Summary: Airline Business

Read the summary and the most important questions on Airline business

• Airline business week 1 lesson 1

• what is density economics and why is it important for  the aviation industry?

  
  Density economics are cost savings resulting from spatial proximity of suppliers or providers.
  with passengers more concentrated (leading to higher passenger flows), the aviation industry can achieve lower average costs.

• Name 3 main differences between business and leisure travellers.

  Business travellers have a relative higher willingness to pay than leisure travellers. They are also less sensitive to prices. And business travellers (small portion of the population) responsible for a disproportionally large share of trips.

• How did traditional airlines responded to competition of low cost carriers?

  Bankruptcy
  Renegotiation of labor contracts and (cost) efficiency gains
  Setting up or buying low cost carriers (not always successful)

• Why is the aviation industry characterized with high fixed costs?

  Upfront high investments for planes, high labor costs landing rights etc, are the reason for high fixed costs.

• Name three results from high density economics

  1.Airlines can use bigger aircrafts, resulting in lower operating costs per passenger
  2. Allows for a higher density of passengers, allows for more flight hours a day
  3. High density , allows for more intensive use of ground facilities and personnel.

• How is the willingness to pay determined for ticket prices?

  Depends on the net value of the activity of the trip purpose.

• What is meant with a hybrid airline? What did Gudmundsson (2015) conclude about this?

  Low cost airlines adding extra services, such as business/preffered seating etc. Gudmundsson (2015) explained by this:
  
  
  

  1. Such trend signifies a break away from strategy principles that would hold that best performing firms are at the extreme opposites of the scale, rather than hybrids"
     

• Why do density economies exist in the aviation industry?

  The industry can only maximise profits by maximising the number of passengers. There needs to be density economies, to maximise the number of passengers on a certain route. Therefore airlines choose certain routes and hubs to max out the density economies.

• How and why is price discrimination applied in the sector?

  Every type of passenger has a different willingness to pay, therefore the industry charges different prices. The industry applies this by, overbooking, keeping some seats open (for passengers that are price inelastic) etc.

• Why do different airline types exist? And what makes them different?

  After deregulation, free market, LLC, new type of consumer, new routes, no hub/spokes network.