Loss making flights ... where do you put the limit?

English Boards General
1

As any airline that operates 200+ planes in heavily contested market, there becomes an inevitable point where there are some flights which are actually losing money. Not the whole planes (in which case obviously it makes sense to look for new routes for the bird), but flights here and there within the schedule.

How do long-time players determine which flights to cancel?

I know one rule is to see if the flight direct costs (fuel,navigation, leasing) are covered.

But what about if the flight still is loss making, but has a high proportion of connecting traffic (either originating or terminating on that flight).

Where do you draw a line whether to cancel such flight or not?

(this, of course, after you have tried to save the flight by adjusting price, etc.)

I look on the number of connecting passengers and try to calculate the overall benefit they bring me on the "other" flight .. using the long short haul (1000 km flight) rate as a base and multiplying by a profit margin. If the number is higher than the loss the flight produces, I let it be.

But there is one flaw, of course ... because it is not known where the passengers really come from, and especially what is the connecting passenger ratio between business/economy class, the whole calculation may be far from the reality.... maybe the passengers connect from a short (400 km) flight instead of 1000 km flight and their "connection contribution" is much smaller than the above calculation would indicate.

So .. my question to the seasoned pros of AIrlineSim ... how do you determine whether to cut the flight from your schedule?

And if/when you cancel it, what do you do ... do you just leave the "hole" in the schedule? (imagine that it is a bit difficult to program other flight in because of slots, or time window, maintenance would get over the minimum, flights too close to already scheduled flights, etc.)

2

if you can't find a substitute for the flight you want to cancel, I leave it in if there are transfer pax on it. if I leave it it, I only "lose" revenue minus direct costs. If I cancel it without substitution, the indirect costs to all other flights increase..

if there are transfer pax on that flight, they mostlikely make up for the loss anyhow.

this is, of course, for short haul only. on long haul, you should give it a lot more consideration, as much more money is involved.

3

This is what I do: (It's very individual though)

I have little to no profit expectations on (very) short routes and are more willing to take a loss if the flight has at least half of my overall transfer PAX ratio. I always evaluate the complete route pair not only a particular flight.

If A-B has a 30 or 40% LF, making loss and at least have some connecting PAX but B-A has 100%LF, good amount of transfer PAX and at least makes up for the loss, I'll leave it. Otherwise I'll try to rise the price from B-A to make up for the loss on A-B.

I dont like to subsidize farther than a route pair because I think if you grow a certain size you'll loose overview and it might start to hurt overall profitability.

Of course there is always the chance to switch the equipment. If you see LF starts to fall on your A321 and the route gets unprofitable I'll replace it by A319/A318 to keep the connections....if that does not help I kill the route. Last chance would be to operate a subsidary with small props which can remain profitable and keep the connections for the mainline.

Hope it helps.

4

Hi,

I don't like flights that cost me money. A flight that costs money eats the profit of a flight that makes money.

First I check the schedule. Better connections (shorter transfer time) sometimes solve the problem.

Or I move the flight to a smaller plane.

Or I remove the flight and replace it by another flight. I don't care if the replacing flight is a bit shorter and leaves a "white gap" in the schedule. A shorter flight that makes a smaller profit is still better than a flight that costs money  ;-)

Jan

5

I am no long time airlinesim player nor am I the most expert in the matter. But I would probably look at my profit margin. If my profit margin drops below the 15% mark once salaries are payed, then you should probably look at those flights and re-consider them. Or you could just simply open up more routes and more transfer oppurtunities. But because you run 200+ planes, I would probably pay more attention to my profit margin.

At the end of the day, if a plane brings in a good amount of transfer pax to the point that if you cancel it more flights might become unprofitable. Keep it :P

6

I have little to no profit expectations on (very) short routes and are more willing to take a loss if the flight has at least half of my overall transfer PAX ratio. I always evaluate the complete route pair not only a particular flight.

If A-B has a 30 or 40% LF, making loss and at least have some connecting PAX but B-A has 100%LF, good amount of transfer PAX and at least makes up for the loss, I'll leave it. Otherwise I'll try to rise the price from B-A to make up for the loss on A-B.

I dont like to subsidize farther than a route pair because I think if you grow a certain size you'll loose overview and it might start to hurt overall profitability.

This is basically what I do. Certain instances also necessitate a top-to-bottom re-evaluation of my routes. I try to look at every single flight at least once every three days to see how it is performing. In the beginning, I would check every day and make subtle changes to price and timing. One thing I found I did often was to schedule a flight over the demand calculation time, which hurts the seat load factor.

In the most general of circumstances, I check the flight details report. If the amount listed in the "CM II" line is negative, then it's definitely a flight to worry about. That means the flight isn't covering its basic direct expenses (passenger handling/service, etc), and you are losing money simply by letting that flight happen. If the CM II line is positive, then it is covering all its basic expenses, including maintenance, and is at least putting some money towards indirect expenses (staff salaries mostly). I will cancel most of those flights if the return flight is also negative on the CM II line, or the sum of the two is negative. Even paying back the tickets is less of a loss than letting the plane take off.

But the main thing to consider is the impact on connecting flights. Removing one route might lead to removing a second.. and a third.

7

what do you mean exactly with "schedule[d] a flight over the demand calculation time"

8

At the end of the day, if a plane brings in a good amount of transfer pax to the point that if you cancel it more flights might become unprofitable. Keep it :P

But the main thing to consider is the impact on connecting flights. Removing one route might lead to removing a second.. and a third.

And that is exactly the point of my question:

How to more precisely determine if cancelling an overally loss making flight (pair) will actually save me money, or make things worse by affecting transfer passengers who would otherwise not book one or maybe even two legs on other flights had it not been for the particular loss-making flight being offered,

Obviously, if a flight pair makes AS$1000 loss and there are 250 connecting passengers in total, it most likely makes sense to keep the flight.

But what about if your revenue is 90% of cost, and your LF is not 100%, but out of those pax, 50-60% are connecting?

There goes my question, how to determine more precisely the overall impact cancelling such flight would have on other flights profitability?

9

But what about if your revenue is 90% of cost, and your LF is not 100%, but out of those pax, 50-60% are connecting?

There goes my question, how to determine more precisely the overall impact cancelling such flight would have on other flights profitability?

Do you have this recurring on a particular route (daily) or does ist happen every once in a while on certain routes? If the latter is the case I'd probably not intervene because the route covers any losses over the rest of the week.

Of course, if it's recurring on a route (daily) then just switch to a smaller plane permanently (but I assume you thought of this already).

10

Again, agree with forexlive.

If it only happens once, and then things smooth back to normal, it could be caused by any number of factors -- cancelled flight by an IL partner, a switch of a schedule you or an IL partner did... a dozen other things. The only way you really know a route is having problems is when it's consistently not doing so well.

However, I'm not one that just cancels and rearranges flights and routes. I hate it. First, you have to hope you can get the slots to match up correctly. Second, if it's in the middle of a tight route with little room for movement, you have to find a very similar, if not exact, route when it comes to total time... and then still hope it fits in there right. It's aggravating and can lead to baldness.. from ripping your own hair out.

Instead of all that headache, I normally just find something that will help that route. For example, if my JFK -> ORD route was having problems, and I know it's not really the ORS rating, and it's just the JFK -> ORD route, then what I'd do is lease another aircraft, and while you're waiting, find a route, starting from JFK, that goes somewhere very few people fly, or the ORS ratings are really bad. Say, for example, YEG. If no one is flying a JFK -> YEG route, then I'd line up flights with the JFK -> ORD route that's having problems with an ORD -> YEG route. It saves the hassle of rescheduling, and creates traffic demand.

11

Usually I won't cancel short-haul, only the SLF is below 30%. For long-haul, they are eliminated once they run into loss.

12

what do you mean exactly with "schedule[d] a flight over the demand calculation time"

Hi,

if a flight is scheduled "over" the demand calculation time, it only gets two bookings instead of three. I think that is what he means.

Flights are entered into the ORS booking system three days ahead. But they are entered three days ahead of the arrival time, not three days ahead of the departure time. At least, that is my impression. You can check it for yourself if you have a busy route. In such a case, flights are (almost) fully booked three days ahead.

Let's say your hub calculates passenger demand at 09:00hrs. In theory, every flight that departs before 09:00hrs should start getting bookings at 09:00hrs. In reality, it's only flights that depart a few hours earlier that get bookings. If it is a three hour flight, your flight will get bookings at 09:00hrs if it takes off before 06:00hrs. A flight that takes off at 08:00hrs, will not get bookings the first day. On busy routes, that is not a problem. On borderline routes, three booking cycles can make a flight profitable where two booking cycles leaves it with a loss.

Hint: if your hub calculates passener demand at 09:00hrs, it can be a good idea to have your flights leaving at (if you have three waves) 02:00hrs, 10:00hrs and 18:00hrs. Then most flights leaving from your hub will get three booking cycles.

...

There goes my question, how to determine more precisely the overall impact cancelling such flight would have on other flights profitability?

I don't think you can. We see if a flight has transfer passengers, but we don't know where they come from or where they go to. So you can't tell which other flights will be affected.

Besides, it is possible that other passengers cannot book a flight because the transfer passengers from your loss making flight have already booked this flight. In such a case, removing the loss making flight allows other passengers to book their flight. If you operate a fleet of 200 planes, there are always passengers who cannot book their journey because one of the legs is already fully booked by passengers from another route.

...

Instead of all that headache, I normally just find something that will help that route. For example, if my JFK -> ORD route was having problems, and I know it's not really the ORS rating, and it's just the JFK -> ORD route, then what I'd do is lease another aircraft, and while you're waiting, find a route, starting from JFK, that goes somewhere very few people fly, or the ORS ratings are really bad. Say, for example, YEG. If no one is flying a JFK -> YEG route, then I'd line up flights with the JFK -> ORD route that's having problems with an ORD -> YEG route. It saves the hassle of rescheduling, and creates traffic demand.

I do the same. When I launch a new route and I have doubts about the profitability, I check real life traffic at the destination airport. If there is a lot of traffic to airport X, I make sure I also offer connection flights to airport X.

Sometimes it works, sometimes it doesn't  ;-)

Jan

13

And lets not forget AGEX. Depending whether AGEX is rising or dropping should be a factor in keeping or dropping a flight. Also keeping slots at a maxxed out airport should be taken into consideration. 

14

what do you mean exactly with "schedule[d] a flight over the demand calculation time"

Sobelair basically nailed it. Getting booked into the ORS happens 3 days out from the time a flight departs, but it only receives passengers from the calculated demand times 3 days after the flight lands. So, in the above example that he gave, at a 09:00 demand calculation, a flight that leaves from the hub at 06:00 and lands at its destination at 08:59 will (theoretically.. I haven't actually fully tested this, but it seems to work) receive three rounds of passenger bookings. If a flight leaves at 07:00 from the hub and lands at 09:59, it will be added to the ORS at 07:00 three days in advance, but when the demand calculation rolls around at 09:00, it won't receive passengers.

15

Hi,

new flights appear on the flight list three days head of their departure.

That does however not mean that they show up when you check the ORS. They only show up on the list of ORS results three days ahead of their arrival time. Sometimes even later than that. Perhaps twice per hour, when flights are entered in the reservation system.

Jan

16

Ah okay. Got it.