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Author Topic: Aircraft pricing  (Read 1053 times)

Offline NovemberCharlie

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Aircraft pricing
« on: November 14, 2016, 08:02:38 PM »
Though I only think it is realistic that market demand drives up (or down) the price of aircraft models, I do wonder how the prices are determined.
For example in GW3, for the A330-900NEO:
Game list price: $353mln
Backlog: 65 orders, by 5 operators
Real list price: $287mln

I do not think this is a fair price for this aircraft, though 65 orders is nice it is in reality less than a year worth of backlog. (a month in game).

Even taking into account other variants: one and a half year from now the backlog consists of only two airlines.
In reality Airbus would be pushing the A330/A340 line to all their customers with discounts to try and fill up production slots.

Anyway the point I am trying to make is that 65 orders from such a small customer base does not warrant such a significant increase in prices.

Kind regards,

NC

Offline Sami

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Re: Aircraft pricing
« Reply #1 on: November 14, 2016, 08:20:09 PM »
Note that the game year is 2022. Meaning that you cannot compare the prices to any of today's values due to inflation. (2016 vs 2022 has about 10-15% inflation)

The prices also relate to the queue length of the whole fleet, not just one model.

Offline NovemberCharlie

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Re: Aircraft pricing
« Reply #2 on: November 14, 2016, 09:05:47 PM »
Note that the game year is 2022. Meaning that you cannot compare the prices to any of today's values due to inflation. (2016 vs 2022 has about 10-15% inflation)

The prices also relate to the queue length of the whole fleet, not just one model.
With the upper estimate for inflation it is still overpriced by some 20 mln...
And as said the queue length is not that long. It is still going strong the next three months, but after that it will transit to only four customers and later in the year to two customers. Simply because the largest two have 105 aircraft on order does not mean the airplane is selling well...

I honestly think the "demand inflation" should be tied to total backlog and customers.
With it being more tied to the amount of customers...

Offline schro

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Re: Aircraft pricing
« Reply #3 on: November 14, 2016, 09:47:31 PM »
I think there's a different problem going on with the aircraft pricing. Quite frankly, once we hit the later years, especially with the newer generation jets (i.e. Neos, maxes, 787s, 350s, etc), prices are off the charts high. This doesn't relate to the elasticity of price within the game, but rather the benchmark prices used for each type that are used in processing.

Over the course of time in the aviation business, the gap between the official price list versus the actual selling price of planes has increased over time, and I suspect that the values used within the game as base values are more consistent with list than they are with actual price paid (as that figure is fairly difficult to ascertain due to the closed door nature of dealings). That's the only way that I can explain to myself why a 787-9 costs $400m new in GW3 (2022), whereas it's new "value" today is 145m. Even after factoring in 10-15% cost inflation, I highly doubt that the pricing elasticity function will add another 240m on top of that to arrive at its price.

Now, of course, for older "rich" airlines that run a small regional operation like my own, the crazy cost of new planes isn't that big of a deal. However, it is absolutely game breaking to an airline that cannot afford to buy these planes as the leasing cost is insurmountable.

Thus, I think it'd be appropriate to look into normalizing the "base" database prices for planes across the game to give a bit more consistency to pricing over the course of a long game world, and the rest should buff out just fine from there....

Couple of quick articles about current valuation and discount levels:
http://airinsight.com/2016/05/16/aircraft-pricing-list-vs-market/
http://www.airliners.net/forum/viewtopic.php?t=1345101
http://www.forbes.com/sites/afontevecchia/2013/05/21/boeing-bleeding-cash-as-787-dreamliners-cost-200m-but-sell-for-116m-but-productivity-is-improving/#7fad9342450c

Offline NovemberCharlie

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Re: Aircraft pricing
« Reply #4 on: November 15, 2016, 12:25:55 AM »
This would probably be even better.

Though when looking at the real life situation, I still think the pricing is ridiculous
For example: Boeing produces the 777 at 8.33/month currently and will cut the rate down soon to 7/month and later to 5.5. Even though it has a total backlog of 200+ aircraft before the 777X kicks in.

And they are already quite dire at this point....

Ps I do realize that aws production rates are higher, however I really think the example I gave for the A330 in gw3 doesn't correlate to a strong backlog and thus the associated price hike...

http://www.fool.com/investing/general/2016/03/06/analysts-continue-panicking-about-the-boeing-777.aspx
http://www.gulf-times.com/story/517651/Moody-s-call-for-Boeing-to-cut-wide-body-777-300ER
https://leehamnews.com/2016/08/11/boeing-lays-ground-cut-777-rates/

Online gazzz0x2z

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Re: Aircraft pricing
« Reply #5 on: November 15, 2016, 07:38:54 AM »
I think there's a different problem going on with the aircraft pricing. Quite frankly, once we hit the later years, especially with the newer generation jets (i.e. Neos, maxes, 787s, 350s, etc), prices are off the charts high. This doesn't relate to the elasticity of price within the game, but rather the benchmark prices used for each type that are used in processing. (.../...)

Problem is game balancing. I can routinely buy new 777-8x, more than I need, and insane pricing is a good thing for me keeping interest in the end game. But, you're right, at t he same time, it makes it very tricky for a newcomer to enter a late game. Most newcomers will be new players, unaware of the lease dead trap. Aiming for the shiny new planes(because they are "better", isn't it?). I've seen plenty of them jumping on my neos on the UM, just to collapse a few years later. More money for me, but it's good for the game.

Your first link is especially interesting. As in the game, when you make a "perfect" buy, you've got 26% of rebate, the SSJ official price seems rather OK. All other planes seem over priced. I4m pretty dure that if you adjust to real life prices, counting the 26% rebate, you can get a better balance of the game.

Still, it would be very important to warn new players about the lease death trap with shiny new planes. More than half of BK'd I witnessed in my alliance this game came from this one. Players who had sound scheduling, sound ticket pricing strategies, sound route choices, good work invested in the game, and who get killed for this leased shiny beautiful bird.

Online MuzhikRB

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Re: Aircraft pricing
« Reply #6 on: November 15, 2016, 11:08:42 AM »
As you can see from the first Schro link - price is nothing.
Most important column - is Mkt/Seat value.
Nobody cares how much is list price 30M or 1B. If mkt/seat is in average market range - than its ok.
Everybody counts how fast they can return paid amount and thats its all about.

Game mechanics should also have some top limitations assuming that the price of AC cannot be non-returnable if AC is used correctly (market average) for a given period of time.

Another issue - that we have a lot of non-used ACs, but if producer will increase discounts greatly (like IRL), it means at some point people can start ordering even 747-100  and making money from them if the price goes down enough. there are must be announcements not only like "production of AAAA will be stopped because no orders", but also "Producer of AAAA offering great discounts (50%) for first 5 buyers (at least 10 ACs) ".  If orders rise - price rise, if no orders - price goes down to some very attractive minimum  and only after it - AC production closed.
then some companies will get opportunities to switch from top-tier AC choice to 2nd and 3rd tier just because book price will be so low then it becomes usable.

In a late GW periods price of AC also must consider current ticket revenue in the world. How much is average revenue from SH/MH/LH routes per pax can be easily taken by system from DB and put into price setting formula.

All this can be easily implemented I think and tested in Begginers GWs.


Offline schro

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Re: Aircraft pricing
« Reply #7 on: November 15, 2016, 01:57:17 PM »
As you can see from the first Schro link - price is nothing.
Most important column - is Mkt/Seat value.
Nobody cares how much is list price 30M or 1B. If mkt/seat is in average market range - than its ok.
Everybody counts how fast they can return paid amount and thats its all about.

Game mechanics should also have some top limitations assuming that the price of AC cannot be non-returnable if AC is used correctly (market average) for a given period of time.

Another issue - that we have a lot of non-used ACs, but if producer will increase discounts greatly (like IRL), it means at some point people can start ordering even 747-100  and making money from them if the price goes down enough. there are must be announcements not only like "production of AAAA will be stopped because no orders", but also "Producer of AAAA offering great discounts (50%) for first 5 buyers (at least 10 ACs) ".  If orders rise - price rise, if no orders - price goes down to some very attractive minimum  and only after it - AC production closed.
then some companies will get opportunities to switch from top-tier AC choice to 2nd and 3rd tier just because book price will be so low then it becomes usable.

In a late GW periods price of AC also must consider current ticket revenue in the world. How much is average revenue from SH/MH/LH routes per pax can be easily taken by system from DB and put into price setting formula.

All this can be easily implemented I think and tested in Begginers GWs.

Not sure I can agree on the Mkt/Seat valuation as being key. The number of seats installed in a plane is usually quite arbitrary depending on the type of operation the airline operates, so there's really not a great way to use that metric across real world airlines that have varying density needs. Sure, it might help them with pricing it just for themselves to benchmark capital costs against other fleet types they operate, but outside of that, it's like asking an apple to describe an orange....

The excess planes in late game worlds that float around the dessert and are otherwise parked/available is more of a function of making this a playable game and doesn't necessarily need to be fixed. If a game world that's scaled to handle 600 players only has 200 actively playing, then it stands to reason that there will be some excess in certain areas, but the current market mechanics handle that well enough (even though the used/new pricing doesn't jive with each other, but that's the subject of a different bug thread).

Basically what happens over time (that also mimics the real world) is that the costs of doing business increase faster than the revenue that is earned from it. A quick glance at my GW4 vs GW3 airlines, both based in the US, currently in 1976 and 2022 respectively -

Costs as a percent of Revenue -

Staff
1976 - 18.8%
2022 - 29.2%

Fuel
1976 - 8.1%
2022 - 21.5%

Aircraft Leasing + depreciation (1976 is about 40% owned, 2022 is 100% owned)
1976 - 10.6%
2022 - 7.8%*

Gross Margin
1976 - 34%
2022 - 17.4%

*Should I have my 2022 fleet at the 40% ownership level, I suspect that my aircraft leasing + depreciation costs would be in the 15-20% range.

I suppose there's a few conclusions that can be drawn from this anecdotal evidence. One is that the game gets more difficult as time goes on, but it asks the question as for at what point does it become "game breaking" to have costs continue to escalate compared to revenue for the average player? The leasing trap is VERY real and the one that bothers me the most, specifically due to the over inflated valuations of new planes within the game (for the price/list dilemma as stated above).

Online MuzhikRB

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Re: Aircraft pricing
« Reply #8 on: November 15, 2016, 03:11:52 PM »
Surely
No need to compare a319 with a380 for mrkt/seat value

But you need to compare a380 with 777 or othe big birds.

What is more important is to make price more flexible and extend its fluctuating.

I have started recently in GW3 which is in final stage and its really difficult to get good valued acs from um that will help me to fight with competition. Even some new acs that has less orders than i have fingers on my hand still priced like hell.
I am not talking about 767-300 costed somewhere 300+ M. 30y ago designed plane??? 

So if the prices for non demanded acs will decline faster and in bigger scale it will help to newcomers and make gameplay more differential and interesting IMHO.



Online MuzhikRB

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Re: Aircraft pricing
« Reply #9 on: November 15, 2016, 03:32:00 PM »
Currently in gw4

Over popular 10-30 priced 75-77 m
747-100 is 55 and no orders. Why not making it 30 for example for limited time and amount.
May be it will make it attractive for operation leasing then.

And instead of slot grabbing game (i mean production slots) we get more variants of strategy and therefore interesting combinations.

Online gazzz0x2z

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Re: Aircraft pricing
« Reply #10 on: November 15, 2016, 04:15:35 PM »
(.../...)Basically what happens over time (that also mimics the real world) is that the costs of doing business increase faster than the revenue that is earned from it. (.../...)

As you say, it does mimic the real world. Karl marx called this the tendency of the rate of profit to fall. The standard methods of capitalists for making more profit anyways is to impulse a technological revolution, or to look for new markets. The first method is clearly beyond the scope of game, and game-balancing mechanism do limit the second one. I'd have two or three more regional bases in the USA without them. But the 600 planes out of HQ limit is looming, so I'm blocked.

I suppose there's a few conclusions that can be drawn from this anecdotal evidence. One is that the game gets more difficult as time goes on, but it asks the question as for at what point does it become "game breaking" to have costs continue to escalate compared to revenue for the average player? The leasing trap is VERY real and the one that bothers me the most, specifically due to the over inflated valuations of new planes within the game (for the price/list dilemma as stated above).

You're right, but new players would be less trapped if they took the time to make a proper analysis. I mean, in most situations, the best way to start a company is to fly single-aisle airplanes. A new player that would enter GW3 right now would probably be able to find a place where he can fly several of them. Still, due to sheer prestige, many will prefer the A320neo to the C919. If you do a quick compare, you'll notice only 2 differences that really make sense(not near enough for a hand grenade, to steal your vocabulary) :

(1)A320neo flies 3100NM, against 2390NM for the C919. Annoying, but lines above 2000NM are not a good idea as first lines anyways. They lose money for a too long time. (some would even say they are not a good idea at all).
(2)A320neo costs exactly the double price than a C919. Brand new.

I just checked, the C919 would cost 919k$ per month if leased, the A320neo 1,865M$. My median bought MAX8(a similar kind of aircraft) makes 600k$ per week, not counting staff & marketing. With 60k$ of depreciation. That you would replace by 230k$ of leases for a C919, and 460k$ of leases for a A320neo.

Staff + marketing is probably above 250k$ a week for those birds, those days. Maybe even not far from 300k$(I'm too lazy to remake the full analysis, so I'll assume 300k$ is accurate enough). With a leased new C919 you stay ramen profitable, around 130k$ per week. Just enough profit to buy noodles. And to make slow progress. With an A320neo, you're already dead - you'd lose 100k$ per week. And the unsuspecting newbie would not understand why his plane is making money(200k$ in that case), and his company is not.

Note that an old leased 737-400(like the ones I'm selling on the UM and noone wants, besides this clever new company in Ukraine) would cost around 80k$ in leases, and probably 80k$ extra in fuel. Plus 20k$ extra in maintenance. So 120k$ less benefit than my bought MAX8, but still 50k$ more than the leased C919. And 280k$ more than a leased 320neo.

In other words, you can escape the trap, even if you can't buy new shining popular things. You have to lease old crap, or buy new, shining, unpopular birds. but my advice to mentees is often "lease old crap, we don't care if it stinks". The later in the game you are, the truer it is.

Offline TheLostNZ

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Re: Aircraft pricing
« Reply #11 on: November 16, 2016, 12:40:14 PM »
(1)A320neo flies 3100NM, against 2390NM for the C919. Annoying, but lines above 2000NM are not a good idea as first lines anyways. They lose money for a too long time. (some would even say they are not a good idea at all).
(2)A320neo costs exactly the double price than a C919. Brand new.

I just checked, the C919 would cost 919k$ per month if leased, the A320neo 1,865M$. My median bought MAX8(a similar kind of aircraft) makes 600k$ per week, not counting staff & marketing. With 60k$ of depreciation. That you would replace by 230k$ of leases for a C919, and 460k$ of leases for a A320neo.

Staff + marketing is probably above 250k$ a week for those birds, those days. Maybe even not far from 300k$(I'm too lazy to remake the full analysis, so I'll assume 300k$ is accurate enough). With a leased new C919 you stay ramen profitable, around 130k$ per week. Just enough profit to buy noodles. And to make slow progress. With an A320neo, you're already dead - you'd lose 100k$ per week. And the unsuspecting newbie would not understand why his plane is making money(200k$ in that case), and his company is not.


I tried the c919 in the US event earlier this year and they were way better than the a320 and 737NG and Max.
Plus no queue for the planes,
Cheap=win profitable=win and no queue=short waits=win

Online gazzz0x2z

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Re: Aircraft pricing
« Reply #12 on: November 16, 2016, 03:39:38 PM »
I tried the c919 in the US event earlier this year and they were way better than the a320 and 737NG and Max.
Plus no queue for the planes,
Cheap=win profitable=win and no queue=short waits=win

Only reason I went for MAX is range(and capacity for very juicy routes). Not everyone has this need. If you don't, C919 is the best single-aisle in the end of the game. Ideal replacement for MD80/90. Often a good replacement for A320 & 737. My initial plan was to go C919, and have a full "communist" fleet(Ukrainian A148 + Chinese C919), by the way. And then, JFK went empty just before the time I had planned to look for a fourth base, which completely changed my plans. Had I stayed on smaller bases, C919 would have been just perfect.

A148 is the same, in not as good - it drinks a little bit more, and costs double in maintenance. Still, with price + availability, it gives me a great advantage against better-looking planes.

Offline qunow

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Re: Aircraft pricing
« Reply #13 on: November 17, 2016, 12:10:21 PM »
So, using Russian/Chinese planes in airwaysim would not cause high maintenance cost/time or reduced availability?

Online gazzz0x2z

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Re: Aircraft pricing
« Reply #14 on: November 17, 2016, 01:45:39 PM »
So, using Russian/Chinese planes in airwaysim would not cause high maintenance cost/time or reduced availability?

Depends on which plane. The A148 is doubly costly to maintain than his Western(or Japanese) counterparts. But you have to look at the whole picture. Depending wether you can afford to buy or not, the numbers will be different. In the 2010s, the E170's price was just triple than the A148E's. You'd lease a A148E for 60k$ per week, a E170 for the triple, roughly. Other differences would be that you pay the double in maintenance(my 15-yo A148 cost me 26k$, so I guess similar E170 would cost 13k$), and 15% more in fuel, maybe around 20k$ per week, depending on the route structure.

In other words, when you are to lease, even if the exploitation costs are higher by, let's say 40k$ or 50k$ per week, for counting also the extra commonality costs & route fees. But, at the same time, you are just in the green for 120k$ per week on leasing costs alone, plus trinkets on insurance. So yes, the A148 has higher maintenance costs, but it delivers comparable income, for a global lower total cost.

It does not mean the Ejets are crap. If you can afford to buy them - or of you're blessed with numerous lines where the 85 seats of the A158 are not enough compared to the 100+ of the E195, then, and only then, Antonov is a bad choice. If you can buy a continuous streak of E190, then why bother with the Antonov? Depreciation won't be a killer as leasing is, and superior capacity on routes where you can use it, plus lower running costs, will more than offset the higher depreciation costs.

For the C919, numbers are even simpler : it does not cost more than a A320neo to run. Maintenance and fuel ar similar for a similar capacity, and for half the purchasing price. Only limits are capacity and range - if you really need capacity, go 321, if you really need range, go MAX7. In many situations, you don't need. More important, if you begin a new company, you should not - even if it's possible. Had I stayed in Detroit, C919 had been perfect. In JFK, not so much.

.

All this is only for those specific planes. Other birds can be different. MA60, ARJ21 & TU334 seem crappy, A140 seem surprisingly good, SSJ is nearly a western plane(both in game termes and in reality), IL96 is going to kill you, and even quicker than leased 777s, etc..... You need to make an analysis for each plane - and for each game. I've seen the MRJ at 60M$ in one game, and at 25M$ in another one. MRJ at 25M$??? Ditch every other regional jet!!! Not now, but yesterday!!!

TL:DR : do the math, and see what is best for your situation. Sometimes, "Communist" steel is better. Sometimes not.

Offline schro

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Re: Aircraft pricing
« Reply #15 on: November 17, 2016, 03:38:42 PM »
TL:DR : do the math, and see what is best for your situation. Sometimes, "Communist" steel is better. Sometimes not.

At least for the older Soviet planes (not sure about the C919 or newer Soviets), it's not always as simple as doing the math as there are some difficult to determine variables. Specifically, with respect to maintenance. The rate of increase of maintenance costs on a plane is variable based upon the type, so, for example (without me looking up numbers), suppose the following -

A 727 costs 50k per B check when new, but 100k when 15 years old.
A 727ski (Tu154) costs 50k per B check when new, but 250k when 15 years old.

Generally what i've observed is that you don't want to keep the older Russian metal longer than 8-10 years before tossing it unless you want wrenching to be the biggest line item on your P&L. Then, the problem with having a plane with a 8-10 year life cycle is that it makes it very difficult to build a small regional airline, as you'd be capped at about 500 planes in that fleet before having to start cycling them out and replacing them. When you end up replacing them at that frequency, then your capital cost differences between say the 727 (lasts 20-23 years) to the 727ski (lasts 8-10 years) evens out quite quickly...

Offline qunow

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Re: Aircraft pricing
« Reply #16 on: November 18, 2016, 02:30:37 AM »
I mean, from what I am awaring of, in real world situation, cost of a plane seems to be a relatively minor contributor to the cost of running an airline (a quick search link me to this pic https://people.hofstra.edu/geotrans/eng/ch3en/conc3en/airlinecosts.html which say 6%) with fuel, labout, maintenance being a more important contributor. The way you talk about it seems to imply the pricing of those aircrafts play a much more important role in this simulation than they are in real life, and thus maintenance-intensive and fuel-inefficienct aircrafts are less penalized in this game?

Edit: And in this game leasing new airplanes seems to be an immidiately killer but somehow in real world every LCCs are happily leasing A320/321ceo/neo
« Last Edit: November 18, 2016, 02:34:01 AM by qunow »

Online gazzz0x2z

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Re: Aircraft pricing
« Reply #17 on: November 18, 2016, 07:46:39 AM »
At least for the older Soviet planes (not sure about the C919 or newer Soviets), it's not always as simple as doing the math as there are some difficult to determine variables. Specifically, with respect to maintenance. (.../...)

Didn't know that. Anyways, the A-Check for my A148 is 6k$ new, 15k$ at 16 years of age. Annoying, but still less important than fuel, for example. I'm replacing them before second D-Check(though not all of them will be replaced, I grew up rapidly using other players as brokers, both in-alliance and outside). 3M$ the D-Check for a plane that is worth less than 6M$.....I don't like it.

So yes, long term, maybe it's not better. But there is another factor, as said by TheLostNZ : immediate availability. Those birds are so cheap that you can grow much faster, and set up an immediate strategical advantage, by occupying routes before opposition. Previous games I had Ejets, and their high prices slwoed down my growth. Later, they paid off, but I lost quite a few cool opportunities due to slower growth, and opposition spamming J728.

Long term....If I hadn't gone 777 as a third fleet group, the right move would have been to replace those aging A148 by MRJs, of course. A MRJ at 40M$ is still better than a A148 at 17M$(that is, when you can buy it easy). When it's 60M$, the music is different....

And in real life, of course pricing is strategic. In the press :
Airline consultant Pierre Jeanniot agrees that Delta is likely getting a discount of as much as 40 to 50 per cent on the planes for the public vote of confidence they are giving to Bombardier.
Boeing and Airbus had, until last week, kept Bombardier from getting an “industry-accepting” CSeries order by discounting prices on 737-700s and A319s.

Remember economy is a game of margins. When you play a very tight market(like Singapore or Australia in current GW3 - it's been very tough to make money in thoses places this time), sparing 4% of margin on the purchase price, even if you lose 2% on maintenance plus fuel, that's still 2% extra margins. On markets where margisn were often inferior. The price war that waged for 10 years in Singapore had both players here usually under 2% margin. Choosing the right plane is really strategic, in that case. And everything counts.

 

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