Optimal Price Decrease

[sisisimoore]

Hi,

I have been told many times that the optimal load factor is between 75-90%. However, how stringently should you follow this?

How far should I decrease my prices to try and achieve these figures?

Thanks

[Kadachiman]

You shouldn't be decreasing prices to chase higher LF's
Profit per plane is the key not LF

If I had an accountant that filled a football stadium by reducing ticket prices to $1 instead of having the stadium at 60% capacity with tickets at $10...... any guesses where he would find himself?

[Yarnam]

There are plenty of companies that lose money so that they can gain market share. After they have a substantial share they start raising prices. UPS did this in every country they expanded into and in some cases was actually fined because it is illegal to do in some countries.

[sisisimoore]

You shouldn't be decreasing prices to chase higher LF's
Profit per plane is the key not LF

If I had an accountant that filled a football stadium by reducing ticket prices to $1 instead of having the stadium at 60% capacity with tickets at $10...... any guesses where he would find himself?

Hence the question I was asking. What percentage would you decrease the prices (if any) to try and achieve the 'optimum' load factor for profit (Which Sami has said is between 75-90%).

[Kadachiman]

In general game play I would not decrease prices at all to increase LF .... as IMO it is the wrong strategy

decrease prices to gain market share on new routes - yes as required
decrease prices due to an aggressive competitor taking market share - yes as required
decrease prices to as a strategy to gain market share in general play (as suggested by another poster - UPS) - risky strategy as it can see you go b/k instead
decrease prices to increase LF - Hell no, as high LF does not win you the game

LF can be low due to many reasons -
- aggressive growth by you which means that many routes are in the red LF therefore keeping your overall LF low even though earlier scheduled routes may be pulling in 90%+ LF
- competitors on routes with all competitor's supplying 100%+ demand then there is no way that you can get 90%+ LF
- many other reasons

So in summary - what I am saying is forget about LF as being your focus and concentrate on turning a profit on each plane instead
A 60% full plane at 100% ticket prices will give you good profits normally, but a 80% full plane at -30% ticket prices is likely to be less income overall

Have a look at the top airlines....my bet is that most are operating on 65% - 70% LF's

[Kadachiman]

Actual example
My airline in GW #4   Wontok Air Services

Value - $14+ billion
Profit Margin last Qtr - 31%

Load Factors-
Y Class - 71%
C Class - 64.5%

And I would guess that most of the top 50 airlines have the same type of LF's

My LF's were higher some 5-10 game years ago but I had a strong well organised competitor move into my home base and he took a large chunk of market share. I could lower prices to get some market share back but it could also start a discount war that we both may lose. Every one of my planes is turning a profit so I leave it at Status Qua and accept the lower LF's as long as I am making a profit.

[sisisimoore]

Great, thanks for your help. Why seeing the profit/ plane am I right in thinking that this does not include staff nor marketing? What else does this not include?

[Kadachiman]

I don't really know as I can't be bothered getting down to a detailed level due to the time it takes to do so.
Once you get 300+ planes you have to use a 'helicopter view' or be prepared to commit a lot more time playing.

Basically I look at key factors (for me) -
- the overall value of my airline is increasing every qtr
- are any of my planes in the red on the 'aircraft' menu, if so do I know why? e.g. C service
- has my LF taken a big dive? if so do I know why? e.g. scheduling large planes (A340) when my overall plane numbers are low
- etc

And from there the rest tends to look after itself....so I avoid the 'fine detail' otherwise it becomes 'time detail'

However if you really want to know some finer details then I am sure that others will jump in on the thread later

[Luperco]

Having a plane "green" (positive profit) doesn't necessary means that it is profitable as, in the plane profit, are missing many important expenses..

Even if you have 300+ planes you should know which is the minimum plane/profit to have a real profit.

Unfortunately it is not possible (or it is very difficult) to know, for each plane type, how much is the minimum profit. Anyway you can calculate an average that helps you to know which plane is bringing you profit and which ones cost you money.

I sum together the weekly amounts for Staff salaries, Staff training, Fuel contract fees, Aircraft parking, Marketing, Office rent, Fines and Alliance fees and divide the sum for the number of aircrafts in use. Add the amount of weekly quote for C check. The result is the minimum profit amount needed for each plane.

It is a simplification but, at least, gives you an idea.

I agree with Kadachiman about LF. It is not the more important thing to consider. And yes, Sami say that the more efficient LF is aroud 85%. Anyway, when you have 1000+ routes, there is now way you can handle it at this level of micro management. The only possible strategy is to set the prices to default value and remember to do it each game year.