network thoughts 02252010-excerpt
Post on 22-Jul-2015
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Attila Mate Kovacs 7 www.strategicmate.com
How can we approach airline networks, models, optimization and
all its context?
1. Profitability
As a start, we may admit, that there is a clear hard-core business logic in closing any
theoretical number of destinations, until you only have the 0+ profit ones.
By the way, this is the opposite of what happenned in the US a few decades earlier.
2. Definitions
Point-to-Point
This model is based on flights that are provided to and from a city. Unit costs are lower in this
model as aircrafts are utilized more often because they do not have to wait for connecting
flights, thus reducing fixed costs, which accounts for a large percentage of operating costs.
Costs are spread out over many hours of flying, thereby driving down the unit cost. Low fare
airlines like Southwest and Jetblue are examples of airlines following the point to point
system.
Hub and spoke
This model is used by most of the major airlines including American, United, US Airways,
Delta, Continental, and Northwest. The Hub and Spoke system allows the airlines to
maximize passenger enplanements on each flight by offering connections to both domestic
and international destinations. This more complicated route system provides customers with a
much larger number of route option, which in turn maximizes revenue opportunities. The
downside to this is the increase in aircraft wait time and lower aircraft utilization time, which
increases the airlines' unit cost.
Attila Mate Kovacs 8 www.strategicmate.com
3. Shifts in airline network models and influencing factors
So what happenned in the early 80s (or late 70s) in the US and later in EU?
At that time, deregulation there had a strong affect on airlines’ network configuration. Many
carriers have rapidly reorganized their network structures from point-to-point (PTP) systems
into hub-and-spoke (HS) systems.
In the EU, the deregulation process produced similar results, although its effect on the market
was not so radical. European carriers had already concentrated intercontinental flights into an
HS structure, while they developed a mixed HS and PTP network for shorter distances
(national and international
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