Airline Mogul Forum
Airline Mogul => General Chat => Topic started by: kcclieou on June 17, 2010, 02:45:10 pm
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Let me use an example in the world I am in (PW #1481) to explain a little bit.
(http://i745.photobucket.com/albums/xx94/kcclieou/am_ord_ams_2.png)
What happened on this ORD-AMS route was:
1. I was the first one to fly the route, which is a hub-to-hub route in my alliance (AMS being a British Airways hub, while All Nippon Airways is also another fellow alliance member), and charged $1025 on the daily A319 service. In fact, I concluded from earlier experiments that long-haul routes are most profitable on 1x A319/A319LR whenever possible, as long as no one else flies the route with bigger equipment.
2. Then AA came in with 0.5x B767-200ER (which offers the same average capacity as 1x A319) and was only able to offer a fare of $780. My load dropped to just above 60% and I had to lower my fare to $815 to compete. This is understood because AA is probably offering way too much capacity on alternate days, and concurs with my earlier experimental results.
3. AA probably realized that flying 0.5x B767-200ER is sub-optimal, so it switched to 1x A319LR. BA then came in with 1x A319 and charged $970. I then raised my fares to $1057; as a result, the ORD-AMS route once again became my most profitable route systemwide.
4. Here comes the problem:
Fellow alliance partner NH wanted to conquer the entire world and came in with 0.5x 737-700ER (which is roughly 1/2 the capacity I am offering) as a tag-on of one of its Asia-Europe routes. NH charged the highest fare, but it immediately trashed my loads to just above 60% again. If NH was using a bigger aircraft this could have been easily understood, but it is offering less-than-daily service and the least capacity among the four players.
My point is not to bash another player (I have no intention of such), but I want to understand the rationale behind the AM program code that 0.5x service trashes the yields even if done on a small aircraft. Since this appears to be not quite reasonable, I would be happy if this part of the code could be fixed as a remedy.
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2. Then AA came in with 0.5x B767-200ER . . . This is understood because AA is probably offering way too much capacity on alternate days, and concurs with my earlier experimental results.
Slight correction: AA is flying this route everyday with 290 pax, not alternating days.
4. Here comes the problem:
Fellow alliance partner NH wanted to conquer the entire world and came in with 0.5x 737-700ER (which is roughly 1/2 the capacity I am offering) as a tag-on of one of its Asia-Europe routes. NH charged the highest fare, but it immediately trashed my loads to just above 60% again. If NH was using a bigger aircraft this could have been easily understood, but it is offering less-than-daily service and the least capacity among the four players.
My guess is that adding 140-ish pax to this route will cause a ripple in fare pricing and load factors.
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Slight correction: AA is flying this route everyday with 290 pax, not alternating days.
Correct, but I think the difference is that AA was flying each direction on alternate days with 290 pax, while I flew BOTH directions every day with 145 pax each way. Since AA would have to fight for 290 pax each way on alternate days, it would be reasonable if yields end up depressed.
The following is what happened when the route was still a 2-way bloodbath ages ago.
(http://i745.photobucket.com/albums/xx94/kcclieou/am_ord_ams.png)
My guess is that adding 140-ish pax to this route will cause a ripple in fare pricing and load factors.
Not sure. My key point is that from experience, I can forsee that NH doing 1x B737ER (290-ish pax) would not depress yields and loads that much, but I don't see why doing 0.5x B737ER would hurt that much.
Let's look at the following two examples that illustrate my point on 0.5x vs 1x frequency:
(http://i745.photobucket.com/albums/xx94/kcclieou/am_den_ams.png)
(http://i745.photobucket.com/albums/xx94/kcclieou/am_iah_ams.png)
Remember, the two Amsterdam routes are of similar distance and DEN-AMS is supposed to be the one with greater potential.
Right now, IAH-AMS enjoys far better yields than DEN-AMS even though the total capacity offered on IAH-AMS is a tad more than DEN-AMS. The difference between the two is that someone is doing DEN-AMS on a 0.5x frequency. If NH were doing DEN-AMS with a 0.5x B762ER this would be reasonable, but the problem is, they are only using the way smaller 0.5x B737ER and it still depresses the yields and loads that badly.
For the sake of comparison, I had to lower the fares on DEN-AMS to $1,022 to make my flights go out full, and the profit becomes $167,980. This is not quite reasonable from a logical perspective.