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Author Topic: Financial Analysis & Pricing  (Read 307 times)

Offline LemonButt

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  • Posts: 1895
Financial Analysis & Pricing
« on: January 11, 2014, 06:50:54 PM »
With the accounting changes and upcoming price management updates, I wanted to put this request in while the code is being worked.

Attached is a financial analysis spreadsheet comparing week 41 and week 5 (1993) for my airline "French Toast" in DOTM.  The purpose of financial analysis is understanding where your money went and why.  There is a wealth of conclusions you can draw from the numbers in the attached sheet, but the key values to focus on are the "Causes of Revenue Change" values.  There are only 3 reasons revenue changes: change in volume, change in pricing, or change in sales mix.  Right now it is a crapshoot as to whether a player's pricing tweaks on a micro or macro level are actually working in their favor to maximize revenue (high volume/low margin versus low volume/high margin pricing).

So the goal would be players could play with their pricing, charging two separate different prices for two different periods and then compare the data to determine what the most effective pricing strategy would be.  If a player lowers prices and increases volume and the numbers show a $10 million loss in revenue due to lower prices, but a $20 million increase in revenue due to volume then they can say they increased revenue by $10 million with their pricing strategy.  Then they'd have to look at the COGS analysis to make sure they aren't paying $10 million more in passenger fees etc. and are maintaining profitability.  If a player increases prices and sees a $20 million increase in revenue due to pricing and a $10 million decrease in revenue due to volume, they can say the higher pricing increased revenue by $10 million.

These numbers can also be used to create an automated pricing model that the "staff" can manage for you.  There are essentially two strategies: maximize marketshare (high volume/low margin) or maximize profitability (low volume/high margin).  There could be a slider with the two extremes on either end where players can simply pick a point anywhere between the two.  Then the game calculates pricing for both models (max marketshare and max profit) and then uses a value in between the two based on the player's pricing strategy settings.  The way the algorithm changes pricing would get a lot more complicated, but you get the general idea.

If there could be an automated "Financial Analysis" page that pulls the numbers from two periods on demand (weekly, quarterly, etc) by company/base/route it would be awesome :)  There could also be a new stats page with some of these ratios as they are a better determinant of how efficient an airline is run than many of the existing metrics.

https://docs.google.com/spreadsheet/ccc?key=0Amcds0fmuZpedGRpWGhLeEJXYWhGZzBsNWJTc1l2a0E&usp=sharing

BD

  • Former member
Re: Financial Analysis & Pricing
« Reply #1 on: January 11, 2014, 10:38:16 PM »
Attached is a financial analysis spreadsheet comparing week 41 and week 5 (1993) for my airline "French Toast" in DOTM.  The purpose of financial analysis is understanding where your money went and why.  There is a wealth of conclusions you can draw from the numbers in the attached sheet, but the key values to focus on are the "Causes of Revenue Change" values.  There are only 3 reasons revenue changes: change in volume, change in pricing, or change in sales mix.  Right now it is a crapshoot as to whether a player's pricing tweaks on a micro or macro level are actually working in their favor to maximize revenue (high volume/low margin versus low volume/high margin pricing).
Nice spreadsheet!

This is getting into the realm of management/cost accounting which is much more in line with how one figures out how / what to optimize.  The financial accounting changes were necessary, particularly for the tax effect, but IRL are meant for shareholders vs operations.

There may be several reports that would be useful.  For instance, related to this request, a report to know the hourly operating cost of each aircraft (at least to the fleet type, if not to the individual aircraft) - allows one to determine what price should be profitable, perhaps aid in making the decision about continued flying vs disposal, and in determining which fleet to fly which ranges, etc.

BTW, there is a fourth reason for revenue change:  inflation.  But, it is not likely to be noticeable on a week by week analysis, if the weeks are close to each other.  The wider that gap in time the greater it will be.


Offline LemonButt

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  • Posts: 1895
Re: Financial Analysis & Pricing
« Reply #2 on: January 11, 2014, 10:50:30 PM »
BTW, there is a fourth reason for revenue change:  inflation.

Yes, but inflation doesn't change your revenue--only purchasing power.  Inflation would be accounted for in price changes.  In the spreadsheet, you can see the price change delta was $685k, which was all inflation as I kept my pricing at the same level, but reset pricing to suggested values to "update" the pricing with inflation factored in.

 

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