Airline Mogul Forum
Airline Mogul => General Chat => Topic started by: JMach on December 07, 2007, 06:56:43 pm
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Hey all, I just have a question about pricing.
First I should ask, does the demand for a route change over time -i.e. if the number of frequencies/passenger capacity/ticket prices remain constant for a particular route, and all planes are filled to 100%, will that stay at 100% as long as nothing is changed? Or will loadfactor drop on occassion even though all the variables remain the same?
The reason I am asking is because I have a couple of routes that have seen decreases in loadfactor the last few days, which means less money. I know that in an oligopolistically competitive market such as the airline industry, price cutting is generally not a good thing because when one airline drops their prices, others will have to follow suit or they'll lose customers - and since everyone drops their prices nobody really gains.
So my question is, if I have a route that is at 88% loadfactor (and I like keeping mine at 100%), if I lower the price to achieve 100%, will that lower the loadfactor of the competing flights on that route, causing them to lower their price and the cycle to repeat? I guess, is it better to leave the loadfactor between 80-99% (for example) than to start a price war?
Sorry, I'm just not sure how the economics work in the game yet.
Thanks!
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The answer to your question is yes, if you lower your prices, the load factor for other routes will generally change, causing a price war. Unless you are on a route with high demand, and little competition, and you lower the price to match the other guy's price. In that case, it's quite likely that both load factors will remain at 100%.
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First I should ask, does the demand for a route change over time -i.e. if the number of frequencies/passenger capacity/ticket prices remain constant for a particular route, and all planes are filled to 100%, will that stay at 100% as long as nothing is changed? Or will loadfactor drop on occassion even though all the variables remain the same?
That is correct.
So my question is, if I have a route that is at 88% loadfactor (and I like keeping mine at 100%), if I lower the price to achieve 100%, will that lower the loadfactor of the competing flights on that route, causing them to lower their price and the cycle to repeat? I guess, is it better to leave the loadfactor between 80-99% (for example) than to start a price war?
I'm not sure how big your airline is, but you'll eventually realize that maintaining 100% (or even 98, 97, or 96%) is nearly impossible, and your enjoyment of the game will severely decrease if you try. Rule of thumb: if it doesn't show up in your 0-25%/25-50%/50-75% sections, don't bother changing it.
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Price cutting is normal. Some people take it way to far but its impossible after so long to maintain 100% anyways. Its competition, just don't be one of those airlines that drops all routes to €1 and you will be fine. The fun in the game kinda dies when every route gets knocked down to barely making a profit or cant even turn a profit period :?
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First I should ask, does the demand for a route change over time -i.e. if the number of frequencies/passenger capacity/ticket prices remain constant for a particular route, and all planes are filled to 100%, will that stay at 100% as long as nothing is changed? Or will loadfactor drop on occassion even though all the variables remain the same?
The exact impact is hard to predict usually, due to how the formula is calculated. If you're a big plane with 100% lf and there's three competitors with tiny planes with lower fares at 100% (for examples sake a 747-400 vs 3 9 seaters) undercutting them is unlikely to keep them at 100%, simply because you're moving a lot of seats forward in the line. If you're the small 9 seater on a busy route still getting 100%, you're unlikely to impact anyone at all in any serious manner, whatever your fare, unless there's only one or two other 9 seaters. when everything is relatively close, yeah. it's unlikely to change anything for anyone to undercut from 100% to 100% a few other cheaper 100%'s.
Usually, price wars are easy to start and can cause some headaches for maintaining your routes, so you're probably safe leaving an 80% route alone, but sometimes the swings are just so dramatic because of the pecking order of the planes you gotta vary up your own rules as need be.
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Thanks for the help - that pretty much clears things up. I have seen that most of even the top airlines do not have near 100%, but my first line of thought was, "if it's not 100%, I could be making more money"...but I suppose that if lowering my price leads to a price war, I am cutting my own throat as well.
Anyway, thanks again for the input!
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what i do...i look for the lowest price for the frequency i want to fly, and lower the price by 1.
For example: Say three airlines are flying a route that I want to fly 1 frequency on. Terminal Airlines is flying 2 freq with ticket price 210, Runway Airlines is flying 1 freq with ticket price 250, and Control Tower Airlines is flying 1 freq with ticket price 270. I would make my ticket price 249. :) :wink: 8)
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@nwaboy, that is not always the max price you could charge. It depends on your planes and freq.