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Author Topic: [-] Aircraft lost $17.5m of its value in a day  (Read 254 times)

Online JumboShrimp

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[-] Aircraft lost $17.5m of its value in a day
« on: September 10, 2019, 09:32:52 AM »
A new A320-100 that costs 111,917,640, when placed on UM has a recommended value 94,355,000, losing $17.5m of its value instantly.  This, before the first passenger got a chance to puke all over the aircraft.

This level of disparity can't possibly exist in any economic system that is functioning.  Last time this got a [-] without proper explanation.

Besides this disparity defying economic reality, it is also unfair.  It places a one way, consistent roadblock (discrimination) against players who don't have 24/7 access to refresh UM, who rather just place orders for new aircraft, and a consistent subsidy to players who sit at the computer all day, refreshing UM.  They don't only get the aircraft (more aircraft), they also get the aircraft 15.7% cheaper.

I think this really needs to be fixed.
« Last Edit: September 10, 2019, 10:52:05 AM by Sami »

Offline Sami

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Re: Aircraft lost $17.5m of its value in a day
« Reply #1 on: September 10, 2019, 09:41:19 AM »
The cost of new a/c vs. "Recommended price" for used market are two separate things and not related.

Online JumboShrimp

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Re: Aircraft lost $17.5m of its value in a day
« Reply #2 on: September 10, 2019, 09:53:24 AM »
The cost of new a/c vs. "Recommended price" for used market are two separate things and not related.

That is the problem(!!!)  How can in any economic system one item have to prices that are unrelated?

If these two things cannot be tied together (which should be possible), then I vote we scrap the flaky one - the Dynamic Pricing of new aircraft.  Let the price of new aircraft be the "Recommended Price" of the Used Market.

Online gazzz0x2z

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Re: Aircraft lost $17.5m of its value in a day
« Reply #3 on: September 10, 2019, 09:53:48 AM »
@Jumbo : the price you pay depends heavily on the market. As a broker, I may do a rebate to some customers, and not to others. For reasons. That's unfair, but life is unfair.

Online JumboShrimp

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Re: Aircraft lost $17.5m of its value in a day
« Reply #4 on: September 10, 2019, 10:03:17 AM »
@Jumbo : the price you pay depends heavily on the market. As a broker, I may do a rebate to some customers, and not to others. For reasons. That's unfair, but life is unfair.

This is about code in AWS, not about a particular case or broker strategies.  The code of AWS has a gigantic hole in it.

Online dandan

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Re: Aircraft lost $17.5m of its value in a day
« Reply #5 on: September 10, 2019, 10:16:12 AM »
A new A320-100 that costs 111,917,640, when placed on UM has a recommended value 94,355,000, losing $17.5m of its value instantly.  This, before the first passenger got a chance to puke all over the aircraft.

the real price you get for it is anyway very different from what the "recommended" sales price is.
but in general, it is like with new cars. when you buy it from the dealer, you pay x; in the next moment, your car is considered used, and you will be lucky to get 85% of the price for it.

Online JumboShrimp

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Re: Aircraft lost $17.5m of its value in a day
« Reply #6 on: September 10, 2019, 11:41:49 AM »
the real price you get for it is anyway very different from what the "recommended" sales price is.

Can you explain?  I have no idea what you mean.

but in general, it is like with new cars. when you buy it from the dealer, you pay x; in the next moment, your car is considered used, and you will be lucky to get 85% of the price for it.

Nope.

Not when there is not a single used car you want for sale in the world.

Not when people are placing orders for 100% price because none are available for the 85%.

I take it you are not familiar with the joke about a guy who goes to a store to buy a pound of chicken.

Online JumboShrimp

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Re: [-] Aircraft lost $17.5m of its value in a day
« Reply #7 on: September 10, 2019, 12:07:42 PM »
The recommended price is no picnic either, but it is only half as bad as the Dynamic Price, so clearly preferable.

This is how the "Recommended" price works:

A guy comes to a store and asks for a pound of chicken.
The store owner says: $2
The guy says: "$2?  The store across the street sells it for $1.50"
The store owner says: "So why don't you go there to buy your chicken?"
The guy says: "Because they are out of chicken"
The store owner says: "When I am out of chicken, my price is also $1.50"

When I go to UM, there are no chicken (A321s).  when I ask what the price of is, it says 94,355,000.  When I ask the store across the street (New Aircraft Market) what the price of chicken is, it says 111,917,640.  Am I the only one seeing humor in this?

If "Recommended" price worked, the price of aircraft with no supply would, by definition, have to have a price higher than "New" price which has availability.

There was a time when system did not play these multiple, ill-fated price estimation games.  We had the "intrinsic price", which did not play any guessing games.

If there is any value in either recommended price alone or dynamic price alone, having both, to be in conflict and completely incompatible erases value of either one (and then some).
« Last Edit: September 10, 2019, 12:19:43 PM by JumboShrimp »

Online dandan

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Re: Aircraft lost $17.5m of its value in a day
« Reply #8 on: September 10, 2019, 12:28:16 PM »
Can you explain?  I have no idea what you mean.

well, the real price of a plane is the one you actually get. with some planes, that are in high demand, it can be far above the recommended price. with some that are trash, it is below 0 (if you count the price of storage until you can scrap it). so yes, the name of the price is misleading: "recommended" is something that one would recommend... which in this case you illustrate is certainly not what you want to ask for the plane.
it could be called a "standardized value" or something similar, but that is just changing a label. of course, if you have an a321, there are no other a321 on the market, you would try placing the price much higher than the "recommended" price. maybe it would help to introduce a "average price" or some "price info" that shows the last X sales of the plane, open market & private listing, so that people could have an idea, what the planes really go for. but that would kind of take away the fun of it  :laugh:

Online JumboShrimp

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Re: Aircraft lost $17.5m of its value in a day
« Reply #9 on: September 10, 2019, 01:12:53 PM »
well, the real price of a plane is the one you actually get. with some planes, that are in high demand, it can be far above the recommended price. with some that are trash, it is below 0 (if you count the price of storage until you can scrap it). so yes, the name of the price is misleading: "recommended" is something that one would recommend... which in this case you illustrate is certainly not what you want to ask for the plane.

I see, so what you meant is completely unrelated to subject at hand.

"Recommended Price" is a system generated base price the AI brokers use to sell aircraft, and is also provided as reference to players for purposes of limiting the range of intra-alliance sales.

it could be called a "standardized value" or something similar, but that is just changing a label. of course, if you have an a321, there are no other a321 on the market, you would try placing the price much higher than the "recommended" price. maybe it would help to introduce a "average price" or some "price info" that shows the last X sales of the plane, open market & private listing, so that people could have an idea, what the planes really go for. but that would kind of take away the fun of it  :laugh:

We have 3 separate prices, all generated by the system, that are incompatible.  In addition to the 2 conflicting values I described above, there is the intrinsic value that is used for calculating value of the aircraft as a "security".

Which one of the 3 is the best, or if a 4th one should be invented?  I don't have a strong opinion.

My main concert is that these values conflict with one another.  Any kind of rudimentary testing would flag this as a bug.  Unless there is a plausible design explanation behind this, and all I have seen is [-]
« Last Edit: September 10, 2019, 01:24:29 PM by JumboShrimp »

Online dandan

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Re: Aircraft lost $17.5m of its value in a day
« Reply #10 on: September 10, 2019, 02:43:36 PM »
I see, so what you meant is completely unrelated to subject at hand.

ok, well, fair point, maybe i was a bit off topic ;)

but yes, a while ago i requested a feature that it would be cool to have financial accountability for AI brokers; instead of having them buy loads of 747s, like currently in GW2, and selling them for a third of the price boeing asks for them. i dont get the whole idea with AI brokers ordering new aircraft excepts maybe at the beginning of the GW.
but after that, let them resell the aircraft of BKd players for reasonable "market" prices, and not for discount prices, where you are either lucky because its a bargain or you dont buy the plane because its more expensive than ordering new and waiting 3 months.

Online JumboShrimp

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Re: [-] Aircraft lost $17.5m of its value in a day
« Reply #11 on: September 10, 2019, 09:17:45 PM »
There are number of solutions of this design bug.

#1 Merge New aircraft Dynamic Price and Recommended price calculations to one by taking average of the 2 calculations

Advantage: conflict resolved, price of new aircraft = recommended sale price of 1 day old aircraft
Advantage: both calculations preserved, can continue to be refined
Advantage: New and Used markets provide feedback to each other (New Feature)
Disadvantage: none

#2 Scrap one of the calculations, either the Recommended value, or Dynamic Pricing

Advantage: conflict resolved, price of new aircraft = recommended sale price of 1 day old aircraft
Advantage: one of the calculation preserved
Status Quo: no feedback exists between New and Used markets
Disadvantage: one of the valuations calculations discarded, but I doubt anybody would shed a tear over universally unloved Dynamic Pricing

#3 Scrap both Recommended and Dynamic pricing valuations, go back to intrinsic value formula

Advantage: conflict resolved, price of new aircraft = recommended sale price of 1 day old aircraft
Advantage: New, Used and Aircraft as Security all have 1 value, rather than current 3 different values
Status Quo: No feedback between New and Used Market
Disadvantage: Supply and demand only apply in player sales, no feedback to broker default broker pricing
Mixed: While the 2 calculations left in conflict have net negative value, if the conflict is resolved (see #1), they both have potential and can be improved to simulate a market place
« Last Edit: September 10, 2019, 10:37:33 PM by JumboShrimp »

Online JumboShrimp

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Re: [-] Aircraft lost $17.5m of its value in a day
« Reply #12 on: September 11, 2019, 05:45:24 PM »
I am looking at some additional data, and it seems this bug has introduced a systemic plot to bankrupt airlines who buy / lease new aircraft (prices of which are determined by the Dynamic Pricing) and unfairly benefits airlines that lease used aircraft (priced based on Recommended pricing).

Not all the data is available for me to look at, but I got most fleets that matter - fleets that have new aircraft orders: NG, A320, A333/334, 767.

The 16% penalty due to this bug on new aircraft buyers translates to 4.5 - 5% of margin when fuel is cheap, probably 3 - 4% when fuel is normal.  Definitely big enough percentage to make a difference between life and death of an airline.

I will post update when I have data on 757, if the "new" buyers / lessees there also face headwind due to this bug.

Online JumboShrimp

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Re: [-] Aircraft lost $17.5m of its value in a day
« Reply #13 on: September 12, 2019, 12:52:58 AM »
Here comes another data point.

New 752PF: $91,310,860
Used 1 day old: $70,428,300

Penalty (surcharge) on players who buy / lease new vs. used: 29.6%

These are bankruptcy level penalties against players who innocently choose one of the 2 options they believe to be equal.


Online JumboShrimp

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Re: [-] Aircraft lost $17.5m of its value in a day
« Reply #14 on: September 12, 2019, 05:55:42 AM »
In the Real World, once can have:

Good + Cheap but it won't be Fast
Fast + Good but it won't be Cheap
Cheap + Fast but it won't be Good

AWS Used Market: Hold my Beer.  You can have
Good + Cheap + Fast

AWS New Market meekly raises hand and offers:
Good, but it won't be Fast, and it Won't be Cheap
And that's not all, AWS New Market adds, we also add Aircraft Lease Fees.  Yes, upfront.

Online dandan

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Re: [-] Aircraft lost $17.5m of its value in a day
« Reply #15 on: September 12, 2019, 06:31:04 AM »
i guess you did just sum up economics!   8) :laugh:

Online gazzz0x2z

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Re: [-] Aircraft lost $17.5m of its value in a day
« Reply #16 on: September 12, 2019, 06:59:35 AM »
Well, I disagree. In current modern times, I snatched 2 MD80s for 43M$ each(between 1 and 3 years old), when the new price is 10M$ less. So the real measurement point that counts is "it depends".

If the used market is depressed, and the new market is dynamic, you'll observe prices falling when the aircraft is delivered. When it's the reverse - as it's the case currently in MT for MD80s, well, buying new for reselling is a juicy activity. That's the basics for brokering. Brokering is indeed a dangerous activity, and if you are wrong in your evaluation of the used market, you're gonna lose a lot of money, or maybe even not sell your airplanes at all(happened to my 787s in last MT, that was a huge blow).

I don't get what is the problem when the manufacturer decides the manufacturing price, and the players - with there actions on the market - decide what is the price on the used market.

Online JumboShrimp

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Re: [-] Aircraft lost $17.5m of its value in a day
« Reply #17 on: September 12, 2019, 07:55:39 AM »
Well, I disagree. In current modern times, I snatched 2 MD80s for 43M$ each(between 1 and 3 years old), when the new price is 10M$ less. So the real measurement point that counts is "it depends".

Two points that this is not exactly the subject.  I refined it to look at "Good" desirable aircraft, for which players place New orders.
1. MD-80 no longer falls under "Good" in 2002.  Things may work better for planes that are not good, nearly out of production, but my point here is that it does not work for planes that are Good and have new orders
2. The discussion is not about an actual purchase that one can make on UM, it is about the formula by which the system determines the "Recommended Price" around which the initial AI Broker Ask is centered. - of Good planes.

I don't get what is the problem when the manufacturer decides the manufacturing price, and the players - with there actions on the market - decide what is the price on the used market.

This is not about player sales, but the calculation the system uses to determine the Recommended Price for Used Market (AI Brokers, alliance sales, min max), and Dynamic pricing of New aircraft.  Two AWS System level calculation that the system performs.  They should match when the new aircraft is delivered on day 1, and instead, they show consistent mismatch.  There could be a tiny mismatch that could be explained by "friction".  But the current mismatch for A321 is $17m and that difference cannot be explained by friction.

Online gazzz0x2z

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Re: [-] Aircraft lost $17.5m of its value in a day
« Reply #18 on: September 12, 2019, 08:25:14 AM »
Two points that this is not exactly the subject.  I refined it to look at "Good" desirable aircraft, for which players place New orders.
1. MD-80 no longer falls under "Good" in 2002.  Things may work better for planes that are not good, nearly out of production, but my point here is that it does not work for planes that are Good and have new orders
2. The discussion is not about an actual purchase that one can make on UM, it is about the formula by which the system determines the "Recommended Price" around which the initial AI Broker Ask is centered. - of Good planes.

The used recommended market price is driven by player's actions, ultimately. Buy every A320 available on the UM, and you'll see used prices skyrocket. Forget 787s on the used market, and you'll see prices plunge. The link is not immediate, but it's strong, and consistent.

And also : define "good". Several players, including me, have been extremely successful in early Modern times playing the MD80 card, hence pushing pressure up on prices. Especially on used prices, we're not that many to order new. Who cares if it's old crap, as long as this old crap gives you a competitive advantage?

This is not about player sales, but the calculation the system uses to determine the Recommended Price for Used Market (AI Brokers, alliance sales, min max), and Dynamic pricing of New aircraft.  Two AWS System level calculation that the system performs.  They should match when the new aircraft is delivered on day 1, and instead, they show consistent mismatch.  There could be a tiny mismatch that could be explained by "friction".  But the current mismatch for A321 is $17m and that difference cannot be explained by friction.

Why?

Real life disagrees with you. A brand new car, direct from the manufacturer, standard common model, may cost 16,000€, and after 1 km, have a valuation of 13,000€. That's not unheard of. That's indeed the norm since 30 years in France. I don't know about Teslas, but given the difficulties to deliver from the manufacturer, I wouldn't be surprised if the used price would be indeed far above the "new" price.

It's not just friction, it's also 2 completely different markets. There is no reason to correlate those two markets. When everybody orders 787s new, and noone buys them used, the used price is crap, but the new price is high. When noones buys new MD80s anymore, but everyone jumps on used ones, used price becomes far higher than new one. Offer and demand. That's all. It works. It's fair. It's dangerous. It offers opportunities and dangers. One has to adapt.

Online dandan

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Re: [-] Aircraft lost $17.5m of its value in a day
« Reply #19 on: September 12, 2019, 08:32:39 AM »
Real life disagrees with you. A brand new car, direct from the manufacturer, standard common model, may cost 16,000€, and after 1 km, have a valuation of 13,000€. That's not unheard of. That's indeed the norm since 30 years in France. I don't know about Teslas, but given the difficulties to deliver from the manufacturer, I wouldn't be surprised if the used price would be indeed far above the "new" price.

yes, BUT we are talking about AI brokers. noone is buying a car with the intention of reselling it a day later at 15% discount, so why do AI brokers do that with planes? make them account for their „costs“, thats the basic idea.

 

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