »
So now that I've gone away and done most of what I learned in this thread, I thought Id ask another question, this time with loans.

I know that you can secure a loan on an aircraft and get more cash while doing so. I was wondering if its possible to buy outright a small low value aircraft, get a loan on that to buy outright an even larger aircraft and get another loan on that and then continue business as normal with (hopefully) a much larger loan than I would get from just the small aircraft. Is this a good strategy or have I got things completely wrong?

 

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