A Model of Scheduling in Airline Networks: How a Hub-and-Spoke System Affects Flight Frequency, Fares and Welfare

This paper provides a comprehensive economic analysis of scheduling decisions in airline networks. Although it is widely believed that the growth of hub-and-spoke networks has raised flight 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. Another result is that, despite lower cost per passenger under the HS network, greater flight frequency allows the airline to charge a higher fare to local passengers. This finding suggests that the downward pressure on fares due to economies of density may be partly or fully offset by the effect of higher flight frequency in an HS network, so that the net fare impact of such networks becomes uncertain. Finally, the paper's welfare analysis shows that the airline provides excessive flight frequency relative to the social optimum, and that it may select the wrong network type. ? The London School of Economics and the University of Bath 2001