Economies of Scope for the Airline Industry

The economies of scope play an important role in the airline industry and can be
defined as the process of reducing the average cost of resources by spreading
the use of productive resources over two or more products. (Thomas Tacker et
al Introduction to Air Transport Economics: From Theory to Applications.) This
could be used in a variety of applications, such as, cargo, frequent flier programs,
and ground handling services, maintenance activities or catering. For instance,
carrying cargo (freight) and passengers in the same flight results to increased
savings for airlines as opposed to flying them in separate aircrafts (Managerial
Economics- A problem Solving Approach). Airlines have also tried using
economies of scope by venturing into cruise lines and hotels.

Effects of Etihads Code Sharing Agreements on Economies of Scope

Etihad benefits from Code sharing or alliance partners from economies of scope
as they are in a position to operate as a hub and spoke network with a greater
presence at both ends of the market. This allows for lower barriers of entry into
newer markets, and also leads to reduced advertising costs as advertising is
aimed at the entire alliance and not just one particular airline. Etihad also
benefits with the use of its frequent flier program, Etihad Guest through
customer loyalty and computer reservation systems. In Ireland, Etihad has tied
up with Aer Lingus Regional that allows the airline to benefit for services offered
in Dublin, Cork and Shannon and the UK.

Effects of Etihads Acquisition of Airport Services on Economies of Scope

In July 2013, Etihad invested in the acquisition and rebranding of 3 new

subsidiaries which deal with ground services, cargo services and catering
services, which not only offers support to its own services but to other airlines as
well. Etihads ground services include tasks of baggage handling and providing
assistance to passengers, aircraft cleaning, passenger and crew transport from
and to the aircraft. Etihad cargo is responsible for the freight handling services
that include documentation, warehousing, security and handling of perishable
and non-perishable cargo for Etihad airways and other airlines. The business
works in association with various freight forwarders and clearing agents and
regulatory bodies. Etihads catering services include the preparation of in flight
food, stores, and duty free items as requested by Etihad airways and other
airlines. This service also deals with laundry services for cabin linen, food
storage, transportation and equipment maintenance.

Etihad Holidays

Etihad Holidays is a division of Etihad airways, which deal with the management,
and logistics of organizing holiday packages to various worldwide destinations.
The service includes flight & accommodation arrangements, city tours and
excursions.