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Online Airline Management Simulation
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Author Topic: Request for fuel price relief. Why?  (Read 1251 times)

Offline Karl

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Request for fuel price relief. Why?
« on: May 09, 2013, 12:54:49 PM »
I enjoy a challenge just like everyone else.  The current post 9 11 fuel crisis has certainly filled that bill.  However, I would like to request a stop to dramatic fuel increases and a gradual reduction (to help those who have hedged their fuel supply).

Why?

The sim is great at providing an exciting and entertaining opportunity to build an airline is a relatively realistic world situation, but like any simulation, it has its limits.  The program can only do so much.  While the current fuel price may or may not be a realistic situation faced by real-world airlines of the age, we do not have some of the opportunities that those airlines that survived did have.

I realize that some of these limitations cannot possibly be programmed into the very complicated simulation program.  That is why I seek some fuel relief.

1)  The sim does not allow an airline to declare bankruptcy reorganization.  We can only liquidate and begin a new.  While I appreciate the ability to do this up to four times for one subscription, we simply cannot reorganize.  A financially challenged sim airline cannot currently keep its assets; renegotiate wages, leases and other contracts, etc.

2) A sim airline cannot sell stock or find new inverstors to raise funding.

3) A sim airline cannot get government investment, financial relief, or compensation.

4) A sim airline cannot form real alliances and/or code shares or negotiate a contract with regional/commuter carriers to fly routes that may not be profitable.

5) It seems to me that having more than 500 airlines in a sim makes it very difficult in the first place - without other challenges.

Can we get some relief from fuel prices?  At least for a while to give us a chance to recoup before the next challenge?   ???



« Last Edit: May 09, 2013, 12:56:51 PM by Karl »

Offline Infinity

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Re: Request for fuel price relief. Why?
« Reply #1 on: May 09, 2013, 01:39:54 PM »
This game also neglects a lot of other costs incurring in any real airline. So that is not really a gauge to go by.

Fuel has been twice as high as it is right now in previous games and if you can't run a profit now, you are making mistakes. So the only sensible thing to say is: try again. It's what I did when I was learning the game.

Offline schro

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Re: Request for fuel price relief. Why?
« Reply #2 on: May 09, 2013, 02:11:50 PM »
I think you've been around long enough to know that the fuel spikes in game are not as severe as the major ones that have happened in real life as it would be untenable for any airline to continue operating given the other parameters of the game.

1. From a bankruptcy perspective, the EU doesn't have the same reorganization process that is found in the US, so in their case, when they go bust, they're done.  From that perspective, it is fairly realistic, depending on what country you hail from...

2. This is a feature request that is out there

3. Real world airlines generally can't get government investment either, unless you happen to be state owned or exist in a socialist country.

4. The only reason feeder airlines are used are because of unions. That pay differential is accounted for in the different size pilots, whereas in the real world, the unions would say that the airline could employ ONLY large/extra large plane pilots.


Offline LemonButt

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Re: Request for fuel price relief. Why?
« Reply #3 on: May 09, 2013, 03:38:54 PM »
This seems to be more of a cashflow issue than anything.  I would say the solution is to allow players to sell bonds to other players so the cash rich players can get a better interest rate return on their money than what the central bank offers.  If an airline goes bust the investor gets the remaining principal balance without interest.  This would also put credit ratings to better use imo. 

Offline dmoose42

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Re: Request for fuel price relief. Why?
« Reply #4 on: May 09, 2013, 03:50:10 PM »
Why should the investor get their money back if the airline they invested in goes bust?  If the airline BKs and has positive CV then they might be able to get some back, but if the airline has negative CV, that won't work.  See example below.

Airline has $200m in planes, 5m in cash, 175m in bank secured bank loans, 50m in debt to third party airline.

planes are liquidated (assuming you can get FV for them) so now you have 205m in cash.  175m goes to repay the secured bank loans, 30m available to third party airline.  so third party airline loses 20m (or 40% of principle)

Offline LemonButt

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Re: Request for fuel price relief. Why?
« Reply #5 on: May 09, 2013, 11:25:42 PM »
Because if they got nothing back, no one would lend money.  Governments give loan guarantees all the time and it would be the same thing.

Offline dmoose42

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Re: Request for fuel price relief. Why?
« Reply #6 on: May 09, 2013, 11:59:45 PM »
That's not true at all.  People would lend money to other airlines in order to get a higher rate of return than the bank.  In exchange for receiving compensation at a rate over the risk free rate, airlines would face the risk if losing their money.  If they are guaranteed their money back then what's the point?

Second, governments may give loan guarantees all the time, but companies don't typically give their competitors loan guarantees so clearly not the same thing.

Offline EsquireFlyer

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Re: Request for fuel price relief. Why?
« Reply #7 on: May 10, 2013, 05:20:11 AM »
Governments also don't give loan guarantees all the time. If they did, you would not see all these real-life airline bankruptcies.

Offline LemonButt

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Re: Request for fuel price relief. Why?
« Reply #8 on: May 12, 2013, 01:54:36 AM »
You guys are overthinking this.  Of course it doesn't literally happen "all of the time", but it does happen rather frequently.  The US government gives guarantees to private sector citizens giving private citizens student loans all the time and Solyndra made headlines for failing spectacularly after taking out over $500 million in government guaranteed loans.

IRL of course airlines don't lend money to each other, but in the real world airlines also have the option to invest their money as they see fit and get a better return on their money than the maximum 3% in AWS.  You also have investors willing to buy stock and invest their own money in an airline.  The only time an airline would want to borrow at a higher rate than what the central bank is offering is if they've maxed out their credit line, unless you get rid of borrowing from the central bank all together.  Thus nearly every loan would be very risky.  If an airline has assets to use as collateral, they would have access to secured loans.  It would be a very rare occurrence for an airline actually have assets leftover to give a return to an investor in the event of a liquidation.  That's why it would be guaranteed.  Otherwise every loan would be a 20-50% interest loan since failing airlines that need the money would likely fail and it would take ridiculous returns to make the risk worthwhile.  The payments on a 20-50% loan would hurt an airlines cashflow more than it would help it and end up being an exercise in futility that just expedites bankruptcies versus preventing them.

If you guys are really worried about realism, we should have to not only buy takeoff slots, but also landing slots.  You'd also have carry-forward losses that count against your monthly tax bill as well as capex investments and depreciation writeoffs.  The accounting in the game is far from realistic and it never will be...because this is a game.

Offline swiftus27

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Re: Request for fuel price relief. Why?
« Reply #9 on: May 12, 2013, 10:39:18 AM »
I'm a business banker and I approve this message

Offline dmoose42

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Re: Request for fuel price relief. Why?
« Reply #10 on: May 13, 2013, 02:49:21 AM »
Airlines in AWS do have other options; namely leasing aircraft to other airlines; which has a higher ROI than the 3% max on the saving account.  In order for this option you are presenting to have any value to a potential airline that would be lending money:

1.  An airline must have so much excess cash it doesn't know what to do with itself (American Southern UK in MT#8 - way to go Steve) that a guaranteed return makes sense
2.  The rate that the airline is making on the 'guaranteed' loan would have to exceed the rate that the Airline makes by simply buying out leases and converting aircraft to owned aircraft (or alternatively, buying aircraft and lending them).  Given that the ROI from leasing is already in the 10%-15% range and sometimes approaches 20%, it seems that the interest rate that airline would have to charge would have to at least be competitive with these rate.  As you note, this rate would not help the airlines in distress.
3.  The place were I do see value in this option is that it could enhance the value of alliances by allowing alliance airlines to loan money to each other.  However, this already effectively happens through the sale and subsequent lease back of aircraft and other operations.  Additionally, Sami has repeatedly made it more difficult, not less difficult for airlines within alliances to cooperate.
4.  Your proposal has the potential to damage the game balance, not enhance it, as it will make the strongest airlines and strongest alliances even stronger.
5.  Your suggestion that this is 'ok' because the government guarantees student loan debt doesn't mean anything.  The government (in the US) also guarantees the vast majority of home loans and look where that got us.

Swiftus, I hope your bank makes lots of money with its government guaranteed loans.  It's a good business.  Until it's not.

Offline LemonButt

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Re: Request for fuel price relief. Why?
« Reply #11 on: May 13, 2013, 03:44:30 AM »
A rich airline leasing aircraft does nothing for a poor airline with cash flow issues.  At this point you're just arguing for the sake of arguing.

Offline dmoose42

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Re: Request for fuel price relief. Why?
« Reply #12 on: May 13, 2013, 10:39:43 AM »
No - my point is that this will not actually help poor airlines and doesn't make sense in general.

Offline swiftus27

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Re: Request for fuel price relief. Why?
« Reply #13 on: May 13, 2013, 11:55:17 AM »
Te only government guaranteed loan I can do is through the SBA.  I don't like working SBA loans as the government is impossible to work with

Offline dmoose42

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Re: Request for fuel price relief. Why?
« Reply #14 on: May 13, 2013, 05:57:31 PM »
A relative of my wife had an SBA loan (yes the person defaulted on it...)

Offline Karl

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Re: Request for fuel price relief. Why?
« Reply #15 on: May 13, 2013, 06:05:38 PM »
Fuel price relief?   ::)

Offline dmoose42

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Re: Request for fuel price relief. Why?
« Reply #16 on: May 13, 2013, 06:31:31 PM »
This price is somewhat higher than normal for this point in MT, but it is more likely to get higher as the game progresses than lower.  The first several games I played were JA, because IMO, it is easier to master the game in JA then MT as MT has a much smaller margin for error.

Good luck!

Offline swiftus27

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Re: Request for fuel price relief. Why?
« Reply #17 on: May 13, 2013, 06:33:01 PM »
JA easier?  I beg to differ. 

Offline dmoose42

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Re: Request for fuel price relief. Why?
« Reply #18 on: May 13, 2013, 06:33:48 PM »
from a fuel cost perspective, i have found it easier.  It certainly has a lot of other challenges that make it interesting.

Offline ZombieSlayer

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Re: Request for fuel price relief. Why?
« Reply #19 on: May 13, 2013, 07:00:05 PM »
I agree, JA is the easiest. Gas might as well be free for the first 10 years of the game (normally) giving plenty of time to get your fleet in order and demand grows rapidly while there are the fewest competitors among the normal full game worlds.
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