problem with current demand system

[swiftus27]

Currently, demand is pretty static.  It is based off an arbitrary number.  In real life we do have supply and demand but that generally doesn't apply as much to service based industries. 

Demand should also increase based on price.  If someone offers $20 flight to Florida, someone not in the market to buy tickets would consider going, right?

Perhaps this will be incorporated later on.  Just a thought

[Jps]

Currently, demand is pretty static.  It is based off an arbitrary number.  In real life we do have supply and demand but that generally doesn't apply as much to service based industries. 

Demand should also increase based on price.  If someone offers $20 flight to Florida, someone not in the market to buy tickets would consider going, right?

Perhaps this will be incorporated later on.  Just a thought

I agree with you that demand should rise with low ticket prices. But it should come from outside the 'demand' pool, so it would not affect the LFs of other airlines flying that route (to prevent price-wars).

I suppose this is closely related to the new demand- model that is based on actual number of inhabitants on a given region. So, while that is being coded, it would be good to include this in it from the beginning.

[LemonButt]

Currently, demand is pretty static.  It is based off an arbitrary number.  In real life we do have supply and demand but that generally doesn't apply as much to service based industries. 

Demand should also increase based on price.  If someone offers $20 flight to Florida, someone not in the market to buy tickets would consider going, right?

Perhaps this will be incorporated later on.  Just a thought

Actually, no.  In economic terms, price is a function of supply and QUANTITY demanded, not demand.  When prices increase, quantity demanded goes down and vice versa.  I'm a guy and if pantyhose is on sale for crazy cheap, the lower price doesn't compel me to buy it because I have zero demand for pantyhose and therefore I don't really care what price your offering it for--I'm not buying any damn pantyhose.

Same goes for airplane seats.  There is a fixed number of people looking to fly from point A to point B (let's assume you live in point A and your parents live in point B).  If tickets are $125 you'll fly to see your parents 4 times a year.  If tickets are $500 you'll fly to see your parents 1 time a year.  If point B happens to be Siberia or Death Valley, it doesn't matter how cheap the tickets are if there is no demand to visit.

The only exception to this is the hub/spoke model airlines use.  Assuming there is only 1 route in the world that goes from ATL-JFK there would be a very low demand.  However, if you have a hub in ATL and can fly to 200+ destinations direct after reaching ATL, the demand on that ATL-JFK route is much much higher.  Therefore, demand would be more of a function of how "connected" the airport is to the rest of the world versus the cost associated with getting there.

It would be nice to incorporate seasonal and world events into the demand model to make it less static.  For example, people flock to Florida in the winter time for warmer weather and most beach areas experience a big boost in tourism during the summer.  I live in the mountains of North Carolina and you have to reserve a hotel room a year in advance if you plan on visiting in October when the leaves change.  The Olympics draw huge crowds wherever it takes place as well as the World Cup.

[JumboShrimp]

Currently, demand is pretty static.  It is based off an arbitrary number.  In real life we do have supply and demand but that generally doesn't apply as much to service based industries. 

Demand should also increase based on price.  If someone offers $20 flight to Florida, someone not in the market to buy tickets would consider going, right?

Perhaps this will be incorporated later on.  Just a thought

I posted on the subject in this post under City Based Demand topic, regarding the price elasticity:
https://www.airwaysim.com/forum/index.php/topic,3260.msg139431.html#msg139431

Also, some ways the demand model could be re-worked to take price elasticity into account more than currently, and also, another concept of what choices pax really have to get from point A to point B.  Something for 2.0 with passenger connectivity...

[alexgv1]

Same goes for airplane seats.  There is a fixed number of people looking to fly from point A to point B (let's assume you live in point A and your parents live in point B).  If tickets are $125 you'll fly to see your parents 4 times a year.  If tickets are $500 you'll fly to see your parents 1 time a year.  If point B happens to be Siberia or Death Valley, it doesn't matter how cheap the tickets are if there is no demand to visit.

However comical your example is, and excluding the hub and spoke example (as passenger connections are not modelled in) I have to disagree.

Lowering the price does open up a new market - those who could previously not afford to fly when it was more expensive. Fair enough you're not going to make demand between two airports that nobody is going to fly to (but low prices are enough to make people travel to alternative airports DAL instead of DFW, MDW instead of ORD, etc, etc.).

The simplest example being low cost carriers. It's true that they draw passengers from the people already flying, but they open up a new pool to draw passengers from.

Before Ryanair (as an example familiar to me), most Irish people couldn't afford to travel to see relatives in England and vica versa. After they took up their low cost model then the people who did used to fly with Aer Lingus could now afford to fly more often, and people who never dreamed of flying now could afford to do so instead of using other means of travel (e.g. ferries).

[LemonButt]

Before Ryanair (as an example familiar to me), most Irish people couldn't afford to travel to see relatives in England and vica versa. After they took up their low cost model then the people who did used to fly with Aer Lingus could now afford to fly more often, and people who never dreamed of flying now could afford to do so instead of using other means of travel (e.g. ferries).

This reinforces everything I mentioned.  Lower prices doesn't create the demand--putting relatives in England creates the demand.  People are still visiting England, just using different modes of transportation (ferry).  The same can be said for the current numbers in AWS--those in the demand pool who aren't flying are getting there another way (car, bus, boat, etc).  Otherwise, if you flew a 700 seat aircraft into an airport with 100 pax/day demand only once a week, you'd have 700 passengers lined up for your flight.

[JumboShrimp]

This reinforces everything I mentioned.  Lower prices doesn't create the demand--putting relatives in England creates the demand.  People are still visiting England, just using different modes of transportation (ferry).  The same can be said for the current numbers in AWS--those in the demand pool who aren't flying are getting there another way (car, bus, boat, etc).  Otherwise, if you flew a 700 seat aircraft into an airport with 100 pax/day demand only once a week, you'd have 700 passengers lined up for your flight.

On the supply demand curve, ability to provide supply at lower price does create demand.  And ability to supply goods and services at lower price has to do with innovation, efficiency, productivity.

So supply does create its own demand.  Supplying a good and service at lower price creates additional demand - within reason.  A route that had demand of 100 pax per day at high price is probably not going to turn into 700 pax demand at lower price, but 150, 200, 250 pax demand is possible at a lower price.

[slither360]

LemonButt is saying that if the price was $0, the amount of people who want to fly would be the TRUE demand. As the price goes up, the amount of people who still want to fly goes down.

[alexgv1]

LemonButt is saying that if the price was $0, the amount of people who want to fly would be the TRUE demand. As the price goes up, the amount of people who still want to fly goes down.

I quite like that. Thanks, I was losing my patience trying to think of a way to explain it.

[LemonButt]

LemonButt is saying that if the price was $0, the amount of people who want to fly would be the TRUE demand. As the price goes up, the amount of people who still want to fly goes down.

If the price was $0, the amount of people who want to fly would be the maximum (you could say true) QUANTITY demanded.  As the price goes up, the quantities demanded go down.  Thus you can't create demand simply through price manipulation, but you can decrease/increase the QUANTITY demanded.  Again, my quantity demands for pantyhose does not go up when pantyhose goes on sale because my demand for pantyhose was zero to start with

[Sigma]

When you measure "demand" in terms of the people who are willing to travel from Point-A to Point-B at Standard Pricing, which is what AWS does, then changing price does affect the demand.  It's a whole different curve at that point.  We don't chart out (and no one does in any business venture) what demand would potentially be at $0, our demand is a function of "standard price".  And, furthermore, it's based (somewhat) on real-life demand which is a function of price itself.

Really, the discussion whether it's "demand" or "quantity demanded" is entirely immaterial to the scope of AWS because they are one-in-the-same.  Discussing what "true demand" would be if prices were free is a wholly philosophical one at best.  Even yourself might buy some pantyhose if they were just given away, who knows what you'd use them for -- who cares, they're free.  And I guarantee you that a whole lot of people out there would fly to Siberia if it were just $50 just because they could.  Human beings are notorious for buying (i.e. 'demanding') things that they don't need simply because they are cheap/free at the time.  In that regard the "true demand" for anything and everything would be virtually infinite -- a substantial percentage of people on the planet will take something or do something (as long as it doesn't hurt/kill them) if it's free.   Put tickets on sale from ATL to JFK for free and demand won't be infinite, but it'll be mighty darn close.

Conventional demand models have never taken into account the "demand" of people who fall outside the conventional buyers.  That's why the models of those like Southwest and RyanAir have worked so well.  They've essentially "created" demand where none such existed before by making prices so cheap that people who didn't even know they wanted to go to a location, buy a ticket for it, just because it's so cheap.  

Bottom line is that you can make someone want to fly somewhere by offering it cheap (or make them buy a hamburger they had no interest in trying by giving it away, whatever).  Thus you create additional demand.  These aren't people who wanted to before but couldn't afford it, they aren't people who found alternative means to get there in the past, it's an entirely new group of people who want to go see Chicago from Omaha simply because at $50RT it's now become a viable weekend entertainment possibility or something.

If it makes more sense for you to change the one phrase in swiftus' statement to "quantity demanded" rather than simply "demanded" then go ahead.  But the point still stands:  Lower pricing sells more tickets.  It's within bounds, it's not an infinite exponential curve, but in AWS it's dead-flat.  There is no curve whatsoever.  Neither in terms of competition or in terms of overall route demand (it actually supposedly does increase demand on a given route slightly more than the yearly inflationary increase, but if it does the affect is small).  It's just another component that is a function of our real-life derived figures.   All of which will hopefully change come whenever the demand model is changed with the introduction of city-based demand.

[JumboShrimp]

Good summary Sigma, and thanks taking time to explain it.  I agree, but you put it in words much better than I could.

[EYguy]

However comical your example is, and excluding the hub and spoke example (as passenger connections are not modelled in) I have to disagree.

Lowering the price does open up a new market - those who could previously not afford to fly when it was more expensive. Fair enough you're not going to make demand between two airports that nobody is going to fly to (but low prices are enough to make people travel to alternative airports DAL instead of DFW, MDW instead of ORD, etc, etc.).

The simplest example being low cost carriers. It's true that they draw passengers from the people already flying, but they open up a new pool to draw passengers from.

Before Ryanair (as an example familiar to me), most Irish people couldn't afford to travel to see relatives in England and vica versa. After they took up their low cost model then the people who did used to fly with Aer Lingus could now afford to fly more often, and people who never dreamed of flying now could afford to do so instead of using other means of travel (e.g. ferries).

I agree with LemonButt... The basic principle of Marketing is that YOU CAN NOT CREATE ANY DEMAND. What I can understand is what you can call "latent" or "unexpressed" demand, meaning that before the creation of Ryanair, people just didn't think about going on holiday to the UK.
Btw, in the end LemonButt is right: the demand was there and probably people didn't go to the UK because of time/transport issue, not because of the price. In Australia Greyhound got a major blow from the low cost carrier, but the demand was already there and simply shifted pax from a slower and cheap way of travelling to a more expensive but way faster low cost airline.
Moreover, flying business passenger on a low cost carrier is as expensive as flying a full service airline, so in the end LemonButt is still right. You could say that LCC probably "SHIFTED" demand instead of creating it...

[Jps]

Just to clarify, which of these demands is depicted in the demand- numbers of AWS? Is it the absolute demand of all the people that will travel when the price is right, or is it the demand that will travel anyways as long as the airline is good enough?

[LemonButt]

In the end I think we can all agree that lower prices = higher quantities demanded and vice versa.  In the airline world, demand is also largely dependent on the "connectivity" of a hub as airports than offer connections to a destination experience a generous increase in passenger load for passengers connecting (look at home many people fly through ATL without visiting Atlanta).

[EYguy]

Jps, I think that the demand depicted in this game is the total demand. When you have low prices and better company/route image, you'll get most of the demand (provided that you excel even in all the other parameters that will help you to catch the demand). We just can't create demand in AWS!

Edo

[Sami]

Just to clarify, which of these demands is depicted in the demand- numbers of AWS? Is it the absolute demand of all the people that will travel when the price is right, or is it the demand that will travel anyways as long as the airline is good enough?

A bit both. You can achieve the shown demand when you have certain "points" (combined from CI, RI, flight times, ticket prices etc..). But you can get the shown demand + 10-30% if price is low and also other relevant factors are good.