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Author Topic: Gazzz's tutorials : Costs  (Read 5642 times)

Gazzz's tutorials : Costs
« on: July 20, 2017, 09:40:06 AM »
(Disclaimer ; HostingPics being about to close, I have to upload the images directly at the end of the post. Sorry for the inconvenience)

Expenses analysis

For improving the profitability of a company, you can increase income, or decrease expenses. For decreasing expenses, you have to know where are your weaknesses. Some expenses are tough to fight, others are levers for improvements.

For illustrating the various expenses we have to pay, Let me analyze my two current companies, in GW2 & GW3. For getting the relevant chart, go to "Office - income statement", and click on the small chart button just left from "Total operating expenses"

It give you two charts. The important one is on the right. Expenses during the week are not linear, therefore, the left chart, while accurate for the current week, is misleading. The right chart, concerning the previous week, is accurate, and allows deep analysis.

Here is my chart for my current company in Warsaw & Katowice, GW2. It's early in the game, 1953, with old crap flying all around. I've got B377s, CV240s and IL12s. Let's see the main expenses :

(first image WAW1953)

Staff salary 16.4% : that's not much. Despite the high number of pilots required by my flying stuff, I a blessed with low Polish salaries.
Fuel 17% : It's a lot for the era, mainly linked to poor fleet choices. I went IL12 because I did need the speed immediatly, but they are real drunkards. That's something that needs to be acted upon - as soon as I'll catch better airframes.
Fuel Contract 0,37% : Those ones are secondary. You can save a little bit on petrol with those, but they won't make or unmake your company.
Staff training 7% : I've got 3 fleet groups, for mere 69 planes. It's too much. You should not go beyond 2 fleet groups before reaching 80/100 aircraft in terms of fleet size.
Maintenance 13.5% : that's very bad. It's pushed up by commonality, like staff training, but also by the insane maintenance costs of flying soviet steel.
Aircraft Lease 15.5% : that's good, actually. It means I've been able to secure B377s at a relatively acceptable price, and as well order CV240s before prices went nuts.
Aircraft insurance 3.3% : not something you have direct control on. It just goes down when owning aircraft instead of leasing them, and flying cheaper airframes.
Passenger fees 4.9% : basically, linked to your income. The more seats you sell, the lower. Which means that selling 60 seats at 80$ is better than selling 80 seats at 60$. Unless you need to starve an opponent.....
Other fees : linked to the aircraft weight. A parameter most players overlook. Still, Russian steel is penalized here, too.
Depreciation 0.63% : that's because I own my IL12s, as well as a few CV240s. Rule of a thumb : usually one third of leasing the same plane. Had I leased them, I'd have something like 17.3% of lease costs.
Marketing 10.5% : ideally between 5% and 10%, I'm rather aggressive, there. As new planes arrive and my company grows, it should get better.
Office rent 0.8% : something you have no control about.
Alliance fees 1.83% : that's high, but a good alliance gives you an invisible bonus in terms of Company Image. Plus being part of a good alliance eases plane trades. Your call.

So, in conclusion, my main problem here is my fleet choice, that has been driven by availability, not by costs mastery. It's a trade-off. I could wait more CV240s for two more years, or send IL12s right now.
Later in that game, I'll have to take care of those, and rationalize my fleet choices.

And here is my vastly different chart for my huge company(921 flying things at screenshot time, plenty more to come) in 2020, Charles de Gaulle, Alicante, Orly, Warsaw, GW3. I've got A330s being replaced by neos, 737s being replaced by MAXs, and MRJs beginning to arrive.

(second image, CDG2020)

Staff Salary 29.3% : French salaries are killers, compared to polish ones. Not something I can do anything about.
Fuel 24.45% : It's a lot, despite flying efficient aircraft. I need to go one with replacing A330s by neos, and stick to efficient fleet groups. I also am paying my long-range 737 flights, but that's a choice I accept the consequences.
Fuel Contract 0,29% : same as above
Staff training 1.53% : 3 fleet groups for a huge company is so much better than for a small one.....
Maintenance 4.9% : That's just good. Will be even better with fleet renewal and younger airframes.
Aircraft Lease : no more ;) I just replaced my last leased aircraft.
Aircraft insurance 1.73% : owned aircraft are less costly, there.
Various fees : same as above.
Depreciation 8.2% : it would mean I'd have more than 24% of expenses in leased aircraft. It's already 2020, planes are getting very costly, and stuff that does not drink a lot of petrol is expensive.
   That's the reason why the advice is generally to lease old(for reducing lease costs) or buy new(for reducing fuel costs while not being killed by lease costs).
Marketing 2.5% : I'm at 100% company image with that, the privilege of being huge...
Office rent 0.66% : same as above.
Alliance fees 1.28% : that's high, but a good alliance gives you an invisible bonus in terms of Company Image. Plus being part of a good alliance eases plane trades. Your call.

In conclusion, the only part I can improve here is having newer, better airplanes, for reducing maintenance and fuel costs. And stay at 3 fleet groups or less at all costs.

NB : my margin is 37% in Poland, only 16% in France. That's because of the era, and also because GW3 is more mature. My french company is actually far better than my polish one, just fuel and owning costs in the late game are far higher, and do not allow for the same levels of profitability than in the early years.


Main conclusion : slashing costs is an important thing to do. It shall not prevent you from conquering markets. By finely analyzing your costs, you can meet problems, that you might be able to identify weaknesses in your management.

The biggest cost driver is fleet choice. Too many fleet groups, or bad ones, might kill you. Leasing brand new shiny aircraft is a frequent problem, also. Too many bases for not enough aircraft may be a killer too, especially for large & very large sizes. All the interest of the game is finding the right choices. Finding the right fleet, big enough to fill the demand, small enough to reduce costs and allow outpacing opponents, is a challenge. Parameters are moving quickly, and it's choices that stay for years, often decades. That is fun. I do hope this little tutorial wil help you understanding the costs side better.

It's often worth, early in the game, to bite higher costs in exchange for conquering the territory and increasing income. You see the consequences in my polish costs. Later in the game, when demand is mostly met, cost control becomes strategic, and my french game did reach a very good level there, though there is still room for improvement.

Of course, I'd be happy to answer any question on the topic, or add any additional topic relevant anyone might bring in.
« Last Edit: February 28, 2018, 10:16:07 AM by gazzz0x2z »

Offline Andre090904

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Re: Gazzz's tutorials : Costs
« Reply #1 on: July 20, 2017, 10:39:00 AM »
Very nicely written and analyzed! Well done!

I would like to highlight the following:

Quote
It's often worth, early in the game, to bite higher costs in exchange for conquering the territory and increasing income.

This is so true! I am also in current GW2 (it's 1953) and I have around 90 DC3 aircraft. Now these are terribly small, terribly slow and have a terrible range of only 300NM at full capacity. But there are tons of them on the used market (actually they are the only aircraft type that is readily available at all times).

So in order to gain market share, I am using them on routes up to 600NM with 23 seats. Since they are so slow, they would only be able to fly 1 leg per day. So instead, I let them take off at 2255 (before the curfew kicks in), let them tech-stop somewhere in the wilderness to waste time and let them land at their actual destination around 0500-0600 in the morning. Is it cost-efficient? No way. Do I get lots of market share? Yes! So I accept the costs just to "reserve" juicy routes for later on when I have much more suitable aircrafts. I get more market share, more slots, have routes for myself and even get more money. But it's also much more work during the fleet transition.

Example:
Hamburg to Liverpool with a tech-stop in Denmark. Does it make any sense? Apparently not. But it's the only solution so my DC3 can take off at 2255 and land in Liverpool at 0600. I have to waste time in the air so that I can schedule 2 flights per day per aircraft. It's the only way I can make full use of my DC3 and gain more market share on important routes.

DannyWilliams

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Re: Gazzz's tutorials : Costs
« Reply #2 on: August 06, 2017, 08:16:52 AM »

It's often worth, early in the game, to bite higher costs in exchange for conquering the territory and increasing income. You see the consequences in my polish costs.
I took another approach this game which involves simply using premium seats, while my competitors are flying around in their high density DC-3/4's i am flying around in my Saab 90's and AS.57's with 40% increase in prices and usually doing 1-2 more flights on the same route with 85-95% LF...

The only thing that i can get better on is marketing as i am spending WAY more than i should have to, but that's what you get for having 6 bases i guess.... :-\

Offline gazzz0x2z

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Re: Gazzz's tutorials : Costs
« Reply #3 on: August 06, 2017, 08:31:18 AM »
That's interesting. I've never been able to use premium seating correctly. I always tended to increase my prices anyways, flying sometimes with 30% load factor with effectively more profit than at 60% load factor. Reducing available seating to improve the "milk your customers" effect is something I never made work, but maybe you're right. I shall try on a few choosen routes. Thanks for the tip.

DannyWilliams

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Re: Gazzz's tutorials : Costs
« Reply #4 on: August 06, 2017, 08:39:17 AM »
That's interesting. I've never been able to use premium seating correctly. I always tended to increase my prices anyways, flying sometimes with 30% load factor with effectively more profit than at 60% load factor. Reducing available seating to improve the "milk your customers" effect is something I never made work, but maybe you're right. I shall try on a few choosen routes. Thanks for the tip.
I had to do it anyways since another airline opened a new base at my HQ and started using Heron 1's with 2-4 more frequencies a day on my routes, which in turn messed me up for a couple of weeks till i figured out a plan of action against him. Now everything has settled down and it seems like he has stopped being so aggressive after i went full premium and increased my own frequencies to match his...

Still sucks to pay $150k+ for each slot on 28/42 seater planes though, especially when each plane is doing like 3-6 frequencies a day...

Take my San Jose - Santa Ana route as an example: I have 15 frequencies a day, slots at both airports cost me $150k+ and i still haven't filled up the demand... It's ridiculous!!!
« Last Edit: August 06, 2017, 08:43:32 AM by DannyWilliams »

Offline gazzz0x2z

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Re: Gazzz's tutorials : Costs
« Reply #5 on: August 07, 2017, 06:58:43 AM »
That's a 297 NM domestic route. There won't be any "too small" penalty here, for planes above 16 seats, probably. Ever. So you're going to have fun for a very long time, on this route.....

DannyWilliams

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Re: Gazzz's tutorials : Costs
« Reply #6 on: September 09, 2017, 09:32:58 PM »
So after all the time that has passed since i last posted here, the staff salaries are still kicking my ass.
Slowly going down Quarter to Quarter as i change out some of my Saab's for the Handley MK.100 and F27, but still.

Also decided to go full RyanAir on my employees yesterday to see if they can deal with 5% lower salaries for now, if it does i might just go down even more seeing as i am nearing $30m in monthly salaries already...

Offline qunow

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Re: Gazzz's tutorials : Costs
« Reply #7 on: September 09, 2017, 09:58:54 PM »
So after all the time that has passed since i last posted here, the staff salaries are still kicking my ass.
Slowly going down Quarter to Quarter as i change out some of my Saab's for the Handley MK.100 and F27, but still.

Also decided to go full RyanAir on my employees yesterday to see if they can deal with 5% lower salaries for now, if it does i might just go down even more seeing as i am nearing $30m in monthly salaries already...
I think the main reason why salary take up so many percent of expenses in your airlines for now is simply because of cheap fuel price. Try to redraw the chart with quadrupled fuel cost.
And as mentioned, never manually adjust salary

DannyWilliams

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Re: Gazzz's tutorials : Costs
« Reply #8 on: September 09, 2017, 10:09:09 PM »
I think the main reason why salary take up so many percent of expenses in your airlines for now is simply because of cheap fuel price. Try to redraw the chart with quadrupled fuel cost.
And as mentioned, never manually adjust salary
Only manually adjusting it trough this quarter to see how i am performing with it on manual, if i save $3-5m monthly in doing so that just another plus for me i guess ::)

Offline freshmore

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Re: Gazzz's tutorials : Costs
« Reply #9 on: September 09, 2017, 10:29:24 PM »
With staff costs, there is nothing you can really do. It's a constant onward onslaught and frankly you are better looking at costs you can control and revenues being maximised. What qunow says is also right, looking at costs in percentage terms only has drawbacks. Personally I would be looking to get those lease costs down with the eventual am to eliminate them entirely. It's something you can directly control and is easy to set targets, something like I will be 50% owned by 1965, or something along those lines.

Holding back on staff costs will always become an issue, because eventually you need to increase the amount you pay your staff and keep up with subsequent increases and that in percentage terms will be about as bad as if you had just left it to the automatic system. The other risk you run, is if you are paying staff less, you are closer to the threshold at which they will start striking which does far more damage than you would likely save should it happen.

The only realistic way to keep ahead of costs like staff is to raise revenues. That has two aspects, as Reset to Default pricing once in a while, which is usually pretty effective and in between those resets, maximising the revenue from the routes with the highest loads.

My rule on this is concentrate on what you can directly affect and leave everything else to it.

When you look at revenues and costs, always discount Other Revenues and only count the Operations Side of things. Leasing and Brokerage should be considered Extra and not Necessary in your Operations, I would consider that best practice. I keep data from my airline in Excel and from that can see how things change, which makes it easier to spot little things before they become too much of an issue. For example I can tell you that my Revenue per pax went up last year but Profit per Pax was actually down., which highlighted a change that wasn't ideal in my airline. I can see percentage increases very easily and work out an Operating Margin for my airline, which if you lease and sell aircraft, is better than the games Net Margin at showing how healthy your Operating side is.
« Last Edit: September 09, 2017, 10:50:08 PM by freshmore »

Offline Zobelle

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Re: Gazzz's tutorials : Costs
« Reply #10 on: September 10, 2017, 05:36:39 AM »
Only manually adjusting it trough this quarter to see how i am performing with it on manual, if i save $3-5m monthly in doing so that just another plus for me i guess ::)

I always do manual, I let morale drop to about mid 90's before I relent and let them have their blood money.

Offline qunow

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Re: Gazzz's tutorials : Costs
« Reply #11 on: September 10, 2017, 05:57:53 AM »
I always do manual, I let morale drop to about mid 90's before I relent and let them have their blood money.
At least, not a manual cut.

Offline gazzz0x2z

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Re: Gazzz's tutorials : Costs
« Reply #12 on: September 10, 2017, 07:28:14 AM »
You'll spare also a lot by going on replacing Scandias by F27s. One pilot less. And it's also high because you are in the USA, and because you've got 5 bases for mere 250 flying airframes. Still, it's going to stay high because

_you're cautious on the commonality
_you're flying low-consuming airframes, and ful costs are low
_you don't overspend in marketing

Even with less pilots, it's going to stay a major part of your income. Which is not really a problem. You began to do the only sensitive thing to reduce costs : replacing 3-pilots airplanes by 2-pilots airplane. The rest, well, just bite it. It's the same for everyone in your fishing zone.

DannyWilliams

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Re: Gazzz's tutorials : Costs
« Reply #13 on: September 10, 2017, 09:35:24 AM »
You'll spare also a lot by going on replacing Scandias by F27s. One pilot less. And it's also high because you are in the USA, and because you've got 5 bases for mere 250 flying airframes. Still, it's going to stay high because

_you're cautious on the commonality
_you're flying low-consuming airframes, and ful costs are low
_you don't overspend in marketing

Even with less pilots, it's going to stay a major part of your income. Which is not really a problem. You began to do the only sensitive thing to reduce costs : replacing 3-pilots airplanes by 2-pilots airplane. The rest, well, just bite it. It's the same for everyone in your fishing zone.
Saving alot more once i stop using these Saab's on 700+ nm routes and change them out with either the MK.100 or the F27...

And as you can see those 5 bases are mostly at really small airports or at airports that i am already spamming every route under 900nm on.

One of the only reasons as to why Seven opened a base at Oakland is because he has planes capable of reaching all of the US market without a tech-stop, that gives him ALOT of options seeing as none of us at Oakland previously had planes planes like that...
« Last Edit: September 10, 2017, 09:40:39 AM by Danny Williams »

Offline qunow

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Re: Gazzz's tutorials : Costs
« Reply #14 on: September 10, 2017, 05:31:57 PM »
Saving alot more once i stop using these Saab's on 700+ nm routes and change them out with either the MK.100 or the F27...

And as you can see those 5 bases are mostly at really small airports or at airports that i am already spamming every route under 900nm on.

One of the only reasons as to why Seven opened a base at Oakland is because he has planes capable of reaching all of the US market without a tech-stop, that gives him ALOT of options seeing as none of us at Oakland previously had planes planes like that...
Just do tech stops..at this era of the time... also, plan your fleet better so that you would have longer range aircraft at your disposal.. and that aircrafts can also be used beyond their stated range, just look at the payload range curve to see where it drop off

Offline gazzz0x2z

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Re: Gazzz's tutorials : Costs
« Reply #15 on: September 10, 2017, 07:01:39 PM »
Just do tech stops..at this era of the time... also, plan your fleet better so that you would have longer range aircraft at your disposal.. and that aircrafts can also be used beyond their stated range, just look at the payload range curve to see where it drop off

This.

In this kind of airports, you need exactly 2 fleet types : one medium for covering medium range destinations(what you're doing, basically), and one large for transcontinental flights. I playes once in the USA, and it's far more basic than Europe(as long as you say in North America - long range can be very subtle), all destinations are lookalike. You can industrialize. A perfect end-game fit would be MRJ + C919, or if you have slightly bigger bases, Ejets + A320. Back to the early 60s, a 50 seater like the viscount and a large airframe capable of 2500NM, like the Comet 4(or plenty of other choices).

If you don't take everything that is available, someone else will. It's very tough now to open a company in Poland, because my opponent and myself have taken all the market. There are a few niches he's not going to, a few niches I'm not going to, but basically, both of us go nearly everywhere. It does not prevent brave newcomers to try to enter anyways, but it's far less common. You didn't do that. You didn't lock your market. Therefore, you exposed yourself to attacks.

There is a lot of psychology in this game. Look strong, and most companies will leave you alone. Especially good players. Have 65% of market share everywhere you are based, 35% of profitability, and no experienced player will try its luck against you. In GW3, as soon as I forgot about CDG and did let slip my market share below 50%, a very good player did attack me. I did carry too much effort on secondary bases(especially Warsaw, a massive strategic blunder that did cost me the possibility to fight for the first place), and forgot to make CDG look unattackable for whoever knows the game. I did look strong, but not strong enough. Dropped from 3rd to 8th place in quarterly profit, at the time. That's a lot of money, like down from 400 to 300M$ pretax per week. But fortunately, I was strong enough not to be BK threatened. You are not so fortunate.

If I were you, I'd try to grow as massively as possible out of Oakland - counting the planes out of base limit. To get an income far from the Behemoth that landed in your HQ. Because he's not going to stop at 12% of market share. He probably thinks he can kill both three competitors over there. He's at 35% of margin, you're at 15%, your opponents around 10%. You should be the last one to die. Prepare for the fight. Be sure that 35% is the norm right now, and it will go down as the market will be more and more full, opposition will be more and more cutthroat, and fuel prices are going to skyrocket. You'd better increase your profitability per flight, too. Increase your prices. You'll see, it's miraculous : LF lowers, but income increases anyways.

Hotcliff

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Re: Gazzz's tutorials : Costs
« Reply #16 on: July 23, 2018, 11:11:24 AM »
Hi again gazz!
Last night I took your Tutorial-Costs as my bed-litterature and think it is very interesting and useful. So, this morning, I made an Excel Spreadsheet for my new airline's first 7 weeks , just to see where we are going  ;)

One question though:
When I copy the data from the Income statement and compare my calculated operational cost % figures with those shown in that "cake-piece-diagram", they differ quite a lot! For example, Staff salaries is shown 18,67% when my calculation gives 14,2% and so on...All figures are higher than mine.

How do they calculate that % ? 
I thought it was just the Specific operating cost divided with Total operating revenue for that week , or am I missing something?
I did check them all and they are all 32% higher than mine!
Just wondering.. :o
/Hotcliff

Offline gazzz0x2z

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Re: Gazzz's tutorials : Costs
« Reply #17 on: July 23, 2018, 04:20:52 PM »
Beware, the left graph is for the running week, the right graph is for the previous week. As some costs are weekly and not daily, always take the right graph and the previous week as a reference : those data are far more reliable.

Hotcliff

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Re: Gazzz's tutorials : Costs
« Reply #18 on: July 23, 2018, 04:47:42 PM »
Beware, the left graph is for the running week, the right graph is for the previous week. As some costs are weekly and not daily, always take the right graph and the previous week as a reference : those data are far more reliable.
This is the right graph  :-\

Offline gazzz0x2z

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Re: Gazzz's tutorials : Costs
« Reply #19 on: July 23, 2018, 07:23:37 PM »
This is the right graph  :-\

then I don't get it - mine are OK. Are you sure you take the second column?

screenshots from my GW3 company

 

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