Scheduling Decisions in an Airline Network: A Hub-and-Spoke System's Effect on Flight Frequency, Fares and Welfare
University of Illinois Office of Research Working Paper #99-0110
Posted: 15 Mar 2000
Date Written: May 1999
This paper provides a comprehensive economic analysis of scheduling decisions in an airline network. Although it is widely believed that the growth of hub-and-spoke networks has raised fight frequencies, the only analysis of this question is contained in a recent paper by Berechman and Shy (1998), who analyze an incomplete model. The present analysis shows that flight frequency is higher in a hub-and-spoke (HS) network than in a fully-connected (FC) network, confirming the conventional wisdom. It is also shown that some passengers who could make a connecting trip under the HS network may find the existing flights not sufficiently convenient given their long duration, thus choosing not to travel. By contrast, all passengers choose to travel under the FC network. The welfare analysis shows that the airline provides excessive flight frequency relative to the social optimum in both the FC and HS cases, and that its choice of network type exhibits an inefficient bias toward the HS network.
JEL Classification: L93
Suggested Citation: Suggested Citation