spoke network) derives its name from a bicycle wheel, which consists of a number of
spokes extending outward from a central hub. In the abstract sense, a location is selected
to be a hub, and the paths that lead from points of origin and destination are considered
spokes. The model is commonly used in industry, in particular in transport,
telecommunications and freight.
An airline hub is an airport that an airline uses as a transfer point to get passengers to
their intended destination. It is part of a hub and spoke model, where travelers moving
between airports not served by direct flights change planes en route to their destinations.
Some airlines may use only a single hub, while other airlines use multiple hubs. Hubs are
used for both passenger flights as well as cargo flights.
Many airlines also utilize focus cities, which function much the same as hubs, but with
fewer flights. Airlines may also use secondary hubs, a non-technical term for large focus
cities. Examples include British Airways at Manchester Airport and US Airways at
Pittsburgh International Airport. In India Delhi and Mumbai are the hubs for Indian and
Air India respectively.
A number of changes and reformations have happened during the last three four decades
in the air transport industry. International air transport services were offered in a network
based on a linear or point to point configuration during the pre jet era. Intermediate points
were used for refueling stops. Later, the technical developments of aircraft and choice of
aircraft expanded, intermediate stops were by passed to shorten the traveling time
between two points, and where feasible separate routes were established between the
intermediate stops and final stops. As the demand for air transport services grew larger,
cities started to establish their airports as hubs and develop feeder services into their
international airports. The delivery of transport services has now reached the stage where a final destination point can be serviced through a number of hubs, which were not on the
original linear transportation network. As indicated before, global air traffic is
categorically concentrated in three main regions – East Asia, Europe and North America.
Initially, each region only had one or two major hubs, but as the demand grew and the
cost of providing international services declined, more hubs were established and made
more viable for international trade in air transport services. In international markets,
networks can only be established through cooperation with other governments. This
means, that entry into international markets faces much higher barriers than in domestic
markets where in most countries domestic airlines can enter and exit relatively freely.
On the figure below, two airline companies are servicing a network of major cities. A fair
amount of direct connections exists, but mainly at the expense of the frequency of
services and high costs (if not subsidized). Also, many cities are serviced, although
differently, by the two airlines and connections are likely to be incovenient. With
deregulation, a system of hub and spoke networks emerges as airlines rationalize the
efficiency of their services. A common consequence is that each airline assumes
dominance over a hub and services are modified so the two hubs are connected to several
spokes. Both airlines tend to compare for flights between their hubs and may do so for
specific spokes, if demand warrants it. However, as this network matures, it becomes
increasingly difficult to compare at hubs as well as the spokes, mainly because of
economies of aggolemeration. As an airline assumes dominance of a hub, it reaches
oligopolistic (if not monopolistic) control and may increase airfares for specific
segments. The advantage of such a system for airlines is the achievement of regional
market dominance and higher plane loads, while passengers benefits from better
connectivity (although delays for connections and changing planes can become more
frequent) and lower costs.
Industry responses to deregulation were swift. While the prior regulatory regime had
resulted in carriers largely providing point-to-point service, with deregulation they began
to consolidate their operations at airports, forming what came to be known as hubs. A
hub carrier combines "local" passengers (those originating at or destined to the hub) with
"connecting" passengers (those not originating at or destined to the hub but traveling via
the hub) on the same flight. This allows the hub carrier to serve more cities from their
hubs (known as "spoke" routes) and offer greater frequency of service with its fleet of
aircraft than had been possible with point-to-point service.
The hub system has become the dominant business model for most of the major domestic
airlines. Such a hub system provides some important benefits for local and connecting
passengers. Local passengers benefit because the hub carrier will operate many spoke
routes, which means that passengers will be able to obtain nonstop service to many cities.
Also, because the hub carrier combines local passengers with a substantial number of
connecting passengers on its flights, it is likely to offer more flights to any spoke city
than other carriers (with the possible exception of a spoke city that is another carrier's
hub). Connecting passengers benefit not only from the frequency of flights, but also from
the ability to choose among routing alternatives offered by various airlines. A passenger
seeking to travel from Washington to San Diego, for example, may find that service is
offered by multiple carriers, each via its respective hub(s).
Notwithstanding these benefits, the dominance of spoke routes by hub carriers gives rise
to concerns about the exercise of market power by those carriers on those routes. There
will usually be at least two carriers providing nonstop service on spoke routes that
connect two carriers' hubs, but on other routes there may well be no carrier providing
nonstop service other than the hub carrier. Connecting service may be a reasonable
alternative for some passengers, especially for those leisure passengers willing to endure
the longer travel time that connecting service usually entails, but the absence of
competing nonstop service can be especially problematic for business passengers, who
often are in a hurry and generally place a higher value on minimizing travel time. Hub
carriers can identify such "time-sensitive" passengers and discriminate in the fares they
364
charge them. Studies have shown that carriers generally can, and do, charge higher fares
on hub routes, where they face less competition, than on routes that are more competitive.
Once an airline has established a hub at an airport, several structural and strategic factors
combine to present high entry barriers to any other airline that might try to enter spoke
routes emanating from that hub. By providing more departures to more destinations, the
hub carrier can attract a disproportionate share of the hub airport's passengers. This
happens for several reasons, including the preference of many travelers to use the carrier
with the most flights in a city pair (so that the passenger can change departure times if
travel plans change), marketing programs (such as frequent flyer programs) that create
loyalty incentives for consumers to concentrate their travel on the dominant airline in
their home city, and travel agent commission practices that create incentives for travel
agents to encourage their customers to use the hub carrier. A hub carrier often also enters
into contracts with local businesses that provide incentives for the businesses to
concentrate their travel on the hub carrier. All of these factors serve to discourage entry
into a hub carrier's spoke routes, especially by other carriers with similar cost structures.
There is little dispute that hub carriers dominate service at their respective hubs. Today,
hub carriers often account for more than 70 percent and sometimes for more than 80
percent of passengers at their respective hubs. There is no reason to think this situation is likely to change in the short run.
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Maani Sharma [ MBA Aviation ]
Manager Aviation NEWS Project
www.All-Aviation-NEWS.in
www.AeroSoftCorp.com
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