Playing in Beginner's World #13,
My airline has been operating for roughly a month now, I'm operating 2 aircraft (a 737-200 adv and 727-200 adv) and both are making a profit. Nothing spectacular but it's enough to cover their lease costs in a week and a half for each aircraft. My initial loan has been paid off and I've got a small but increasing bank balance. The two aircraft are running three routes each at 75%+ LF, each route goes to a different airport so 6 destinations plus my hub currently. I'm thinking of expanding but I've got a coup[le of questions.
I'm considering taking out a loan to lease another 737 (or maybe 2 older ones as they seem to have longer before a C check), as things stand now (week 11) I can get an unsecured loan of $1,260,000. Should I expand my fleet now, whilst my finances are low but competition is also low, or wait a few weeks longer and get a (potentially) larger loan for more aircraft? I've been watching the interest rates which climbed initially but seem to be leveling off now. I know that older aircraft cost more to maintain and potentially put customers off, but with the leasing costs being 2/3rds or less of a newer aircraft I'm thinking that the payoff would be worthwhile.
When I get more aircraft I'm thinking of laying on more flights to the destinations I already cover, how would that affect the navigation fees? Is it the same effect as opening an entirely new route or does the fact that I already have slots there lessen the fees for new schedules? I'm flying a couple of routes that have competition, so I'm assuming that it's better to expand my routes where I'm operating alone?
Hello!
First off, in any "advanced" world, your airline would be bankrupt by now. Operating 2 planes of 2 different fleet types is a bad idea in general, and only works if you know how to handle it very precisely. Also, consolidate your routes. The rule of thumb is to fill up a route's capacity completely before opening another one. Marketing costs depend a lot on # of destinations, so your marketing will go down drastically.
I would recommend taking a loan and getting more aircraft, but only after consolidating routes, and only if it is a 737-1/2 or a 727. Old aircraft are not a huge deal, especially in beginner's world.
For more info check out: Swiftus' Guide for Newbies and Curse's FAQ in the general forum.
Thanks for the reply, I realise that a mixed fleet isn't a good idea outside a beginner world but I had my reasons for doing it. Mainly it was to see the differences in operating the 727 against the 737 before doing it in an advanced world. The 727 has done OK, but it was always intended to be a backup in case I couldn't get any 737s, it's turning more profit on the routes it's on but that's offset by a higher lease. I was sort of covering myself against a possible lack of suitable 737s on the market seeing as they're popular aircraft in the world, the 727 will be getting the lease terminated shortly before I have to pay for it's C check.
I took out a loan to lease a second 737 and set up some new domestic routes, that loan was paid off just before the new jet arrived. So I took out a larger loan and leased a third 737 and set up some short international routes for that. That jet has just arrived and I had enough for a fourth, so that's been ordered and had some routes set up. When that jet arrives I'll hopefully be able to pay off the latest loan and get another one to bring in more jets.
I've had a read of the two guides which helped with most of my questions. The marketing thing has worked out well as I've got a few campaigns running now which are building up the route image ahead of new aircraft entering service.
NEVER EVER pay off your loans until you are ROLLING in cash
In terms of ROI, a loan is always very profitable, and allows for rapid expansion, increasing your dominance of your hub.
I suggest taking out 10y loans and using the full 10y to pay them off.
I've been paying off my loans on the assumption that it improves my financial situation by allowing me to take out a bigger loan which I can spend on shiny toys to make more money. If I keep my current loan (6m) then won't that mean I'm going to need a bigger wedge of cash before the bank will give me a worthwhile loan?
I've ditched my single 727 as the C maint was due up soon and it was costing almost as much as the fleet of 737s in admin. I'm down to two types now, should I just stick to those two types and routes that are in range for the DC-10? Is it worth leasing a new-build aircraft for long distance trips, I was thinking of an MD-11.
I've had a couple of chances to pay the 6m loan off less than a month after I took the loan but it's been invested in leasing some DC-10s which are both pulling in 700k each whilst the route image builds up.
Nope. Whether you pay off your loan or not, it usually doesn't make a difference to the loan cap (in my experience. others may tell you differently, but even then, I doubt the continual paying off and retaking out is a waste of time and effort)
For myself I pay back the loans if I reach the time when I'm able to lease every aircraft I want in an amount that will create no gabs of month without delivery. Or, better to say, the moment you stop leasing your aircraft and buying them.
But everybody can handle this in a different way. Just to give you a second opinion :)