Ideas for counteracting AGEX drop?

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1

There's been a major AGEX drop in Gatow last few weeks, and I've been struggling (as must be most, surely). I've asked for my fellow alliance members for advice on how to address this in order to raise my SLF (that dropped from 81% to 60% in just 2 weeks), but their suggestions have not helped.

-They've told me to focus on domestic routes, hasn't worked

-They've told me to cancel leases on planes that are not filling up, I did so on 2 planes, but doing it on more will lead to my company not having enough connections to fill the other planes

-They've told me not to have old planes, I don't

-They've told me to have good service, I have 4 stars in economy and business, 5 in first...

Most of them have seen drops in their profits, but have not gone to the red. Me, on the other hand, last week Aero Nesher lost money for the first time since Gatow started (a small loss, nonetheless, just -150,000).

Even though my SLF dropped a lot this past weeks, I've seen I'm the LEAST affected in Argentina, with my competitors having even steeper drops in their SLF rates and profits.

So, what should I do? Please, any suggestions will do, I truly don't know what to do.

2

Have you thought about replacing some of your aircraft by smaller ones of the same series? I see you have some Embraer 195, they can easily be replaced. Of course, the smaller ones (Embraer 175 or 190 in this case) are less efficient, but higher efficiency is useless if the plane is half empty. Additionally, there are often cheap planes available for lease in a crisis like this one.

It might not perform a miracle, but it's one idea.

3

adjust a little bit your pricing (just a very little bit), watch your competitors failing, wait and be ready to launch the rocket once AGEX is going up.

4

My main airline implemented several steps:

  • Downsizing of my schedule by more than 32%
  • Reduction of destinations served from 87 to 69
  • Downsizing of my fleet
  • Reduction of the seating-capacities aboard my remaining planes
  • Repayment of loans
  • Adjustments to the remaining schedule
  • Enhancements of the domestic schedule
  • Strengthening of my main hub to make full use of connecting traffic
  • Adjustments of my fares
  • Considerable expansion of my regional subsidiaries to increase feeder services

I tend to play “Poker” a little bit that this game works at the moment for me. The LF went up from the low 70s to the 80s. It is also important to know that I have very important IL-partners in the region. My airline was able to add additional airplanes to augment the current fleet. I´ve noticed that “in general” I have to have a system wide load-factor of at least 70% to be profitable. I also take care that I maintain a low-risk approach when it comes to new markets. The biggest risk are at the moment are my Boeing 757s and the aim to make their ops viable.

I should say that my main airline is rather small with only a little more than 100 active aircraft. There are much bigger companies around with huge networks and very competitive products.

Call me wrong but I think that larger airlines have more problems to adjust their business?

Regards

5

Have you looked at what your competitors are doing?

Also analyze your IL agreements - look at if you need all of them, and if you have them everywhere you need them.

6

The economist in me says "spend more to stimulate the economy!", but the accountant is screaming "you can't afford to!".

As others have said, take a long and hard look at your IL agreements.  Ending ones that aren't all that beneficial for you will save some money, but also cost you in severance pay as you would have to terminate the network planning staff too.  See if you can't re-time your schedules to coincide with their flights (both inbound and outbound) to benefit both of you - also to minimize your connection times.  Consider opening new routes to IL partner hubs, especially their secondary or even tertiary level hubs.

7

Have you thought about replacing some of your aircraft by smaller ones of the same series? I see you have some Embraer 195, they can easily be replaced. Of course, the smaller ones (Embraer 175 or 190 in this case) are less efficient, but higher efficiency is useless if the plane is half empty. Additionally, there are often cheap planes available for lease in a crisis like this one.

It might not perform a miracle, but it's one idea.

I have CRJ-700s that are not filling either, so doing this would surely help me save some money, but would not increase my SLF, and ultimately, I'm aiming for the latter.

adjust a little bit your pricing (just a very little bit), watch your competitors failing, wait and be ready to launch the rocket once AGEX is going up.

That's basically hoping for AGEX to stop dropping. If you take a look at the graph it's been falling every day for the last 40 days... not once has it stayed on the same value or raised even one point...

I'm adjusting my prices though, but still it's difficult to do this because fuel prices are going up!

My main airline implemented several steps:

  • Downsizing of my schedule by more than 32%
  • Reduction of destinations served from 87 to 69
  • Downsizing of my fleet
  • Reduction of the seating-capacities aboard my remaining planes
  • Repayment of loans
  • Adjustments to the remaining schedule
  • Enhancements of the domestic schedule
  • Strengthening of my main hub to make full use of connecting traffic
  • Adjustments of my fares
  • Considerable expansion of my regional subsidiaries to increase feeder services

I tend to play “Poker” a little bit that this game works at the moment for me. The LF went up from the low 70s to the 80s. It is also important to know that I have very important IL-partners in the region. My airline was able to add additional airplanes to augment the current fleet. I´ve noticed that “in general” I have to have a system wide load-factor of at least 70% to be profitable. I also take care that I maintain a low-risk approach when it comes to new markets. The biggest risk are at the moment are my Boeing 757s and the aim to make their ops viable.

I should say that my main airline is rather small with only a little more than 100 active aircraft. There are much bigger companies around with huge networks and very competitive products.

Call me wrong but I think that larger airlines have more problems to adjust their business?

Regards

I can't downsize my schedule or destinations since it would not help strengthening my hub, as you suggested. I don't have loans or subsidiaries either... The seating capacities thing is something good to consider, I'll try that!

Have you looked at what your competitors are doing?

Also analyze your IL agreements - look at if you need all of them, and if you have them everywhere you need them.

They aren't doing much. Only one has reacted my changing his entire schedule every 3 or 4 days, and going below default on his prices, but he cannot be making any money. In fact, he's losing even more every week, even though he's the only one in Argentina raising his SLF. As I've said, I'm the LEAST affected in the country, but still is a huge drop in SLF for the past 2-3 weeks, to the point that I've stopped making money for the first time since I started the airline.

The economist in me says "spend more to stimulate the economy!", but the accountant is screaming "you can't afford to!".

That's exactly what I'm thinking!! Even though I'm not an economist, haha.

As others have said, take a long and hard look at your IL agreements.  Ending ones that aren't all that beneficial for you will save some money, but also cost you in severance pay as you would have to terminate the network planning staff too.  See if you can't re-time your schedules to coincide with their flights (both inbound and outbound) to benefit both of you - also to minimize your connection times.  Consider opening new routes to IL partner hubs, especially their secondary or even tertiary level hubs.

I think I could terminate 2 or 3 IL agreements, but that wouldn't save much money, I don't think it would even be 100,000 weekly, and if AGEX ever rises again I'd need those IL agreements again.

Edit: Forgot to say, thanks for all the suggestions guys!!

8

The seating capacities thing is something good to consider, I'll try that!

Be aware that such a change needs money. My re-configuration program resulted in heavy costs that I had to pay but I saw these payments as an investment into the future. This step was a good one because passenger-acceptance increased and the reduction of seats resulted in an increase of the load factor.

Regards

9

Well I managed to do some cost cutting to survive so far. Now that a major airline collapse, my SLF has shot up by several percentage points.

10

I think AGEX is falling due to the decreasing of players in the server. This is probably because the decreasing of airlines in the server will cause to the decreasing in total passengers available in the server. May be there are some airports remain "unused" or "unoccupied" which they can be further utilized to increase total passengers. AGEX will only rise up when there is increasing in total passengers especially domestic passengers which are the most useful feeder for all airlines in the world.  :)

11

I think AGEX is falling due to the decreasing of players in the server.

AGEX will only rise up when there is increasing in total passengers

Nope, the AGEX has NO influence from the airlines!

12

Times with severe AGEX drops are just fabulous from a new player's perspective on older servers. That's because there are great opportunities everywhere. On Tempelhof there is also almost a 2 month AGEX drop and several big airlines gone bankrupt. There are loads of free slots at major airports like LHR for example and so on. I just love these times, when i can fish in murky waters, my airline almost doubled in this period and my LF is not dropping but increasing (although AGEX is dropping). On some routes i even raised the prices because demand allowed it.

What you can do to counteract the AGEX drop

- build a very good hub with connections not only to major airports but also small secondary airports with no service or limited service from other airlines

- always be on watch for opportunities, when a big player goes bankrupt be fast to react and fill his place where it makes sense. 

- have very good seats! - i don't fly economy seats

- when you don't have anything else to do, replace your planes with newer planes (that's what i'm doing when there are no opportunities to add new routes)

- Anything that is measured and watched, improves!