[Not a bug]Instant red in airline cash for no reason

[luke3]

Hello everyone
I wanted to point out that in this moment (21.30 GMT, 27/03/08) my account just went from 22 million to -22 million for no reason, all my latest purchases were done hours ago and for some reason i did not get any ticket revenue for this day or hour. My DOP has remained unchanged at over 3 milion throughout the whole of today, so i don't see how there could be this plummet in ticket revenue.
Could somebody please confirm or rectify?
Thank you in advance

[beirut785]

r u sure its just not the monthly expenses or something like that

[Thanks_for_the_upgrade]

Monthly expenses.  Mine drops 2.4B every every day.

[luke3]

I thought about that but when I went to the finance page this came out



Until now all my expenses were covered by the ticket revenue which for some reason seems as if for this month the planes stayed on the ground. I have always had up to now a ticket revenue of at least 60 milion and only added more routes since this morning. It's as if the full revenues didn't go into the calculation

[Thanks_for_the_upgrade]

Everything is perfectly normal....  

You started at

  22,000,000
+ 3,857,126 (approximate DOP added)
=25,857,126
-60,399,951 (monthly expenses)
=-34,542,825

SO by my math you actually did fairly well if you're at -22,000,000.  

You need to get all of those unused planes in the air because if your expenses are 60,000,000 and your DOP is just under 4,000,000 it will take you about 15 hours to break even each day.

[luke3]

Thanks for the clarifications. :wink:

Guess it's not a bug, maybe the moderators should move this post in the general area

I think the best thing I can do is give back those aircraft in leasing and buy more of my own

[Thanks_for_the_upgrade]

Well it depends.  Are all of the aircraft running routes?  Specifically are they running .5x and 1x frequency routes?  (2/3/4/5x routes make barely any money.)  If they ARE in the air, and that's your DOP, then yes, you may as well return a few of them.  Keep in mind, the game is going to reset on December 24, 1985 (six game months).  At that point everything goes bye bye and everyone is reset to one plane and a pocket full of money.  

Use the next few days to just experiment and learn how the game works.[/u]

[dktc]

One common misconception is that leases hurt you and you should buy planes.

Fact is, if you are making reasonable profit out of a leased plane, you should not replace it, but instead keep the lease and use your cash to lease/buy more planes.

The most important part, as mentioned above, is to ultilize your planes to their limit flying low frequency flights within the criteria permitted by the game rules. After you have allocated the planes to different routes, you should check their profit and compare to the lease rate. Keep in mind that the DOP are by day, and the lease rates are per month. Compare them on a plane to plane basis. If you break even in 16 months or less on a lease (ie. keeping 33%+ profit), that lease should be fine (at least that was my criteria, when I was running my number one ranked airline). If you break even on the lease within 8 months, those leases are fantastic. Using those criteria, you could figure out the good lease rates for a plane type.

As for the plane leases that are "under-performing", it is for you to evaluate whether the lease rates are too high, or that the revenue is too low. If it is the lease rate that is the problem, return the lease. If it is the DOP that is the problem, change the routes.

Although AM is one of the easiest airline management sim out there, there are still certain management technics that one would need to success. There are some misleading information out there in various forums about leases, and those reflect the incapability and lack of business concepts / skills for some of our players.

[yourefired]

Puts management consultant hat on

As the owner/CEO of an airline that has grown ten fold in 8 game months (though I did have some help), I can tell you that your expenses are too high. Your profit margin is in the 30% range. The optimal profit margin for growth is about 60-70%, which is where I am right now.

This is my approach to growth: I am either maximizing revenue or minimizing costs. It's a cycle. You maximize revenue for a while, then take a break and optimize costs, and then grow more. Otherwise, with your profit margin, you'd have to make as much as 6 times as much as what I'm making to make as much profit as I am. And profit is money in the bank...your costs are money that's disappearing into thin air. You always want to keep long term growth in mind.

Feel free to PM me if you want more pointers. I've grown enough and well-enough established in my niche market to not be threatened by beginners
Puts management consultant hat back

[luke3]

thank you all for your replies. If you do have some tips on how to reduce costs then i would be very happy if you could tell me :wink:
All my planes in lease profit over their monthly cost, some more some less, but maybe if i used planes of my property on those routes i would have several million euros less in expenses monthly.

[dktc]

but maybe if i used planes of my property on those routes i would have several million euros less in expenses monthly.

That is the common misconception. If you could afford the lease, put your new planes on other routes. If you replace the leases, you cut down costs, but you don't increase your revenue. If you place the new planes on other routes while keeping your leases, you increase your revenue. You make more profit than the lease expenses, meaning that the new revenue increase should give you more than the reduced costs.

Cutting cost is not necessarily always a good thing. There are costs that are beneficial.

[yourefired]

Puts management consultant hat back on

Well at a 30% profit margin, the OP could use some cost cutting. On revenues of 300 million euros, I'm currently netting a smidge less than 190 million euros. For the OP to net 190 million euros, he would have to make 600 million euros. Thus the company will grow slower. I start cutting costs when expenses start to become more than 40% of revenues. An airline can only get so big and what determines who will make the most money is whoever has the lowest expenses.

dktc, you're right, cost cutting isn't always necessary a good thing. But I learned to control my costs early on when I was having cash flow trouble. Fast growth a such small margins is unsustainable, because your revenues will only go up so much in the short run. In the long run, however, yeah, it may be sustainable. Like I said, I approach expansion without regard to the cost of such expansion. I do it even if the growth results in a reduction in profit. But once I have finished the phase of expansion (I expand in phases i.e. phase I is North America, phase II is Europe, phase III is Hawaii, etc.) I look at where costs could be cut and cut them accordingly. Most of the time, it's lease costs. I eventually phased out ALL my regional planes and I'm currently only leasing longhaul planes. Plus when you're replacing leases with your own planes, you're no longer putting money in a competitor's pocket. If you don't have the cash flow to buy planes, then scour the lease market once in a while. If you see a cheap lease (or a lease that's cheaper than the current one you're paying for the same or comparable plane) then don't even have second thoughts about replacing it. There is no penalty for terminating a lease early.

Remember that lower costs and higher revenue are both money in the bank. Do what you like, but remember that maintaining 300 flights (a good 30-40% of which have little or no competition) is much easier, more fun and less time consuming than maintaining 700+ flights. Remember that you're only one person and you can only play so much Airline Mogul. If you want exponential growth, I have it right here. I used to have 150 routes. I made 2-3 million DOP. I now have 280 routes. I now make 12 million DOP.

[AirHanoverInternational]

thank you all for your replies. If you do have some tips on how to reduce costs then i would be very happy if you could tell me :wink:
All my planes in lease profit over their monthly cost, some more some less, but maybe if i used planes of my property on those routes i would have several million euros less in expenses monthly.

What do you mean with 'All my planes in lease profit over their monthly cost, some more some less' ? Did you simply subtract the leasing expense from the aircraft's DOP? Well, then you missed something. You also need to subtract the gate costs and the misc expenses (e.g. route updating fees). Little calculation:

Let's assume you have leased in a B732Adv for 8M MONTHLY leasing rate and your DOP for that plane is 350,000 EUR (MONTHLY = 8.4M). Let's also assume you have a base at a 350k airport and have three flights with this aircraft to 250k airports. The following calculation will show you the MONTHLY gate (better slot) costs for this aircraft.

Case 1:
MONTHLY slot costs = 350k / 10 available slots x 3 slots for your aircraft + 3 x (250k / 10 available slots x 1 slot for your aircraft) = 180,000 EUR

Case 2:
If you do not use the other slots at your destination airports* you will need this calculation:
MONTHLY slot costs = 350k / 10 available slots x 3 slots for your aircraft + 3 x 250k = 855,000 EUR

Last thing we should care is the route updating fee. For all three routes a total of 50k will be enough for our little calculation. So let's see what you will receive from your Boeing within a month:

DOP (MONTHLY) - leasing rate - gate costs  - route update fees = Your Profit

Case 1:
8.4M - 8M - 180k - 50k = +170k
Not much but still a profit.

Case 2:
8.4M - 8M - 855k - 50k = -505k
Hey, you are losing money!

Case 1 but you OWN the aircraft:
8.4M - 8M - 180k - 50k = +8,170k

Case 2 but you OWN the aircraft:
8.4M - 8M - 855k - 50k = +7,495k
Now THIS looks different :wink:

* If you have more than one base try to connect that/those with airports you already rented gates. As you can see from the example above this will definetly save you money. Leasing in aircrafts to establish an airline may be a good idea. But you should replace them with bought ones as soon as you can. One tip for leasing in planes: leasing rates are paid for a full month regardless of the day you lease it in. This means you pay (from the example above) 8M on the 24th June and again 8M on 1st August. The best time to lease in an aircraft would be always the 1st of the month.

[Air Elbonia]

Speaking of accounting, can we have balance sheets next time? i.e. Assets=liabilities+equity.

PS. By the way, I did take financial accounting. I know why businesses leverage. I didn't say leverage was a bad thing.

I'm an accountant, actually.  and though i'd love to make AM more GAAP compliant in its portrayals... frankly, everytime i get confronted with "fix accounting standards, reports" and "something else", nine times out of ten the "something else" offers significantly more value for the time put in.  Eventually i'll get down the list to where adding more GAAP compliance to the game is worthwhile. just unfortunately not terribly soon.

who knew i was an accountant (don't answer this)?

[MrOrange]

Cutting Cost posts moved to separate thread in General Chat.