How can <100% loadfactor make more profit than having a 100% loadfactor??

[gisa]

Hi All,


Sometime I've noticed from time to time, when setting up the fares for a route is that when I am very close to 100% load factor (say 99.66%) I can actually make slightly MORE profit than if I set my fare to achieve a 100% load factor.  I did really badly in statistics in University but is there a simple reason why charging just a bit more and achieving a slightly less than 100 load factor can make more than filling up all the seats in the plane?  Is this always the case as well?



Gisa ^^

[StephenM]

What difference is there between fares? I normally set fares in increments of €5, so I would expect in most cases that the 100% load factor I get is not going to make more money than the exact equilibrium price.

It may be a case of breaking it down into decimals to ensure 100% gets the best profit.

[pseudoswede]

Decimals are key.

To try to put it in real-life terms (and this is all hypothetical): UA used to have a monopoly on DEN-SNA. I'm going to guess they charged $350 r/t for the route and they probably only had 75% loads (60 passengers). Gross revenue: $21,000. Then those punks from WN came in and dropped prices to $120 r/t. UA was forced to match, and they now have full planes (90 passengers). Gross revenue now: $10,800.

[gisa]

Hi Stephen,


Oh, it's a drop of water in terms of any airlines sea of profits.    Maybe a few hundred Euros off or so?  Up until now, I've always tried to get a 100% factor but a part of me thinks that if I can make more by running at 99~99.99% or so, then why not do that?  

The more I think about it however, it really is so little that it's not worth the time trying to find out the highest amount.  Even at the beginning of starting up an airline I wouldn't think it'd be noticeable, even after a game year or so.

I guess mathematically, it might make more sense to fill up a big plane to about 90% capacity and overcharge a bit more than fill it up completely and charge a bit less.

Just curious: that's all! ^^ 



Gisa ^^

[gisa]

To illustrate my point further:

I am creating a route from Toronto to Berlin-Tegel

if I charge 555 Euros, my load factor will be 99.96% and I would make 122,081
if I charge 554 Euros, my load factor will be 100% and I would make 121,884

I guess you are right Pseudoswede: it's all in the decimals.  I suppose if I charge 554.xx Euros I would get 100% and make the most profit.

Riddle solved!

Gisa ^^