Essay --

Economies of scaleThe concept of economies of scale refers to the advantages gained when long-term average cost decrease with an outgrowth in the quantity organism produced. Economies of scale are common in highly capital immoderate industries with very high FC much(prenominal) as the airline industry. In prevalent the average total cost curve at least in the short run is U-shaped, which indicates that the average total cost decline oer a certain range of increasing output and then increase again until they reached their minimum. () The differentiation between short-run and long-run is not link to a certain time period but related to the man of decided input factors. In the short-run there is some amiable of input that is fixed and therefore cannot easily be changed without excessive investment. In the long-run every input is variable and no fixed factors exist. () Because of economies of scale, profit airlines cast off an inherent cost advantage oer smaller ones. This is a major reason why there are very a couple of(prenominal) small airlines in the industry and why there is continual consolidation.Hub airports in addition contribute significantly to economies of scale. Hubs are extremely costly operations, and the costs that they generate, such as multiple labor shifts, terminal leases, and ground equipment, are fixed in the short term. Therefore, in order to spread the costs over more units of output (air seat miles (ASM)), airlines have a strong inducing to use these assets as intensively as possible. While most airlines mould banked hubs to provide shorter connection times for their passengers, airlines such as American and Delta have experimented with rolling hubs in order to better utilize hub assets. With banked hubs, assets sometimes take a breather unused for extended... ... paid and unpaid seats, to determine the average amount of tax received for a paid seat we calculate receipts per revenue passenger mile (RRPM). Break-even anal ysis is an burning(prenominal) measurement for a comp any(prenominal). It is the publication of revenue (or unit) required in order for the companys costs to be recovered. In the airline industry, break-even called break-even load factor and is usually explicit as a percentage of total ASMs. With break-even load factor, any positive load factor greater than break-even is a positive contribution and any load factor less than break-even is a loss. Break-even load factor is an important factor when assessing routes and flights on individual basis because it is possible for an airline to tell a operating profit, it may not necessarily represent a net profit since fixed overhead cost and interest income/expenses belt up need to be paid.