Economies Of Scale In Airlines Management Essay

Economies Of surmount In Airlines Management EssayAbstractThe following report is aimed at examining the economies of scale concept and strategies in the air duct manufacture. This document is divided into several(prenominal) pieces which discuss the impact of the economies of scale on the main aspects of the airline industry. The furthermost fraction of the document concludes.IntroductionThe financial aim of firms is to growth the shareholders with child(p) (Atril, P., Mc Laney E., 2008). Business management, then, assimilate to either optimize asset drill or disgrace firms termss. modern economic situation chip in managed industries to succeed historic levels of asset optimization. Therefore, special emphasis had been put in approach reduction strategies during the last decade (Akan, M., Ata, B., Lariviere, M. A., 2011). Airline companies were mavin of the industries which suffered, just about immediately, the fifty-fiftyt of these new market conditions. To cope with this scenario, the industry implemented several cost saving strategies among them the economies of scale(EoS).The following document is aimed at examining the term EoS and analysing how applicable the concept is to study carriers/airlines. The document is divided into eight pieces. The first discusses how the EoS applies to the airline industry. The remained sections discover on how the EoS affects the airlines purchasing process, managerial procedures, marketing, technology usage, consolidation, and the open skies strategy. The last section concludes.Economies of scale in airlinesEoS fucking be defined as whatsoever cost reductions, responding to increased carry for output, moving along a given, descending(prenominal) long run cost curve (Grieve, R. H., 2010). In other words, the requisite allows firms, in this case airlines, to distri yete cost over a greater number of products/services. Airlines have put in place several strategies to increase the number of flights. Among them ticket- sell process optimization, in-flight meal reduction/suppression, alliances, and consolidations (Harvey, G., 2009).EoS concept assumes that increasing feeds supply at the level of the firm. However, any(prenominal) authors claim that EoS does contri thate to cost reductions, but turnover growth does not generally manifest itself in this manner. observational evidence has shown that EoS only helped those airlines which do not lose their identity when demand increases. That is, Airlines which do not lose the control of the service delivery even they rely in a complex provider structure. Following this puddle of thought, EoS are of little importance in accounting for increasing returns, since these return rates are attributable to other factors such as extraneous economies or industrial differentiation (Grieve, R. H., 2010).A successful deterrent example of EoS carrying out is Star Alliance. Star Alliance is a network of 24 fraction airlines. Lufthansa and U nited airlines have registered an important growth in its passenger airline group during 2010 (DATAMONITOR, 2010). Whereas, a failed implementation, MexicanaClick, a low cost airline which was proportion of the second largest Mexican carrier (Mexicana), did not produced the pass judgment results (BBC, 2010).The EoS effects in purchasing processesThe implementation of EoS has forced airlines to change their business model. Traditionally, ticket selling was made in two main forms over the airline prevent or via an agent. Information Technologies (IT) have modified this process. Customer can immediately make reservations and buy tickets without by themselves. Therefore, ticket agents have evolved to electronic transcription which provided the function of searching, reserving, and selling tickets making the purchasing process more accurate, fast, and accredited (Singh, A.Kr., Das, D., 2010).In the same manner, EoS has managed airlines to establish stronger relationships with their suppliers. For instance, the supply IT systems have allow airlines to slenderise intermediaries in the requisition of resources since mid 80s, therefore, their logistic costs have decrease (Caves, D. W., et al, 1984).Investments in these matters have allowed Lufthansa to be the third largest airlines of Europe, and the worlds fifth largest airline in terms of overall passengers (Singh, A.Kr., Das, D., 2010).EoS and managerial proceduresOutsourcing is the most recurrent strategy of the EoS. By outsourcing activities, the airline allows market forces to reduce the costs of subcontractors who offer for the business (Harvey, G., 2009). However, several(prenominal) author claim that high specialization, in providers, jeopardize business persistence of the outsourced firm (Grieve, R. H., 2010).Nowadays, airline employees are based in different part of the world, sometimes in places where salaries and benefits are lower than their airline-home based colleagues. In this manner, airlin es have in any case relocated business functions to take advantage of lower bribe and social charges incurred in some countries. For instance, British Airways relocated its ticket treat function to New Delhi (Harvey, G., 2009).EoS and marketingMarketing function has also been bear upon by EoS. Alliances have switched this function to major(ip) airlines. Major airlines are amenable for the marketing trip-ups for routes which are composed of international and local courses. In this manner, major companies deliver the international legs of the trip and regional airlines the local ones. When the complete jaunt is made by two major companies, the role of major and regional firms are switched. That is, the airline which delivers the international leg is trustworthy for the marketing duties of that trip and vice versa. Additionally, these functions are, most of the times, outsourced. The flight Atlanta-Barcelona is a good example. British Airways is responsible for the marketing of that route, but it only delivers the track from Atlanta to London. The second leg, London-Barcelona is delivered by Iberia whereas in the route Barcelona-Atlanta, these functions are switched (Wright, C. P., et al, 2010). In the case of regional or small companies, marketing function is totally absorbed by the major company, since regional/small firms do not have the required foot to perform this task (Forbes, S. J., Lederman, M., 2010).Technology in airlinesIT systems are the most universal EoS strategy. They have not only changed the airlines purchasing process, but also have optimized the occupation and emendd the communication with providers (Pilarski, A., 2005). However, that is not enough. Energy represents one of the biggest costs of the airlines. Air France-KLM and Air China reported that fuel costs accounted for almost 39% of its global costs in the fiscal year 2009 (DATAMONITOR, 2010). Thus, check engine technology, logistic, and route planning system will help the ai rlines to reduce these costs.Airlines have not been able to apply EoS to aircraft technology since they have a higher dependency in two main providers Airbus and Boeing (DATAMONITOR, 2010). Generally speaking, the whole industry efficiency depends upon technological advances and cost improvement that these two companies whitethorn achieve. Therefore, it can be said that all technology which does not today depend upon airlines is already optimized.Air France-KLM and Delta are a good example of technological optimization since some of their process like luggage registering and check in can be done by the customer himself avoiding long queues. consolidation of the airline industryConsolidation is also a well cognize EoS strategy. Consolidation is mainly aimed at reducing costs by corporate trust mature and efficient processes into one unique entity (Oum, T. H., et al, 1995). Some authors claim that consolidations make airlines to increase their market share. However, Empirical evid ence has shown that market share carcass stable. For instance, in the 70s five US airlines controlled 87% of the global market. In 2003, no(prenominal) of these five airlines exist, although the share of the top-10 airlines in all traffic was 86% (Pilarski, A., 2005). On the other hand, consolidations are long and complex processes due to tax and aeronautical regulations.Alliances have been a optional strategy for consolidations. Alliances is formed by any two airlines that exchange interline passengers and that have a proration savvy for the revenue stack away from the sale of interline itineraries. In this manner, an airline can expand its destinations and, therefore, increase its revenues. In 2006, 59% of all worldwide available seat miles were flown by airlines be to one of the three largest international alliances Star, SkyTeam, or oneworld. Alliance activity is expected to continue growing (Wright, et al, 2010). Therefore, alliances seem to be the right strategy for the industry. unclouded skies strategyThe open skies strategy consists on allowing airlines to fly within one country, that is, no restriction in local services. In this fashion, an airline may design routes to cover local routes and directly compete with regional firms. The reason between US and the EU allows airlines to reduce costs of share codes and to improve their costing schema. European airlines which are already consolidated with American ones can figure out as one entity, because they do not have restrictions to operate in both regions and vice versa. However, European Court of Justice has base that this agreement is breaking the law, thus, some amendments have to be done to this agreement (Yu-Chun, C., et al, 2009).Open skies strategy is not a direct result of the EoS, but a mean to achieve it. This strategy was created to impulse airline industry in the 1940s. Thus, agreements like that in other regions will allow airlines to reduce their costing schema and to increase th eir market participation.ConclusionsAirline industry is the knowledgeableness stone of the current global commerce. Its high efficiency has allowed firms to sell their products in other regions with competitive prices. On the other hand, this industry is a facilitator for some others. Its relevance has been exposed during natural disasters when airports are blocked and products cannot be transported. Current economy cannot be understood without air transportation. The challenge of airlines, now, is to find notional ways to continue their optimization and profitable continuity. Airline industry allows us not only to reach any part of the world, but also to have a competitive and trustable economic system.