On the optimal distribution of traffic of network airlines

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

Airline consolidation and the distribution of traffic between primary and secondary hubs

Several airline consolidation events have recently been completed both in Europe and in the United States. The model we develop considers two airlines operating hub-and-spoke networks, using different hubs to connect the same spoke airports. We assume the airlines to be vertically differentiated, which allows us to distinguish between primary and secondary hubs. We conclude that this differentiation in air services becomes more accentuated after consolidation, with an increased number of flights being channeled through the primary hub. However, congestion can act as a brake on the concentration of flight frequency in the primary hub following consolidation. Our empirical application involves an analysis of Delta's network following its merger with Northwest. We find evidence consistent with an increase in the importance of Delta's primary hubs at the expense of its secondary airports. We also find some evidence suggesting that the carrier chooses to divert traffic away from those hub airports that were more prone to delays prior to the merger, in particular New York's JFK airport