Question

Which drivers of cost advantage (Figure 7.7) do low‐cost carriers such as Southwest Airlines and Ryanair exploit in order to undercut legacy carriers such as United Airlines and British Airways?

ECONOMIES OF SCALE • Technical input-output relationships • Indivisibilities • Specialization ECONOMIES OF LEARNING • Increased individual skills • Improved organizational routines PRODUCTION TECHNIQUES • Process innovation • Re-engineering of business processes PRODUCT DESIGN Standardization of designs and components • Design for manufacture INPUT COSTS • Location advantages • Ownership of low-cost inputs • Non-union labor • Bargaining power CAPACITY UTILIZATION • Ratio of fixed to variable costs • Fast and flexible capacity adjustment RESIDUAL EFFICIENCY Organizational slack/X-inefficiency • Motivation and organizational culture Managerial effectiveness

Answer 1

Ans

cost drivers	How low cost airlines succeed
economies of scale	Big ticket orders to Boeing and Airbus to get volume discounts
production techniques	Customers are given what they need: on time departure and arrival without any frills. Obsession about timeliness.
product design	Only specific types of planes ordered to reduce maintenancce costs
input costs	hedging for fluctuation in fuel prices.
capacity utilization	focus on increasing seat occupancy. more the number of passengers less the cost per passener