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TWW~. RCS..A Vol. 19A, No. I. pp. 15-27.

1985
Printed in the U.S.A.
0191-2607185 f3.00+ .lO
Pcrgamon Press Ltd.
AIRLINE HUBBING-SOME IMPLICATIONS
FOR AIRPORT ECONOMICS
ADIB KANAFANI
Institute of Transportation Studies, University of California, Berkeley, CA 94720, U.S.A.
and
ATEF A. GHOBRIAL
Manalytics, Inc., San Francisco, CA, U.S.A.
(Received April 1984)
Abstract-The phenomenon of airline hubbing has been on the increase in recent years. Hubbing arises when
airlines attempt to maintain high levels of aircraft utilization and to take advantage of scale economies. Passengers
also appear to benefit from hubbing in the form of increased frequency of service. The nature of traffic generated
at the hub airports implies some negative economic impacts which suggest that hub pricing should be considered
seriously. This study shows hubbing to be
inelastic to hub pricing and concludes that there are significant
potential benefits to the airports to be gained from some form of hub pricing.
INTRODUCTION
Of the 21 million passengers who enplaned at Atlantas
Hartfield Airport in 1979, 16 million were simply con-
necting between flights. Similarly, 11 of the 21 million
enplaned at Chicagos OHare Airport and 6 of the 15
million enplaned at Los Angeles International Airport
were connecting passengers. During the fourth quarter
of 1980, nearly 30% of all travelers between Tallahassee
and Miami chose connecting flights, despite the avail-
ability of 21 weekly non-stops on the route, paying an
average of $10 more than the non-stop fare and incurring
a journey time that was 50% longer.
These and many similar statistics describe a phenom-
enon that has become increasingly prevalent in the air
transportation system: airline hubbing. Hubbing occurs
when airlines concentrate flights at a few airports which
they use as collection-distribution centers for their pas-
sengers. Unlike the situation in the early days, when
airlines had to make technicaf refueling stops, todays
hubbing is motivated by the economic advantages of
increased flight frequencies and by the economies of
operating larger aircraft. High frequencies of service and
larger aircraft would not normally be feasible if all city
pairs in a system were served by non-stop flights. By
consolidating passengers through a few selected airport
hubs, an airline takes advantage of the resulting higher
volumes by using large relatively efficient aircraft and
can raise the frequency of service it offers passengers to
offset the increased travel time occasioned by the need
to transfer.
Seen from the perspective of airport economics, airline
hubbing would appear both to pose problems and to offer
opportunities. The problems are not simply due to the
added traffic volumes generated, for traffic volumes are
not undesirable in an era of limited growth. The problems
are rather due to the nature of the traffic brought to the
airport. The opportunities arise from the realization that
both airlines and passengers appear to share in the eco-
nomic benefits of hubbing. The question then arises
whether the airports involved can also benefit. The pur-
pose of this paper is to explore some of the impacts of
hubbing on airport economics.
AIRLINE HUBBING
Airline hubbing is a phenomenon that can be consid-
ered on the rise in the U.S. air transportation system.
This is suggested in Table 1, which shows the evolution
of connecting passenger percentages at the eight top U.S.
airports. Casually, a look at any airlines route map
would suggest that one or two airports serve as major
hubs and as collection-distribution centers for the dif-
ferent airlines: Dallas-Fort Worth for American, Chicago
OHare and Denver for United, Atlanta for Delta, and
so forth. Figuresl(a) and (b), comparing the regional air
networks of the southeastern United States in 1960 and
1970, provides a strong indication of the importance of
modem hubbing. Atlanta is the regions major hub, and
one that must be used for travel between many of its
city pairs. More recent networks, such as the one in 1982
shown in Fig. 2, suggest that the hubbing tendency has
continued to flourish even after deregulation of the air-
lines in 1978. Despite the establishment of numerous
direct links between city pairs, the network continues to
be strongly concentrated at its major hub, and many
smaller cities are still connected to the air transportation
system only by a link to that hub. The historic evolution
of hubbing and the role aircraft technology played in it
have been studied by Kanafani (1980) and Kanafani and
Ghobrial (1982). Before moving on to the examination
of airport impacts, a brief discussion of the forces that
motivate hubbing is in order.
WHY Do AIRLINES HUB?
If it were possible to operate economically with single-
seat aircraft, then all passengers could be served directly
15
16 A. KANAFANI and A. A. GHOBRI AL
Table 1. Airport Enplanements and Percentage of Connecting Passengers (Enphment in thowmds)
an Francisco
allas Fort Wort
I
-
19
Passenger
nphlement
13,201
6.379
7,662
5.257
5,192
4,549
4,139
3.175
ercentag
xmectinl
47
71
33
32
53
29
22
21
19
Passenger
nplanement
16,252
12.507
9.084
6,063
7,296
6.456
4,953
3,343
ercentag
xlnectin
52
76
31
31
59
37
25
23
e
c
-
19
Passenger
nplanement
21.119
20,797
15.901
10.763
11.419
7.564
7,093
4.526
:rcentag~
xmectirq
51
76
40
41
55
35
26
22
1) U.S. Civil Aeronautics Board
Domestic origin destination survey ol airline
passenger tradlc (Table 11)
2) U.S. Federal Aviation Administration Airport
activitv statistics of certided route air
carrieis (Table 3)
between their points of origin and destination, and at the
desired time. There would be no need for passengers to
transfer, and the phenomenon of hubbing would not arise.
Major hubs would, of course, still emerge at the larger
cities, since more people would fly to and from them
than to and from the smaller cities; but there would be
no connecting traffic.
As soon as aircraft size begins to offer economies of
scale and to dictate a schedule, the situation changes
fundamentally. The large traffic volumes to and from
the larger cities in a region encourage the use of larger
aircraft. However, in the interest of maintaining the level
of service, an airline wants to keep some lower bound
on schedule frequency. Thus, the need to fill aircraft
that are flying to these cities arises and causes the airline
to hub by reducing the direct service between smaller
cities and by offering connecting flights at the hub. This
consolidation of passengers in links to and from the hub
allows the airline to take advantage of the economies of
aircraft size. Consolidation also allows both the airline
and its passengers to take advantage of the economies
of increased schedule frequency: The airline, by offering
a high frequency, ensures itself a prominent share of the
market; and the passengers, by using connecting ser-
vices, enjoy the convenience of frequent flights.
The forces that encourage airlines hubbing are pri-
marily a function of aircraft technology, influenced, of
course, by market considerations such as frequency com-
petition and airline presence at major airports. There are
no particular scale economies at the airports themselves:
If frequency of service were not such an attractive level-
of-service attribute, and if it were not for the need to fill
0 MAJOR HUB
0 MEDI UM HUD
0 SMALLHUD
l NONHUD
MOB
b
TLH
74x
PNS
(A) 1960
Fig. 1. Regional air networks.
Airline hubbing and airline economics 17
BOSTON
Fig. 2. Air networks, 1982.
the larger aircraft and to take advantage of the resulting
lower passenger-kilometer costs, there would be no strong
incentive for the airline to consolidate its operations at
an airport. Much of the available evidence concerning
station costs, such as that shown in Fig. 3, suggests that
average costs per passenger do not decline with volume
at an airport. Nor do landing fees, shown in Fig. 4 for
a sample of 22 U.S. airports, seem to drop as the volume
at an airport increases. The economies of scale that en-
courage hubbing are link features and not node features
in the air network, and result, as mentioned before, from
the characteristics of larger aircraft and from the increas-
ing returns in terms of market share that can be achieved
by increasing frequency share in a market with com-
petitors.
Figure 5 shows a comparison of market and frequency
share for a selection of markets in the southeastern United
States in 1980. This comparison reaffiis the well-known
S-shaped relation and provides an additional explanation
of the factors that underlie airline hubbing. Some of the
figures quoted at the outset of this essay support this and
suggest that some passengers are indeed willing to incur
additional travel time and, in some cases, cost in order
to take advantage of higher schedule frequency.
SOME IMPLICATIONS FOR AIRPORT ECONOMICS
Airline hubbing affects airport economics in many
ways. At a number of airports, connecting traffic oc-
casioned by hubbing is predominant. This alters fun-
damentally the economic role of the airport within the
region it serves. A major connecting airport represents
more of an airline collection-distribution facility than a
transportation facility for a region or city. The impli-
cations of this for airport economic policy are important
and will be the subject of further discussion below. In-
creased connecting traffic brought about by hubbing has
characteristics that differentiate it from other types of
traffic as far as airport economic impacts are concerned.
Connecting traffic is characterized by a banked sched-
ule usually designed to allow a group of incoming flights
to arrive within a relatively short period of time and to
be followed, after an appropriate connecting time inter-
val, by a group of departing flights. This normally will
result in increased peaking patterns. These peaks occur
over relatively short periods of time, say on the order
of 1 hr, and are often not captured by conventional typ
ical peak-hour statistics. The effects of this increased
peaking are to demand more capacity per unit of traffic
and consequently to place an added burden on airport
facility development. In short-haul systems, the con-
necting time is rather short, typically no more than an
hour. This implies that passenger flow is primarily a
matter of processing and movement from one gate to
another. Consequently, the revenue generation potential
from airport concessions is decreased. Taken together
with the absence of revenue generated from access sys-
tem use (e.g. parking revenues), this means that on a
per-passenger basis the airport is not able to generate the
same amount of revenue as for originating traffic. Yet
18
A. KANAFANI and A. A. GHOBRML
UNITED AIRLINES
0
(1979)
l
l
0
l
l
l l
l
0
l
l l l
l
l
l l
l
l
l
l l e
l
l
l
l
3uu IUUU 13uu
PASSENGER ENPLANEMENTS (1000)
Fig. 3. Airline station costs and airport traffic. (Source: CAB Form 41.)
the fees the airport receives for the use of its facilities
are the same, whether they be landing fees or space
leases.
Another, perhaps more important, economic impact
of hubbing is that it makes the hub airport more de-
pendent on airline networking considerations and less
dependent on the economic demand for travel within the
region it serves. The airport becomes more affected by
airline entry and exit decisions, which adds a dimension
I-
)-
l
I-
3-4
I-
L
of uncertainty to the airports financial planning. When
an airline decides to make an airport its transfer hub (as
recently occurred, for example, in Kansas City), a sud-
den surge in traffic and facility demands results. When
the opposite occurs, it is potentially more threatening,
as a sudden disappearance of a significant segment of
an airports traffic could result in loss of sponsorship
and revenues. The resulting threat to airport financial
planning is not difficult to comprehend, especially as an
l
l
l
l
l
l
l
l l
l
l l
l
l
B
l
l
l
l
l
l
60 IZU IUU L4U 255
AIRCRAFT OPERATIONS (1000)
Fig. 4. Landing fees and airport traffic.
Airline hubbing and airline economics
19
100%
80
20
l 2 AIRLINES
0 3 AIRLINES
I 1 1 I
20 40 60 80 IC
FREQUENCY SHARE
Fig. 5. Airline frequency and market share.
airports ability to obtain credit could be compromised.
An airport that is predominantly a connecting hub does
not contribute as much to its local economy as one that
serves predominantly originating traffic. The exigencies
of financial independence become more compelling when
the case for social benefits in the host region is thus
weakened. A connecting hub airport must find ways to
rationalize its function economically. If there are benefits
to be gained from hubbing, might the airport not join
the passengers and the airlines in sharing them? Could
a major transfer hub establish a pricing mechanism that
would achieve this? If we take a more global perspective
than that of the airport concerned, the question also arises
regarding the extent to which hubbing results in hidden
subsidies to users. Given that most of the heavy federal
investments in, for example, the air traffic control sys-
tem, are aimed at alleviating congestion at major hubs,
of which a good number are transfer hubs, it can be
argued that airlines paying average cost at uncongested
airports may be subsidizing those that create the conges-
tion partly by their network concentration. A classical
argument of marginal cost pricing would follow directly
if this suggestion were pursued. We will look at the effect
of such a pricing strategy on the hubbing phenomenon
and, consequently, on airport economics.
A HUBBING CASE STUDY
.
In an effort to explore the effects of pricing on network
hubbing and airport economics, a case study conducted
for the southeastern United States region is shown in
Fig. 2. The study focused on part of this region, in-
cluding about 25 cities for which Atlanta is the major
connecting hub and for which Nashville, Tennessee;
Charlotte, North Carolina; Birmingham, Alabama; and
Jacksonville, Florida, appear to be secondary hubs. A
larger part of the air network was included, as shown in
the figure, to deal with the problem of study area delin-
eation. Traffic between the major hubs outside the region
of immediate concern, such as between Miami and
Washington, or New Orleans and New York, is not in-
cluded in the study since this traffic flows predominantly
(upward of 95%) on non-stop routes. For the remaining
regional network, an equilibrium model was con-
structed following the logic outlined in Fig. 6.
The basic characteristic of this model is that it assigns
origin-destination flows to the service network using a
calibrated route choice submodel. Using the resulting
link flows, the model then assigns frequency of service
on each link so as to maximize the level of service
without going below the break-even load factor on that
link. The process is iterated with the route choice ad-
justed according to relative levels of service on alter-
native routes until an equilibrium is reached. Entering
into the computation of the break-even load factor is the
cost function for a given aircraft technology (in this case
a hypothetical hybrid of DC9 and B727) and whatever
pricing penalty is imposed at the hub airport (Atlanta).
The evaluation of system performance is then based on
airline profitability (notice that there is no loss, since all
links at least meet the break-even load factor interim),
level of service (frequency, delay and fares) and hub
20
A. KANAFANI and A. A. GHOBRIAL
E[
1 PRIMARY NETWORK 1
O-D DEMAND
CA
LINK FLOW
I
EVALUATION OF
SYSTEM PERFORMANCE
I
Fig. 6. Network equilibrium model.
airport revenues as influenced by the pricing level pos-
tulated.
The route choice model
A sample of 19 city pairs in the study region was
selected for calibration of the route choice model. These
city pairs, shown in Table 2, are typically connected by
non-stop service, as well as connecting service through
Atlanta. Observations of city-pair traffic on each of the
routes connecting them were made for the second quarter
of 1980 together with observations of route schedule
frequencies, airfares, aircraft types and the nature of the
connection (whether a non-stop, direct or indirect con-
nection). A multinomial route choice model of the logit
type was then constructed and calibrated with these ob-
servations. The choice function was constructed as fol-
lows:
V(r,j) = e,T,j + a$,, + afTi
+ aaDd + a,C,,
(1)
where T, is the travel time on route r for city pair j; F
is the daily frequency of service on a route;fis the one-
way economy class airfare on a route; D is a dummy
variable for aircraft size taking on the following values:
0 for N I 30, 0.5 for 30 < N < 50, 1.0 for N 2 50,
where N is the number of seats); and C is a dummy
variable for the connectivity service taking on the fol-
lowing values: 0 for non-stop service, 0.5 for online
service with stops, 1.0 for indirect connecting service.
The route choice probability for traffic between a given
city pair is then given by
exp Mr. ill
P(r9) = 2 exp [V(r, j)]
The results of the calibration using the maximum like-
lihood method are shown in Table 3. It is interesting to
note the high level of significance of the parameter es-
timates. In itself the model shows some interesting facts
about the observed route choice. The values of both
Airline hubbing and airline economics
Table 2. City-Pair used in Calibrating the Route Choice Model
21
dummy variable parameters being both rather significant
and of a similar magnitude suggests that aircraft type
and directness of service are both equally important.
People do appear to prefer larger aircraft. The difference
between a non-stop and connecting flights appears to be
worth about 2 hr of travel time, which is not surprising.
The marginal rates of substitution between time, fre-
quency and airfare suggest a revealed valuation of travel
time at about $3O/hr, and a valuation of an additional
daily flight at about $1 llhr at the margin. These are
significant amounts in short-haul systems where the air-
fares are on the order of $50-$100.
Airline operating model
In order to evaluate network performance from the
perspectives of operating costs and level of service, a
Table 3. Estimated Coefficients of the Route Choice Model
Estimated Coefficient T-V&C
Time (hour)
Daily Frequency
Fare (dollar)
Conneztivity Pattern
-14.77
38.21
-6.7
15.4
14.0
Chi-Square Value 3114
Log-Likelihood Value -34.611
simple model of airline operation over the study network
was constructed. The model computes airline operating
costs and flight times for each flight segment. For the
application in this case study, an aircraft of the DC9-
30/B727-200 type was assumed. Operating cost data
over stage lengths similar to those in the study region
are estimated at $2194 per block hour, and the indirect
cost was estimated at $12 per passenger.
The travel time function for the aircraft in question is:
T = 0.2353 + 0.002R.
(3)
where T is the block time in hours and R is the link stage
length in miles.
In evaluating the operation over a link connected with
the hub airport, it was necessary to construct a delay
function to estimate the effect of congestion at the hub
on link travel time and route choice. Not knowing the
magnitude of the flow at the hub in total prevents the
exact estimation of delay as caused by the connecting
flights. Consequently, it was necessary to make the as-
sumption that the connecting airport is operating at a
level where the delay function is cubic in traffic flow.
This results in the following marginal delay function:
a Zn (d) = 3 a Zn (V),
(4)
where d is the average delay at the connecting hub airport
and V is the daily volume at the airport. Changes in the
22 A. KANAFANI and
volume caused by adjustments in the network will result
in changes in the average delay level and the travel time
on links connected to the hub. In order to complete the
level-of-service characterization, a submodel was nec-
essary to calculate passenger travel time. This differs
from the airline time by the component usually referred
to as frequency delay. Frequency delay is inversely pro-
portional to service frequency. The assumption made
here is that the average headway h in between flights on
a link is related to the service frequency F on that link
by
The expected average frequency delay associated with
that frequency is a quarter of the average headway (as
opposed to the one-half usually assumed with random
arrival of passengers taking flights). Consequently, the
frequency delay L on a link is given by
The total travel time for a passenger on a link is then
made up of the aircraft block time as given in eqn 3, to
which is added the frequency schedule delay from eqn
6 and, when a transfer is involved, an additional hour.
The effect on network structure of congestion pricing
at the connecting hub is explored by parametrically vary-
ing a penalty level assumed charged at the hub. The
actual landing fees at Atlanta during the study year were
DALLAS-
FORT M
rORTH// kj
_ _- ___
NEW YORIL 1
A. A. GHOBRML
at a rate of 37$/ 1000 lb of landing weight. For an aircraft
of the type considered here this would amount to about
$50 per landing. This landing fee structure results in a
total annual revenue of about $12 million. In applying
a congestion toll at the airport, the total operating cost
on a link would increase accordingly. This increase could
be. converted to equivalent minutes of delay using the
operating cost functions included in the submodel. A
penalty of about $360 would be equivalent to an addi-
tional delay of 10 min per aircraft. With this type of
conversion, it becomes possible to assess the impact of
either a congestion toll at the airport or an actual increase
in delay that might result from a capacity shortfall. The
effect on network structure is analyzed by varying this
penalty within the range of $0-$1800 per landing, or
equivalently within the delay range of O-SO min.
Case study results
Two strategies are postulated fo represent airline re-
sponse to the additional penalty at the hub airport. One
is to absorb the additional operating cost and recover it
by raising the break-even load factor on the affected
links. This means a reduction in schedule frequency on
these links. The other strategy is to maintain the same
break-even load factor by passing the additional cost
directly to passengers in the form of increased airfares
on the affected links. Passengers ultimately pay the pen-
alty in both cases: indirectly in the first through increased
frequency delay, and directly in the second through
higher airfares. Fewer people will select the connecting
flight through the hub, and the network will be decon-
centrated as a result. The revenues from the hubbing
BOSTON
NEW ORLEANS
--- NEW DIRECT LINK
(A) $360
Fig. 7(A). Air networks with hub penalties.
.PHIA
Airline hubbing and airline economics
23
penalties represent added income for the hub airport-
in relative terms a rather significant amount, as the results
indicate.
The parametric study of the effect of pricing on net-
work structure suggests, in both response cases, that
hubbing will continue to predominate even with penalties
as high as $1500 per landing. These results appear to be
quite similar for the case of airfare being increased and
the case of the break-even load factor being modified to
absorb the extra cost. Consequently, we shall report only
on the latter case.
The effect on network structure of pricing at the major
hub is expected to be the introduction of direct services
between cities, thereby relieving the pressure of con-
necting flights. Figures 7(a)-(d) shows these effects
graphically. In the first case, a penalty of $360, which
is equivalent to an additional delay at the hub of 10 min,
is applied. This results in the addition of three direct
links between cities, as shown in Fig. 7(a). When the
penalty is tripled to $1080, or 30 min of delay, three
additional direct links are established. Finally, with a
penalty of $1800, equivalent to a delay of 50 min, the
totai number of new direct links in the study network
reaches seven. The effect on the traffic at the major hub
of this admittedly limited network decentralization is
depicted in Fig. 8. The number of annual operations at
Atlanta declines from 450,000 to 400,000 with a penalty
of $360, to 340,000 with a penalty of $1080 and to
280,000 with a penalty of $1800. These figures suggest
an airline demand for flights to the hub with a price
elasticity in the range of - 0.148 to - 0.38. Already the
implication for airport economics, and the opportunities
to raise airport revenues while simultaneously maintain-
ing airline profitability and level of service. are clear.
Before exploring these further, a look at the effect of
this dehubbing on level of service is in order.
Figure 9 shows the changes in average load factor that
take place as the hub penalty is raised. An increase in
the penalty level from $0 to $1800 brings about an in-
crease in system load factor from 65 to 82%. While the
upper level of 82% may be considered a deterioration in
level of service, it is clear that there is a point somewhere
in this range, say about halfway, where an increased
load factor is tolerable, especially if this increase is con-
comitant with a reduction in congestion delay. Figure
10 shows the delay trends caused by the pricing system.
Congestion delay at the hub is seen to decline from about
30 min to about 15 min within the pricing range of $O-
$1800. Figure 11, showing the resulting airline operating
costs, suggests that the savings in operating costs oc-
casioned by the reduction in congestion are more than
adequate to cover the penalty charged. The total cost
does not increase.
Returning to Fig. 10, we see that frequency delay
increased because of the reduction in flight frequency at
the hub. This increase is more than the reduction in
congestion delay. Consequently, there is a deterioration
of the level of service. However, given the manner in
which frequency delay is defined and calculated, the
resulting increase from 1.3 to 1.4 hr may not represent
a serious deterioration of level of service. From all these
results it would appear that imposing a hub penalty will
not alter the network structure significantly. Airline op-
erating costs will not change appreciably either. Passen-
BOSTON
Fig. 7(B). Air networks with hub penalties.
24
A. KANAFANI and A. A. GHOBRI AL
Fig. 7(C). Air networks with hub penalties.
BOSTON
-_--____
CLEVELAND
m
A /I
PI I
ID) $1800
Fig. 7(D). Air networks with hub penalties.
Airline hubbing and airline economics 25
600 -
360 720 1080
PENALTY LEVEL
Fig. 8. Effect of hub penalty on airport traffic.
gers will have to contend with reduced service frequen-
cies and increased load factors; but, even then, connecting
at a major hub will continue to be a preferred option for
most regional traffic.
Turning to the hub airport itself, we see from Fig. 12
that the increase in penalty will generate significant rev-
enuez. Considering the revenues at a penalty level of
$1080, for example, we find a revenue potential of about
$200 million annually compared with the actual landing
fee revenue of about $13 million during the study year
1980. Again, there is a great potential for generating
revenues which, if judiciously used to implement delay
reduction measures, could further increase overall sys-
tem efficiency.
SUMMARY AND CONCLUSIONS
The forces that encourage airline hubbing are com-
pelling and result from two major characteristics of air
0.6(
1440 I000
transportation. The first is the indivisibility of aircraft
size and the scale economy it creates, a characteristic
common to all scheduled transport systems. The second
is the preference of travelers for high levels of schedule
frequency. Airlines are able to achieve relatively high
load factors by consolidating flights at major connecting
hubs. Passengers are willing to incur additional travel
time, and sometimes additional travel costs, in order to
take advantage of the higher frequencies available through
these transfer hubs.
The case study conducted using the southeastern United
States suggests that congestion pricing, or the hubbing
penalty imposed at the connecting airports, will not sig-
nificantly discourage hubbing. In general it would appear
that such penalties can be absorbed by raising the break-
even load factors, thereby causing the frequency of
service to decline. In other words, these penalties are
absorbed primarily by the passengers in the form of
increased frequency delay.
360 720 1080 1440
PENALTY LEVEL
Fig. 9. Effect of hub penalty on average load factor.
1800
26
A. KANAFANI and A. A. GHOBRIAL
= 0.8
c3
b.
--__
0.4 - ---__ _
----_
CONGESTION DELAY
----..-.._--__
-----________
I I , I 1 I I I 1
360 720 1080 1440 1800
PENALTY LEVEL
Fig. 10. Effect of hub penalty on delays.
There are important implications for airport econom-
ics. First, it is clear that there is significant potential for
generating increased airport revenues. These revenues
can play an important role in the implementation of de-
lay-reducing measures which would increase the overall
efficiency of the system. Revenues can also be seen as
payment by the users of large congested hub airports for
the externalities caused by this congestion. These ex-
ternalities are not only in the form of environmental
impacts but are also of an economic nature: A consid-
erable proportion of federal expenditures for improving
the air traffic control system goes to improving the traffic-
handling capacity in and around the relatively few major
hubs where most of the congestion occurs. Given that
dehubbing is not practical (nor necessarily desirable), it
would stand to reason that a hubbed system might be
rationalized by some form of pricing mechanism.
With this strong tendency toward hubbing, it would
seem that airports might benefit from being selected as
hubs by airlines, especially if the concomitant revenue
potential were exploited. Recent trends in the post de-
regulation era show increased hubbing of airline net-
works. This suggests two things: One is that some air-
ports are losing traffic; and the other is that a smaller
number of hub airports are gaining this traffic. If this
trend continues, then one would expect that some of the
I-
i-
AIRCRAFT FLYING COSTS
Z
i
[I
Z
HUB PENALTY
I ,
360 720 1080 1440 181 0
PENALTY LEVEL
Fig. I I. Hub penalty and airline operating cost.
27 Airline hubbing and airline economics
360 720 1080 1440 18(
PENALTY LEVEL
Fig. 12. Hub penalty and airport revenue.
hubs would become congested to the point where they
will begin to lose their attractiveness, and as a conse-
quence new hubs might emerge. This can already be
observed in the system at such places as Kansas City
and Memphis. There are many such airports in the sys-
tem, and it is a fair bet that the majority of them would
welcome the opportunity to become an airline hub. This
suggests that airports of currently medium size will be
competing for airline service and will have to begin to
market themselves as convenient transfer facilities.
What this competitive behavior might lead to in terms
of network structure, and how it will affect airport eco-
nomics, are interesting subjects for further research. But
it is clear at present that airline hubbing is not necessarily
inefficient and that it is likely to persist as an important
feature for air transportation systems.
REFERENCES
Daganzo C. F. and Spamann J. (1982) TROMP Users Manual:
Calibration Predicrion and Confidence Intervals. Inst. Transpn.
Studies, Berkeley, CA UCB-ITS-RR-82-4, 89 pp.
deNeufville R. E. and Gordon S. (1972) Design of air trans-
portation networks. Trunspn Res. 7: 3 (207-222).
Ghobrial A. (1983) Analysis of the air network structure: The
hubbing phenomenon. Dissertation, Univ. California, Berke-
ley, UCB-ITS-DS-83-2, 138 pp.
Gosling G. D. (1979) An economic framework for the planning
of airport passenger terminals. Dissertation, Univ. California,
Berkeley, UCB-ITS-DS-79-1, 401 pp.
Kanafani A. and Ghobrial A. (1982) Aircraft evaluation in air
network planning. Tronspn. Eng. J. ASCE, 108: TE3 (282-
300).
Kanafani A. (198 I) Aircraft technology evaluation and network
structure in short haul air transportation. Transpn. Res. 15A:
4 (305-314).

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