Etihad Airway
The write-up is an analysis of Etihad airways. It attempts to discuss the role of economies of scope and the generation of scale benefits in the Etihad airline industry. Further, the paper will explore how overcrowding results in diseconomies of scale.
The economies of scope play numerous roles in the airline industry of Etihad. The benefits of scope lessen the risks, reduce costs, reach more customers and increase the control and repeatability of processes. The first role is achieved by Etihad venturing into ground handling services, hotels and cruise lines. Costs reduction- mostly the lowering of entry barriers into novel markets- happens through code sharing. Etihad Airways is able to increase its reach to customers through Beirut and Jordanian services. These services expand the connections of Abu Dhabi Hub to a considerable number of Australian and Asian cities. Lastly, the frequent flier program lets the economies of scope to carry its role of increasing the control of customers.
From the case, big airlines like Etihad airways enjoy more extensive scale benefits. It is attributed to both the internal and external economies of scale. The former is achieved through the specialization of the workforce and marketing strategies. For instance, in Etihad, the cost centers are specialized in multiple business functions like corporate communications, revenue forecasting, IT, audit, security, and infrastructure planning. These centers facilitate the creation of rational decisions. Further, through alliance partners’ strategies, advertising costs are drastically reduced. In regards to the external element, operators of the airports give substantial discounts to the big airlines.
Overcrowding in the airport may lead to diseconomies of scale. This scenario forces the airports to increase the charges of landing mostly to enhance the operational efficiency mainly through outsorcing. Additionally, the change in the charges is done to reward the shareholder who have invested billions of dollars into the company. . Individuals will be less attracted to these hubs – competitive advantage reduces- thus decrease the number of served flights.