182 COMPETITION LAW IN TOURISM In economies of density, despite them being close to economies of scale, the reduction in average CASK will be achieved because of larger capacities (larger aircraft or aircraft with more seats). Airlines can operate larger aircrafts and be more efficient as fixed costs will be spread among a higher number of seats. Smaller aircrafts with fewer seats will face, comparatively, much higher costs. As the cost indicator takes into account the distance (seat per any unit of distance), economies of density are also achieved when these larger capacities are operated on a longer distance, the fixed costs being better absorbed with long distance. Carriers with a high traffic density would have a clear unit cost advantage compared to the carriers with lower density traffic23. Long-haul routes and served by larger capacities tend to be more cost efficient. Economies of density occur mainly in the hub-and-spokes network model, for instance, the Airbus 380 was based on the belief that high-density routes will generate large economies. On the demand-side, hub-and-spokes networks structured around global airlines alliances are valuable for consumers, being able to access large networks “from anywhere to anywhere”. However, this vision does not take into account the negative externalities of a hub-and-spoke network versus a point-to-point service, which, for the consumer, is the disruption of the travel in two or more segments with increasing times of connecting or increased times for initial check-ins and boarding. Economies of scope arise when there is a lower average cost with providing a large number of diversified products rather than specialising in the production of a single or a few products. In the airline industry, origin-destination pairs are seen as distinct geographical markets and products. The average cost will decrease when operating a larger number of city-pairs, thus generating economies of scope, and such will be the case in hub-and-spokes networks when many travellers from different points of origins feed the hub airport and are combined on a single aircraft. The spread of aircraft and crew away from a single base generally leads to imperfections an overcapacity as it will more difficult to match with the demand. Furthermore, when these are spread over a higher number of different routes, economies of scope arise because these resources are shared across more aircraft and reserve pilots and cabin crew. Operating more aircraft and crew from airports bases will increase their utilisation. Carriers will be able to easily switch aircraft between routes and reduce the turnaround downtimes 23 Brueckner & Spiller, 1994, “Economies of Traffic Density in the Deregulated Airline Industry”, The Journal of Law & Economics Vol. 37, No. 2, pp. 379-415.
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