2 Flashcards
hub economies
SUPPLY SIDE:
Production: achievable economies cause lower costs per unit
- larger planes have a lower CASK
- Big Airports: Economy of scale of central hub facilities
Marketing: effects allow a better market coverage
- higher amount of marketable OD’s
- higher amount of frequencies
- diversification of the customer base
Strategy: Dominance in the market (above the average market share) offers sustainable competitive advantages.
DEMAND SITE
- economies of density, such as attractive lounges and other services
- mileage programs
- standardized operations
Hub diseconomies
SUPPLY SITE
- tendency towards marginal cost-pricing with transfer traffic
- production of Hub-load-Peaks
- High delay sensitivity
- sunk costs when change of strategy
DEMAND SIZE
- time of waiting, long distances
- partly capacity overload
S courve
the higher the share of an airline’s connection at a certain airport the progressively higher is the market share
the transport network
Network
Logistic network
Information network
TRAFFIC network
Waterways
Rail nets
Road nets
AIRLINE NETS
Line network
raster network
hub-and-spoke networks
Different network types
Line nets
:)
- simple planning
- understandable
:(
Low frequencies
low personnel productivity
high marketing costs
Different network types
Raster Nets
:)
High personnel productivity
attractive for business passengers
:(
low frequencies
High marketing costs
Different network types
Hub-spoke-nets
:)
Marketing leverage
dominance (strategic value)
economy of scale
:(
Risk of marginal cost pricing
creation of peaks
high delay liability
Form of airlines network
single route
stop and go
stop and go triangle flights
raster-net
Single route from a hub
one hub (hub economies)
multi hub (hub economies, reduce dependence on one airport)
continuous Hubbing
Airlines alliances
gains
- sales support in a world wide network
- increasing customer choice
- revenue integration through codeshare
airlines alliances costs
coordination time
slower implementation of new ideas
trust to alliance partners
different qualities provided by different partners
Airlines alliances
further integration from alliances
route JV
Closer coordination than code share
most attractive prices
more destination on offer
Grid & system
= set of element where different relation between these elements occur
with an airline partner you could have a bit grid. OD increase substantially where you add legs.
Natural monopoly thought net effect
Supply site: marginal costs decrease with a bigger network
(larger production –> economy of scale)
demand size: marginal utility increase with the size of the network. higher market power, standards / image. –> economy of scope and density.
The bigger net work the lower the costs & higher the ability to provide more benefits!!
internalization of net effect by airlines
COOPERATION
Adjustable timetable
codeshare
STRATEGIC ALLIANCE
integrated network structure
lounge access and combine frequent flyer arrangements
integrated pricing
integrated operation
MERGERS
procurement synergies
Fleet management financing
Revenues and cost side effect with alliances and mergers
revenues: alliances give more revenues synergies than mergers (60:40)
BUT
cost synergies almost only possible though mergers (93:7)
you can have good revenues synergies with alliances but for costs synergies you need to merge.
