Quick beta available

[swiftus27]

I like the differences but need to make sure that an airline at minus fifty can not profit on that line (including fixed costs)

High prices should lower ri growth.  Inverse true for lower prices.

[Sami]

On that route using A320 his income would be $18643 (103 * $181; -50% price) and direct route expenses (fuel price $700) about $19360. + non-direct costs (staff, marketing, maintenance ..etc). So I assume a "break-even pricing point" is, in this case, somewhere around "default price -20%"?  (rough estimate?)


edit; actually direct route expenses are too small, as the passenger fees go up when more passengers are transported, that $19360 was from standard priced day.

[schro]

Here's a quick graph on the revenue effect between the variables.

In terms of net revenue between the two different airlines on a per flight basis, it's rather moot between the -20% to +10% price points, so overall, pricing has little to no effect on profitability in that range (with all other factors being equal).

[schro]

I like the differences but need to make sure that an airline at minus fifty can not profit on that line (including fixed costs)

High prices should lower ri growth.  Inverse true for lower prices.

In this scenario (2x demand level of competition), with a 2000nm stage length flight with MT era fuel, no airline will be profiting even at standard pricing in this scenario once you factor in staff and plane ownership.

[Sami]

So anyway, any actual opinions on that, before I "lock in" the settings.

[swiftus27]

Happy, now let's add the next variable

[nedson]

Will we be able to see what prices competitors are charging otherwise how will we be able to see that it's pricing and not RI we're being beaten on? It's something that you'd easily be able to see in the real world. You could argue RI being public too because it's how 'well established' someone is - which is again easy to see in the real world. Both of the above would mean we could really focus on the metrics of individual routes.

I missed the beta as I didn't see it in time but I am following this with huge interest - just thoughts, (I know Sami doesn't want thoughts just specifics so apologies Sami!)

[Sami]

It's something that you'd easily be able to see in the real world.

Not at all.

Airline ticket pricing is something that changes every day, or every hour even, depending on bookings and other "optimization". And depends even from the location (country) you are buying them and dozens of other factors. It for sure is not just "hey, let's look from the web how much XYZ charges and cut it by five bucks". (to which it would lead here!)

(making such complicated revenue management systems here is quite difficult, so pricing model is simplified)

[JumboShrimp]

Standard prices:
- each route (11) sells 86 seats (Y class)

Airline 1 (6 routes) lowers prices 50% from default ($362 > $181):
- others sell 67 (Y) while this airline sells 103 per flight.

Total pax, standard prices: 946
Total pax while one airline offers %50% off: 953
Total pax increase when ticket at 50% off: 0.7% (!!!) increase

I think the total pax demand should increase 50% or more with tickets 50% off.

If the pax went up 50% to 1419, the Airline 2 could stay where you have it, but Airine 1 should go to 180 pax.

So some gains for Airline 1 would come at expense of Airline 2, but most would come from extra pax.

[JumboShrimp]

High prices should lower ri growth.  Inverse true for lower prices.

Good idea.

[JumboShrimp]

Airline 1 (6 routes) doubles prices from default ($362 > $724):
- others sell 161 (Y) while this airline sells 25 per flight.

Somehow, this one does not add up, or the total pax demand dependendent on price level is not really modeled in.  Here is what I get:

Total pax, standard prices: 946
Total pax while one airline doubles prices: 955
Total pax increase when 2x: 0.9% (increase!!!)

[swiftus27]

Somehow, this one does not add up, or the total pax demand dependendent on price level is not really modeled in.  Here is what I get:

Total pax, standard prices: 946
Total pax while one airline doubles prices: 955
Total pax increase when 2x: 0.9% (increase!!!)

You advertised Punch and Pie....  gotta include all facts.

[JumboShrimp]

What I would do is I would get a "blended" ticket price offered:

Flight 1 capacity * flight 1 price + flight n capacity * flight n price / total capacity.

I would multily the total demand by default price / blended price.

If blended price offered is 20% below standard ticket price, demand would increase 20% over standard demand.

[JumboShrimp]

Every airline (11 routes) changes prices +50%:
- each route (11) sells 62 seats (Y class).

So there is a reduction of total pax from 946 to 682 (28% reduction).  Overall revenue is up, which is probably ok.

So the reduction of pax seems to be modeled in when prices are higher, but but not the other way.

I think the increase of overall demand when one airline lowers price should be one of the factors softening the blow on the competing airline (at standard prices).

Overall I would like to note that passengers are all of similar type still. There are no penny hunting leisure people with no hurry and no "no matter what it costs" type businessman. I would like to introduce the different traveller types and "necessity of travel" in the future to make the demand more dynamic; but for now each passenger represents a sort of average joe..

I think the price elasticity should be reasonably easy to implement (compared to all the other changes made), and would add to the realism of price changes.  It would not just be a zero sum game...

[dmoose42]

I think the penalty for increasing prices above the standard should be harsher...if the airline increases the price 10%, then their passengers go from 86 to 85 and a 30% increase drops the PAX to 68 (roughly a 30%) drop.  I think there should be harsher penalty for increasing price above the default in a competitive route.

For the decreasing price scenario, it seems closer to balancing the need to increase the PAX vs. not allowing bigger airlines to crush little airlines.

Also, as an aside, I assume that there is demand destruction as the price increases, the PAX willing to fly decreases (i.e. if demand is 1000 PAX, and the price increases by 50%, the true demand may only be 600 now).

Thoughts?

[esquireflyer]

Not at all.

Airline ticket pricing is something that changes every day, or every hour even, depending on bookings and other "optimization". And depends even from the location (country) you are buying them and dozens of other factors. It for sure is not just "hey, let's look from the web how much XYZ charges and cut it by five bucks". (to which it would lead here!)

(making such complicated revenue management systems here is quite difficult, so pricing model is simplified)

Airline ticketing pricing does change every day, but that doesn't mean that it's impossible for competitors to monitor; it just means that it requires effort to monitor.

If airlines did not know each other's prices, then why do we see often fare battles resulting in matches of exact prices to the penny? Obviously, airlines are monitoring or hearing about each other's fare sales, and are matching (or beating) them accordingly.

For example, when American Airlines, British Airways, and Iberia introduced the recent Diamond Jubilee fare sale ($1,952 for business class anywhere in the US to anywhere in the UK), United Airlines matched the fare within hours, for the exact same price and the exact same validity dates--or at least a close enough approximation of the dates that Expedia/Kayak users searching a given date would see the exact same fares listed for UA and AA.

And that's just one high-profile example; lower-profile, route-specific fare matching also happens all the time on highly competitive routes such as LGA-ORD and BOS-LGA, for example.

[esquireflyer]

I think the penalty for increasing prices above the standard should be harsher...if the airline increases the price 10%, then their passengers go from 86 to 85 and a 30% increase drops the PAX to 68 (roughly a 30%) drop.  I think there should be harsher penalty for increasing price above the default in a competitive route.

For the decreasing price scenario, it seems closer to balancing the need to increase the PAX vs. not allowing bigger airlines to crush little airlines.

Also, as an aside, I assume that there is demand destruction as the price increases, the PAX willing to fly decreases (i.e. if demand is 1000 PAX, and the price increases by 50%, the true demand may only be 600 now).

Thoughts?

No, I think pax demand should be reasonably elastic (and roughly linear, at least in the middle range). I don't think that there should be a specific "penalty" for exceeding the default price, because an industry-wide default price is arbitrary and not realistic.

I think that increasing prices should lower the number of tickets sold, obviously; but increasing from 100% to 105% of default should not cause a steeper drop in pax numbers than increasing from 95% to 100% does.

If you are charging a huge amount (e.g. 150%) then it makes sense to have a steeper drop for that. But I think the current "death cliff" at the default price level (in the current, non-beta universes) is unrealistic, and annoying when the default price itself has sudden drops (e.g. on Jan. 1), making everyone's fares "overpriced" even if they did not actively raise prices.

[dmoose42]

Why should PAX demand for a given price be a linear function of price on highly competitive routes?  The PAX would just leave the higher price airline for the others.  Obviously this has to be balanced to prevent larger airlines from crushing their smaller neighbors who may be just starting.  That's why I think the non-symmetrical approach is a reasonable compromise between real world behavior and gameplay considerations.

Agree that the death cliff is not appropriate either and a smoother function is required.  However, I do think the customer demand elasticity should be such that for highly competitive routes (seats >= 200% demand) that the % loss in customers when using a price greater than default should be more than the change in the ticket price.

[esquireflyer]

Agree that the death cliff is not appropriate either and a smoother function is required.  However, I do think the customer demand elasticity should be such that for highly competitive routes (seats >= 200% demand) that the % loss in customers when using a price greater than default should be more than the change in the ticket price.

If it's not too complicated to program, then I agree that price elasticity should be higher (more benefit/loss from changing prices) on routes where seats supplied exceed total demand.

[brique]

I would hope its more than JUST price at work in these cases, that seat comfort, frequency, price, speed, flight times, etc are also acting in 'balance' : otherwise, we will have swapped 'frequency rape' for 'price rape' :  a better seat offering should attract a better price 'ceiling' before numbers fall away, whereas a lousy arrival time should lower it : I guess until the whole thing is in the wild and subject to a full game environment it will be a bit hit and miss until we figure out where the tipping point is now.