Closing Routes

[lsutiger17]

NOOB Questions.  I searched but couldn't find anything relevant.

If I have a route that is "profitable" is there other hidden costs in running that route that might make it actually not profitable?  If so how can I tell what other costs are associated with the route ie (Staff etc.)?

[Sami]

The costs not directly related to the operations are not counted in the profits shown at route pages. This includes staff, insurance, marketing ..etc   As those costs cannot be pinpointed to the certain routes but they are companywide.

[DenisG]

Hi and welcome! Just took a look, you have 4 planes, all leased and 4 different ones. That costs you a lot of money. Fleet commonality and probably competition on at least one route, I guess. There have been a number of interesting threads I would recomment you about route profitability and what thumb approaches are easiest.

Denis

[samomuransky]

The costs not directly related to the operations are not counted in the profits shown at route pages. This includes staff, insurance, marketing ..etc   As those costs cannot be pinpointed to the certain routes but they are companywide.

What about splitting all companywide costs into routes?

[lsutiger17]

Do different engines of the same model cause more maintenance costs?

Also,  Is there a way to evaluate closing a route and its cost savings, or do we just sort of guess the "hidden" cost of flying the route?

For instance if I closed route X you would be able to layoff 2 Customer service reps etc.

If not that would be a nice addition to the game.  Since this is certainly something that airlines look at when choosing to close a route.

Thanks for the info.

[DenisG]

1. Yes, different engines of the same model cause your maintenance costs to go up. If you are still early in the game, you should be able to monitor the effect on your fleet commonality view and make derivations about the effects per route respectively per plane.

2. If you keep track of your costs development from the beginning (e.g. via excel manually) you get a pretty good overview about which plane adds what. E.g. I only fly DHC-7 on regional routes max. 350nm range and can claculate that the EADCs (Earnings After Direct Costs) will be reduced by half to cover general costs on average. With purchased planes, the profit ratio is higher, with leased planes, I have to reduce the EADCs by over 70% for effective cash profit.

3. Closing a route therefore can be tracked if you monitored the previous cost additions manually. Generally, closing a route will not automatically lead to staff reduction even if on automatic! You always have to do that manually and beware of it because it lowers your staff morale and image significantly (at least in my case at an early stage it did). Also pilots remain employed even when the plane is sold.

4. There have been a number of threads about improvements concerning cost calculations and income statement conformality. As far as I understood Sami, there will be changes made for the next scenario or so. So this topic has been addressed and is being pursued. However, I would like to point out as well that cost accounting is never perfectly transparent since it always depends on which question you are asking. Take for instance the enormous difference between cost-center accounting and marginal income (EADC). Deducting from there it is extremely difficult to allocate your general costs even in real life, because it all simply depends on assumptions. So even if you allocate employees' work hours perfectly well to tasks, you will only get approximations to a result, but no finite answer. Also, depending on what you want to show, you can easily manipulate any cost accounting for the board meeting to underline or expose your proposal. So not only in this game, but also in reality it is very difficult to decide how you 'calibrate' your managerial steering system. For that, I find it very challenging and interesting for its realistic approach. Even in the airline industry, this problematic issue has plagued them for the past decades and in some cases led to bad decisions. The probably most advanced cost calculation method is 'cost unit accounting' (German Kostenträgerrechnung) where you attempt to allocate all company costs to a single comparable unit of service/product delivered. In the airline industry this unit would be pax-miles. But it is very difficult. You probably will seperate long-, mid- and short-haul flights and then further by a/c-type and still may get totally contradicting results. One assumption may produce a positive and another a negative. Or the majority of it will be positive, but the overall income statement turns negative etc...

[DenisG]

I just took a look at your routes and what I found at first glance was a number of routes you serve where your plane capacity extremely extends demand and in particular with small planes. Flying a 17 pax demand routes with 30 capacity will only make money if you get those pax to pay exclusive prices. Generally, flying too small planes is very difficult and fragile. In your case, I would suggest to consider flying routes with sufficient demand and flying routes with bigger demand not with 2 small planes but rather with one 40-something pax plane or so. Just a suggestion.

Denis

[lsutiger17]

Thanks for the replies and thoughts.