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Author Topic: Price Sensitivity, Cargo - Extremely low  (Read 428 times)

Offline JumboShrimp

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Price Sensitivity, Cargo - Extremely low
« on: March 02, 2018, 01:05:15 AM »
I am running an experiment testing price sensitivity in cargo market

Setup, 2 flights:
Flight 1 - baseline, priced at 110%
Flight 2 - each day has a different price, ranging from 57% (43% discount) to 106% (6% premium).

As you can see, the slope is so small it is almost flat.

In a price sensitive market, there is:
- Price 1, where Flight 1 gets 100% and Flight 2 gets 0% (not tested high premium pricing)
- Price 2, where Flight 1 gets 0% and Flight 2 gets 100% (tested).

Extending the line, the split is evenly at 50% at 110% price

In a somewhat price sensitive market (that applies to Cargo in real world), one would expect that 50% discount for what is basically a commodity, would gain 100% of market share.  But as we can see, the market share rises to only 63.88%

So approx. 50% discount earns only 14% increase market share

As far as revenue, it goes from base to base * 50% * 114% = 57% of base.  (loss of 43% of revenue)
To generalize it, in market so price insensitive as Cargo is in AWS, every discount reduces revenue and profit.


TLDR:
- Price is 100% irrelevant as a competitive tool.
- We knew this from passenger market.  In order to save time to others, Price is irrelevant in Cargo market as well.
- So we go back to basics, boys and girls, to AWS 1.2 style game play: Frequency Rape

Online [ATA] Sunbao

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Re: Price Sensitivity, Cargo - Extremely low
« Reply #1 on: March 02, 2018, 01:17:36 AM »
Yeah no surprice in that even as Sami numberours of times stated that freq winning is not a thing but we all know it is.

Offline crayola

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Re: Price Sensitivity, Cargo - Extremely low
« Reply #2 on: March 02, 2018, 01:38:02 AM »
First, this is a thread about pricing. What has pricing got to do with frequency?

Secondly, as I stated to you before, publicly and privately - frequency rape isn't a thing. I mean it's a horrible, inappropriate phrase, but it doesn't work the way you think it does. If doing the practice as you see it works, it works for different reasons.

There are things I agree with you on - namely that the smallest plane available for a mission is the most successful one, and I wish above all other things that could be addressed somehow. But I'm talking 1 vs 1 or 2 vs 2. You want to call that a frequency issue, I maintain steadfastly that has nothing to do with frequency.

I also maintain steadfastly that if you are on the receiving end of your frequency overkill strategy- the best course of action to take is to reduce ones own frequency - something that will increase the load factors of your flights and make you more efficient. I also maintain that the only time frequency spamming works is when an opponent airline is already weak - the net effects from providing masses of frequency is actually a harder hit on the proponent airline.

This thread is an interesting analysis of ticket prices, and I agree that ticket pricing is pretty useless as a tool to increase or decrease load factors (although that's they way it is because people used to ticket price people out of the game). But this has nothing to do with frequency. It doesn't address match ups against other players. It doesn't address big vs small. And it just comes back once again to your mis-interpretation of what a frequency spam is and what it does.

Joe - go into a gameworld that you are not currently in (2 maybe?). Pick a large US base that is heavily oversupplied. Fly all these oversupplied routes once. The only person getting any decent load factors, cargo or pax will be you.

This is a game about efficiency, not frequency. That the  airlines that rule the world and never BK are massive is not because they supply a lot, it's because they are efficient, plan a lot and play the game for hours on hours. Well run, lightly managed "ankle biters" are actually the king of this game, and prove that frequency spam is a total myth, and the things you think constitute it are entirely different matters.



Offline JumboShrimp

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Re: Price Sensitivity, Cargo - Extremely low
« Reply #3 on: March 02, 2018, 01:38:33 AM »
If I can summarize frequency influence on allocation by different versions of allocation:

- AWS v1.2 - approx. 100% (when departure time, RI, CI are all equal)
- AWS v1.3 - approx. 90% except specific exceptions (too small, tech stop, too many flights)
- AWS v1.4 (?) Cargo allocation - approx. 100%, same as AWS v1.2

Offline JumboShrimp

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Re: Price Sensitivity, Cargo - Extremely low
« Reply #4 on: March 02, 2018, 02:31:41 AM »
First, this is a thread about pricing. What has pricing got to do with frequency?

Of all the real life factors, AWS Cargo only implements competitive tools:
- Price
- Frequency

I tested Price as a competitive tool.  I think it is obvious that Price is a total Fail as a competitive tool.

Conclusion: there is only one competitive tool: Frequency

Secondly, as I stated to you before, publicly and privately - frequency rape isn't a thing. I mean it's a horrible, inappropriate phrase, but it doesn't work the way you think it does. If doing the practice as you see it works, it works for different reasons.

There are things I agree with you on - namely that the smallest plane available for a mission is the most successful one, and I wish above all other things that could be addressed somehow. But I'm talking 1 vs 1 or 2 vs 2. You want to call that a frequency issue, I maintain steadfastly that has nothing to do with frequency.

Rather than arguing word definitions, here is a math definition:

Allocation = Total Demand / Number of flights

Since the only variable in the formula that player can influence Allocation is Number of flights (= Frequency), everybody calls it Frequency.  We could call it "Fluffy", but I think everyone understands meaning of frequency.

I also maintain steadfastly that if you are on the receiving end of your frequency overkill strategy- the best course of action to take is to reduce ones own frequency - something that will increase the load factors of your flights and make you more efficient. I also maintain that the only time frequency spamming works is when an opponent airline is already weak - the net effects from providing masses of frequency is actually a harder hit on the proponent airline.

Let me re-phrase it:
- When competing with equally matched or stronger opponent, you try to "assign" 100% of oversupply "pain" to your opponent, by flying ideal # of flights with smaller aircraft on the route
- When competing with a weak opponent, you don't need to optimize the above, you can just frequency span the route, since you don't mind a proportional allocation of pain (since your opponent is dying already

2 different strategies to deploy the frequency weapon, but nothing changes the fact that frequency is the only weapon.

This thread is an interesting analysis of ticket prices, and I agree that ticket pricing is pretty useless as a tool to increase or decrease load factors (although that's they way it is because people used to ticket price people out of the game). But this has nothing to do with frequency. It doesn't address match ups against other players. It doesn't address big vs small. And it just comes back once again to your mis-interpretation of what a frequency spam is and what it does.

Unlike Pax version, where the cost advantages per passenger mile between full narrow-body and full wide-body are small (further minimized by almost exponentially increasing staffing numbers of larger classes of aircraft) there are a substantial cost differences in Cargo costs of kg mile.  But the lack of price sensitivity eliminates / nullifies these differences.

So we are yet again forced to a single variable: frequency

Joe - go into a gameworld that you are not currently in (2 maybe?). Pick a large US base that is heavily oversupplied. Fly all these oversupplied routes once. The only person getting any decent load factors, cargo or pax will be you.

This is a game about efficiency, not frequency. That the  airlines that rule the world and never BK are massive is not because they supply a lot, it's because they are efficient, plan a lot and play the game for hours on hours. Well run, lightly managed "ankle biters" are actually the king of this game, and prove that frequency spam is a total myth, and the things you think constitute it are entirely different matters.

High LF = efficiency
Flying small aircraft more often rather than larger aircraft less often = High LF (in AWS)
Flying small aircraft more often rather than larger aircraft less often = Frequency

We are going in cycles.  Can we declare truce on word definitions and move forward to math?
« Last Edit: March 02, 2018, 02:35:53 AM by JumboShrimp »

Offline Tha_Ape

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Re: Price Sensitivity, Cargo - Extremely low
« Reply #5 on: March 02, 2018, 08:40:07 AM »
Hi, just coming in to add my own opinion. Rather new to AWS, didn't experienced a lot of situations and GWs, but what I can notice is that every time we're talking about something in relation to economics, you sum it up to frequency. Even when it doesn't seem to be the initial matter.

You don't look at other aspects, you ignore other arguments or proposals. I wrote a novel-long post and you didn't reply, just put a like. Maybe is it because it was too long - it was actually too long - but the result is that we got the feeling you're just obsessed.

Talking about a plane's bad economics, you say that it's right it should have another penalty because it's smaller than what you fly. Should you fly ATR-72, you'd complain about the DHC-8-300. Should you fly EMB-120, you'd complain about Beechcrafts. Etc.

I mean, I'm not saying that you rationally limit yourself only to that, but that's the picture you give.

And still, even if you're right and that you suffer from that "frequency rape", saying that when once airline is over 1000 planes is really something strange to observe. Didn't seem like that suffering harmed you that much.

Actually you manage enormous airlines and probably suffer much more from the penalty of being big (increased personnel, namely).

Please, let's discuss. You might be right (even if at that point I do not agree), but try to see the other person's point of view.
And please, stop using "rape". There are other words which will reflect the exact same idea without being so misplaced, even if it's a gamer's word.

You have great analysis skills, let's not spoil them with blinkers.

Thank you.

Edit Maybe I'm a bit too daring with this, but I assure you there's absolutely no bad feelings or anything else. Just trying to get real discussions and not headbangings.
« Last Edit: March 02, 2018, 09:14:47 AM by Tha_Ape »

Offline JumboShrimp

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Re: Price Sensitivity, Cargo - Extremely low
« Reply #6 on: March 02, 2018, 09:26:54 AM »
Hi, just coming in to add my own opinion. Rather new to AWS, didn't experienced a lot of situations and GWs, but what I can notice is that every time we're talking about something in relation to economics, you sum it up to frequency. Even when it doesn't seem to be the initial matter.

This topic, and my experiment started to be about price.  But as you can see from the result of the experiment, price in Cargo turned out to be equally irrelevant as it is in Pax version - as a competitive tool.
(you can fiddle with prices on undersupplied routes, but the prices just don't matter in oversupplied, competitive routes).

You don't look at other aspects, you ignore other arguments or proposals. I wrote a novel-long post and you didn't reply, just put a like. Maybe is it because it was too long - it was actually too long - but the result is that we got the feeling you're just obsessed.

It's on my to do list. 

Talking about a plane's bad economics, you say that it's right it should have another penalty because it's smaller than what you fly. Should you fly ATR-72, you'd complain about the DHC-8-300. Should you fly EMB-120, you'd complain about Beechcrafts. Etc.

To fully exploit the system, the best way is to fly an aircraft that is viable on its own and about half the size of the competitor.  That way, you can try optimize your frequency in a way that your LF is 100% and the competitor LF is 50%

It does not mean that _I_ want to play that way.  All I am saying is that the system opens the door wide open to pursue this strategy.

I mean, I'm not saying that you rationally limit yourself only to that, but that's the picture you give.

And still, even if you're right and that you suffer from that "frequency rape", saying that when once airline is over 1000 planes is really something strange to observe. Didn't seem like that suffering harmed you that much.

Just because I can make it does not mean the problem does not exist.

In the past (before Sami added a series of penalties), typical players thought: "777 is the crown jewel.  I will fly it, and my airline will be Lufthansa sized in no time".  Next thing, they were dead.

Actually you manage enormous airlines and probably suffer much more from the penalty of being big (increased personnel, namely).

Staffing is fairly proportional.  Big airline does not have higher numbers of staff than an average sized airline.  I am talking incremental cost.  If both mid sized and large sized airline add identical aircaft, and schedule it with identical schedule, the incremental staff numbers will be the same.

The only exception is the overhead cost of opening (and maintaining) a new base, when the HQ is enormous.  That overhead cost is disproportionate,

For example, an airline that has a 100 aircraft HQ opens a base and schedules 10 aircraft.  There will be some overhead cost to this expansion at both the base and HQ.
If a 500 aaircraft airline (stationed at HQ) opens identical base and schedules 10 aircraft, the overhead cost of this new base (at HQ) will be diespotortionately larger than for 100 aircraft airine.

I mean, proportionate to the size of the HQ, but disproportionate to the incremental addition of the new base.

Offline MikeS

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Re: Price Sensitivity, Cargo - Extremely low
« Reply #7 on: March 02, 2018, 01:09:40 PM »
It's really hard to balance the game. Many of us manage to hoard hundreds of millions, even bilions of $. So if pax or cargo were as price sensitive as they should be,
then any new airline trying to start-up would get chocked.
I guess we should see the limits of price sensitivity as the limits of what regulators would impose in real life to limit un-competitive market behavior.

Cheers!
Mike

 

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