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On the optimal distribution of traffic of network airlines

Author

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  • Fageda, Xavier
  • Flores-Fillol, Ricardo

Abstract

Network airlines have increasingly focused their operations on hub airports through the exploitation of connecting traffic. However, in this paper we show that they may also have incentives to divert traffic away from their hubs. More precisely, we examine how the optimal distribution of traffic of network carriers can be affected by the two major recent innovations in the airline industry: the regional jet technology and the low-cost business model. On the one hand, we show that a network airline may find it profitable to serve thin point-to-point routes with regional jets when the distance between endpoints is sufficiently short and there is a high proportion of business travelers. On the other hand, we observe that a network airline may be interested in serving thin point-to-point routes by means of a low-cost subsidiary when the distance between endpoints is longer and there is a high proportion of leisure travelers. We conclude that network airlines are using those innovations to provide services on thin routes out of the hubs.

Suggested Citation

  • Fageda, Xavier & Flores-Fillol, Ricardo, 2012. "On the optimal distribution of traffic of network airlines," European Economic Review, Elsevier, vol. 56(6), pages 1164-1179.
    • Handle: RePEc:eee:eecrev:v:56:y:2012:i:6:p:1164-1179
    DOI: 10.1016/j.euroecorev.2012.05.001
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    References listed on IDEAS

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    Cited by:

    1. Wang, Chunan & Wang, Xiaoyu, 2019. "Airport congestion delays and airline networks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 122(C), pages 328-349.
    2. Thomaz, Sarah, 2020. "Effects of asymmetric demands on airline scheduling decisions in a network," Economics of Transportation, Elsevier, vol. 22(C).
    3. Fageda, Xavier & Flores-Fillol, Ricardo, 2015. "A note on optimal airline networks under airport congestion," Economics Letters, Elsevier, vol. 128(C), pages 90-94.
    4. Fageda, Xavier & Suau-Sanchez, Pere & Mason, Keith J., 2015. "The evolving low-cost business model: Network implications of fare bundling and connecting flights in Europe," Journal of Air Transport Management, Elsevier, vol. 42(C), pages 289-296.
    5. Fageda, Xavier & Teixidó, Jordi J., 2022. "Pricing carbon in the aviation sector: Evidence from the European emissions trading system," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    6. Reynolds-Feighan, Aisling, 2018. "US feeder airlines: Industry structure, networks and performance," Transportation Research Part A: Policy and Practice, Elsevier, vol. 117(C), pages 142-157.
    7. Fageda, Xavier & Flores-Fillol, Ricardo & Lin, Ming Hsin, 2020. "Vertical differentiation and airline alliances: The effect of antitrust immunity," Regional Science and Urban Economics, Elsevier, vol. 81(C).
    8. Fageda, Xavier & Flores-Fillol, Ricardo, 2012. "Air services on thin routes: Regional versus low-cost airlines," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 702-714.
    9. Brueckner, Jan K. & Flores-Fillol, Ricardo, 2020. "Market structure and quality determination for complementary products: Alliances and service quality in the airline industry," International Journal of Industrial Organization, Elsevier, vol. 68(C).
    10. Jan K. Brueckner & Ricardo Flores-Fillol, 2018. "Airline Alliances and Service Quality," CESifo Working Paper Series 7226, CESifo.
    11. Xavier Fageda & Ricardo Flores-Fillol, 2017. "Airport Congestion and Airline Network Structure," Advances in Airline Economics, in: The Economics of Airport Operations, volume 6, pages 335-359, Emerald Group Publishing Limited.
    12. Heinz, Stephan & O’Connell, John F., 2013. "Air transport in Africa: toward sustainable business models for African airlines," Journal of Transport Geography, Elsevier, vol. 31(C), pages 72-83.
    13. Bilotkach, Volodymyr & Fageda, Xavier & Flores-Fillol, Ricardo, 2013. "Airline consolidation and the distribution of traffic between primary and secondary hubs," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 951-963.
    14. Liao, Weijun & Wang, Chunan, 2021. "Airline emissions charges and airline networks," Journal of Air Transport Management, Elsevier, vol. 92(C).
    15. Tan, Kerry M. & Samuel, Andrew, 2016. "The effect of de-hubbing on airfares," Journal of Air Transport Management, Elsevier, vol. 50(C), pages 45-52.
    16. Gillen, David & Hasheminia, Hamed & Jiang, Changmin, 2015. "Strategic considerations behind the network–regional airline tie ups – A theoretical and empirical study," Transportation Research Part B: Methodological, Elsevier, vol. 72(C), pages 93-111.

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    More about this item

    Keywords

    Regional jet technology; Low-cost business model; Point-to-point network; Hub-and-spoke network;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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