In the economic literature, many authors sustain that hub-and-spoke networks:

  • Increase the fixed costs sustained by the airlines (due to minimising the risk of congestions at the hubs). In particular, the fixed costs of a hub is expected to increase with the number of spokes.

  • Reduce the marginal costs (by allowing for a more efficient use of aircraft and other inputs).

Could you explain this with an example?

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    $\begingroup$ Is this a different question to your last? aviation.stackexchange.com/questions/84449/… $\endgroup$ – Jamiec Feb 23 at 17:27
  • $\begingroup$ Thanks. It is different. Here, I want to understand (with an example, if possible) why a hub-and-spoke network business model involves higher fixed costs and lower marginal costs than a point-to-point network business model. $\endgroup$ – TEX Feb 23 at 17:32

The fixed cost problem with the hub and spoke model is mainly due to the need for banked flights to minimize average connection times.

Ideally, every plane starts the morning at a spoke and arrives at the hub at roughly the same time. Then passengers have an hour or two to change planes, and all the planes fly back to their spokes. This cycle is repeated again in the afternoon, and then the planes spend the night at their spoke to start the cycle again the next morning.

The problem is that this requires duplicate gate space at the hub and spokes, even though planes will only use one or the other at any given time (or neither, while flying). It also requires sufficient planes to serve every spoke in every bank even if there’s not enough demand to fill them. And it requires much larger airports and terminals at the hubs to serve massive numbers of passengers and flights during the banks, which goes unused the rest of the day.

Of course, nobody operates quite this stupidly in practice, but every flight that deviates from the model means longer connection times for its passengers because if it arrives at the hub between banks, passengers have to sit in the terminal and wait for the next bank to connect, which makes your flights less desirable than a competitor’s.

The upside is that you can (in theory) size the aircraft serving each spoke to its average demand, and likely use fewer, larger aircraft since one plane can serve every passenger connecting to every destination, which reduces variable costs.

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    $\begingroup$ Other downside of hubs, the aircraft sit longer waiting for passengers to shuffle (at the hub) or waiting for their departure time (at a near-to-the-hub spoke city) to make the next bank of flights. Flights operating point-to-point wait for people + bags off + on, but not necessarily much else. $\endgroup$ – Ralph J Feb 24 at 1:55
  • $\begingroup$ Thanks. Is the upside that you highlight what is called economies of density (or scope?)? Also, given the downside story, can we say that the fixed costs at a hub are increasing in the number of arms? $\endgroup$ – TEX Feb 24 at 8:18
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    $\begingroup$ @TEX The fixed cost of the hub (and aircraft) scales with the number of spokes. I’m not familiar with the terms economy of density/scope. $\endgroup$ – StephenS Feb 24 at 16:26

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