Airline Networks: A Comparison of Hub-and-Spoke and Point-to-Point Systems

The disparity between the relative success of low-cost and network carriers since 2001 has often been attributed to the difference in route system architecture. This paper compares the economic and operational characteristics of point-to-point and hub-and-spoke route systems. It also argues that the emphasis placed on route structure obscures other differences in business models. Although U.S. low-cost-carriers are frequently characterized as operating point-to-point systems, few actually do so. As network airlines simplify their domestic products and the low-cost-carriers diversify theirs, the distinction between the two is rapidly fading. Introduction The relative success and continued growth oflowcost-carriers over the last six years contrasts sharply with the deep financial crisis and huge losses sustained by larger network carriers. This disparity has received attention in both the academic and popular press with many writers attributing the disparate fates to differences in route structure. Indeed, the terms low-cost-carrier (LCC) and point-to-point carrier are often used interchangeably. This indiscriminate terminology obscures the fact that most US LCCs do not employ point-to-point route architectures. Certainly the prototypical LCC Southwest Airlines is an example of a predominately point-to-point airline; but AirTran and Frontier, for example, operate classic hub-andspoke (H&S) route systems. H&S, or network, carriers American and United, on the other hand, offer nearly hourly non-stop service from New York to Los Angeles overflying their mid-continent hubs. While route structure is a critical strategic choice, it is only one element of an airline business model and is rarely deployed in pure form. The failure to distinguish between many other aspects of the business model and route structure obscures important aspects of both. This paper seeks to clarify the contribution of route architecture to competitive advantage by contrasting the economics and operations ofH&S with point-to-point route systems. While interest in this discussion would usually be limited to airline and transportation economists, the relative success and prospects of airlines is a common topic for all aviation professionals. The strategic role of route architecture JAAER, Winter 2008 provides a foundation for all such discourse.