Airline Network Choice and Configuration

As an increasing number of countries liberalize their skies, some airlines, notably carriers in the Middle East, have been able to extend their hub-and-spoke networks beyond domestic borders. This allows them to serve international destinations without going through traditional gateway hubs, so that they can compete with airline alliances relying on the traditional dual-gateway, or the so-called “dog-bone” networks. This paper proposes a stochastic model to investigate the competition between airlines running traditional dog-bone and hub-and-spoke networks in a liberalizing inter-continental market. The proposed model considers the interactions among three types of stakeholders, namely a regulator that aims to maximize the expected social welfare by designating the locations of new gateways; airlines that maximize profits by optimizing the service offerings and airfares; passengers that minimize their own travel disutility. Such a model is applied to analyze the Europe - China aviation market, so that the comparative advantages of different networks can be examined and quantified. The modeling results provide evidence-based recommendations on airline competition and airport development, and infrastructure investment needs in markets being liberlized

Shipping network design in a growth market: The case of Indonesia

This paper investigates the design issues of a shipping network when cargo demand increases rapidly. A gravity-type model for origin-destination (OD) demand estimation is first presented and calibrated based on the current cargo volumes of the Indonesian maritime market. A model for minimizing total system cost, which is the sum of shippers' and carriers' costs, is then proposed to design the shipping network with cargo demand levels forecasted for future years. The results show that for the Indonesian maritime market, although a hub-and-spoke (HS) network is appropriate for the current low level of shipping demand, a point-to-point (PoP) structure will be needed at higher traffic volumes in the future. Additional domestic hub ports shall be developed as cargo demand increases over time. The results suggest that a progressive policy can be promising for infrastructure investments in developing countries: government planning and regulations may be introduced in early years to enhance infrastructure utilization and economic return. With increased demand the market may be liberalized to promote healthy competition