Technology, Business Models and Network Structure in the Airline Industry
XREAP Working Paper No. 2010-14
54 Pages Posted: 22 Apr 2011
Date Written: December 1, 2010
Network airlines have increasingly focused their operations on hub airports through the exploitation of connecting traffic. This has allowed them to take advantage of economies of traffic density, the existence of which is beyond dispute in the airline industry. Less attention has been devoted to airlines' decisions on thin point-to-point routes, which can be served using different aircraft technologies and different business models. This paper examines, both theoretically and empirically, the impact on airlines' networks of the two major innovations in the airline industry of the last two decades: regional jet technology, and the low-cost business model. We show that, under certain circumstances, direct services on thin point-to-point routes can be viable, and that as a result airlinesmay be interested in diverting passengers away from the hub.
Keywords: regional jet technology, low-cost business model, point-to-point network, hub-and-spoke network
JEL Classification: L13, L2, L93
Suggested Citation: Suggested Citation