Additional to the general explanation of hub-and-spoke operations (refer to Hub-and-Spoke Operations for more details) the following page explains the advantages and disadvantages hub-and-spoke operations might have for airports as well as for airlines. Therewith it implies why the system is oppositional discussed in the literature.
Advantages of hub-and-spoke
The following two points are the major advantages that the hub-and-spoke system had initially brought to the airline business; however some disadvantages had been developed later due to changes in external environmental factors.
1. Encouraged the rapid growth in the airline business
The hub-and-spoke system since developed after deregulation, has allowed a rapid growth in size, competition strategy and traffic demand in the airline business. However, as suggested by Wells and Younger (2004 4) this had resulted in operational inefficiencies at periods of slow economy; with airlines resulting in very poor financial performances.
As a result of this, some airlines restructure their business model to return to the point-to-point system and move out of the constant need for a large hub, and utilise hubs in a more uniform matter in terms of arrivals and departures. This phenomenon is known as the rolling hubs.
2. Efficient use of scarce transportation resources.
The system has less number of routes connecting all spokes enabling a more efficient use of scarce transportation resources. This however had small airports and economies of smaller regions suffering as per the reduced capacity. As a result this encouraged airports to agree with low cost carriers to offer low airport fees and commissions from local businesses to bring in traffic and passenger flow.
The passenger market favoured this type of airline business as lower fares were rolled out to the market from these smaller hubs; which caused great competition to full service carriers that were operating with large amount of airport fees to use large hubs, and can no longer return to these small hub markets as it is not cost efficient and are dominated by low cost carriers.
Disadvantages of hub-and-spoke
Besides the aforementioned advantages, the hub and spokes system also holds risks for the airlines and the airports which are highlighted in the following sections.
1. Congestion and delays at hub airports
To limit waiting times and provide a large variety of possible connections for passengers at the hub airport, it is essential for the hub airline to schedule as many incoming and outgoing flights as possible during a short time frame. This results in high traffic peaks during these times and often causes delays due to scarce airside facilities such as taxi- or runways.
At the same time the hub-and-spokes-system however allows hub airlines to increase their benefit exponentially by adjoining an additional destination to the network compared to point-to-point-carriers. This implies for a hub airline that usually the tradeoff between the costs due to congestion (refer to Airport Congestion for more details) and the benefit of serving new markets is positive. Therefore the airline has an incentive for adding more traffic despite a rising congestion level. The point-to-point carriers at the airport which cannot capitalize on such an exponential benefit however suffer from the increasing number of flights (Mayer & Sinai, 2003 2).
Another reason for congestion stems from the fact that many airports do not limit the number of take-offs and landings. One possibility for airlines to prevent further congestion and coevally increasing the passenger count is the use of larger (feeder) aircraft. However, doing so, new challenges occur if these aircraft with more passengers are delayed. More travelers will miss their connecting flights which would result in a poor utilization rate of the hub-hub connection and reduces the profitability of a carrier. This problem is especially critical for the operations of the A380 (Ruehle et al., 2006 3).
2. Discontinuous use of airport facilities
The merging of traffic in a hub-and-spoke-system implies a traffic structure consisting of high peaks at certain times a day when airport facilities are highly in use. At some airports, costly additional capacity and infrastructure (e.g. runways) are required to cater for the demands at these peaks. During off-peak hours, as traffic is less, terminal and airside facilities are used inefficiently or even idle. The temporal discrepancy between capacity and demand will continuously result in either congestion and delays or underutilization (Janic M., 2008 1).
3. Airport dependency
Hub airlines and the corresponding alliances (refer to Airline alliance for more details) have selected a limited number of airports on each continent through which they route their traffic. For these few hub airports in turn, they represent a high share of their business. As airport capacity is limited and usually not sufficient for other extensive networks, and the necessary slots at attractive times are not available, other airlines tend to chose alternative options.
For the airport, this dependency on one major hub airline has advantages and disadvantages: as long as the airline is stable and successful in the market the airport can be sure of a consistent operation and therewith a steady income stream. As soon as the airline however struggles, this will have negative repercussions on the airport and might severely jeopardize (profitable) operations at the airport (Janic M., 2008 1).