Hub and Spoke
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
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