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