Pergamon

A geographer’s analysis of hub-and-

spoke networks’
Morton E O’Kelly
Depurtment ofGeography. The Ohio Stutc Univer,si& Columh~~.s. OH 43210, USA

Hubs, as discussed in this paper, are special nodes that are part of a network, located in such a
way as to facilitate connectivity between interacting places. Hubs are examined from the
spatial organization viewpoint: that is, the linkages, hinterlands, and hierarchies formed by
hub-and-spoke networks are described. Features of the hub-and-spoke system that make
them different from basic facility location problems are emphasized. Special attention is paid
to the contrasts between air passenger and air express freight applications. The paper
discusses various broad types of models that are appropriate for network analysis. The paper
includes a simulation exercise with a hypothetical network. The data are for interactions
between 100 city pairs in the US, and the characteristic features of the hub network under
three alternatives scenarios are developed. Although there is not a perfect correspondence
between any of these models and the ‘reality’ of actual air freight and air passenger nets, a
rudimentary matching is suggested. The single hub allocation model would be an especially
inconvenient network for passengers, but might be ideal for regional freight or communica-
tions systems. The multiple assignment model has much less passenger inconvenience. While
the network appears to be ideal for the passenger system, it seems to make a miscalculation
about the nature of flow economies of scale. In the final model flows must be deliberately
routed to make up economical bundles, and the incentives are stacked in favor of large flows.
0 1998 Elsevier Science Ltd. All rights reserved
Keywords: huh-and-spoke networks, spatial organization. numerical examples

Introduction: what’s so fascinating about hubs? and classification of the approaches to this problem
have been presented recently by O’Kelly and Miller
Hubs come in an incredible variety of sizes and
(lY94) and in further work published by Campbell
functions: from a $150 Ethernet hub in a computer
(1994) Aykin (199Sa,b) and others.]
supply store to a multimillion dollar freight sorting
Hub-and-spoke networks, for geographers interested
facility with employees, loading docks, trucks, planes,
in transportation, are like check-out lines for a queuing
logistical tracking systems and ‘worlds’ of their own.
theorist; i.e. they are a tangible physical manifestation
Hubs in all the examples to be discussed in this paper
of a process. Hubs are geographical in that they serve a
arc special nodes that are part of a network, located in
specific regional area and they often confer bcnetits on
such a way as to facilitate connectivity between inter-
the region in which they are located. Hubs are usually
acting places. The interactions might be between
a catalyst for agglomeration and scale economies.
computers on a campus network, or national phone
Hubs, because of their direct connection to many
calls, or transactions between widely scattered bank
spoke cities, arc ideal accessible places at which to
machines, cash registers, and banks. In most cases, hub
gather, and from which to distribute, material. Hubs
network design involves a decision about where to place
require circuitous routing and a greater individual
the hub (a location decision) and how to route the
travel time between spoke cities than would be the case
tru,@c that is to flow between the origins and destina-
in a directly connected system (Taaffc et al, 1996;
tions over the resulting network. [A detailed review
Middendorf et al, lYY.5): yet they are widely used in the
overall system of spatial organization. Hubs have been
‘Presented at the AAG, as The Fleming Lecture in Transportation blamed for high fares; and, at the same time, credited
Geography. Fort Worth, TX, 3 April 1097. with increasing connections between places. They pose

171
172 Analysis ofhub-and-spoke networks: M E O’Kelly

a very rich set of fundamental questions for geogra- Features of the huh-and-spoke system that make
phers, and some of these will be reviewed in this paper. it difficult to model
For geographers interested in spatial organization,
Hubs pose some basic theoretical challenges for the
hubs are a challenge, and yet they offer reassurance
analyst because they require a re-thinking of funda-
that there is something keenly interesting about the
mental assumptions about location, routing, transporta-
way in which spatial interaction is organized.
tion rates, and agglomeration. The following four
O’Kelly and Miller (1994) devised a classilication
subsections give a few examples of the contrasts
scheme which places the hub-and-spoke network into
between hubs and the conventional locational and
one of eight classes, called Protocols A, B, . . . . H.
network analysis in terms of the main elements of
These cases are formed by answering the following
spatial organization (nodes, links, hinterlands, and
three questions: arc the hubs fully interconnected; are
hierarchies).
connections allowed to several of the hubs from each
node; and are direct node-to-node flows allowed to
Location of nodes
by-pass the hubs in the network? Recently, advances
have taken place in many aspects of hub-and-spoke First, let us add to the O’Kelly and Miller (1994) classi-
research. These advances allow a more comprehensive fication scheme a dimension that was previously used
analysis of the distinguishing features of hub systems in mainstream locational analysis, but whose applica-
than was possible in the early 1990s. I refer the inter- tion to the hub-and-spoke problem has been
ested reader to the recent special issue of Location overlooked until now: distinguish between the concept
Science (October 1996) which contains research articles of delivery systems, and user attracting systems. In
on hub-and-spoke networks. One aim of this paper is delivery systems, the same decision maker positions the
to elaborate on, and to extend, the classification by facilities and determines the rules of allocation to the
O’Kelly and Miller (1994). It is interesting to consider centers. A classic example would be a fire department
the functional characteristics of the various sectoral that decides where to place fire stations and also has a
applications of hub-and-spoke systems, with a view to predetermined emergency response plan. In such
determining the appropriate network design: in other models it makes sense for the entire problem to be
words, are there certain types of hub networks that are treated as a unified single goal optimization task. In
better suited to specific modes? To make this question user attracting systems, in contrast, the facility is located
more concrete: would we expect the same hub-and- by one agent, but the allocation decisions are
spoke analysis to be equally applicable to air passenger, decentralized, and the planner has to make some
air freight, telecommunications, and trucking? Of reasonable guesses as to how the public will make use
course not; but in making that emphatic statement WC of the facilities. How does this distinction help with the
are calling on intuitive insights that we, as geographers, location of hubs in network analysis? In the air freight
have about the nature of these various networks, and hub-and-spoke case, we arc certainly considering a
in this paper, I hope to explicate some of the bases for delivery system, because the operator decides where to
our collective intuition. place the sorting centers, and has complete control
In this paper, the intent is not to review algorithmic over the rules for routing packages between these
and mathematical issues in hub-and-spoke network centers. Of course the service must attract demand, but
design, but rather to focus on inherently geographical it is fair to assume that the attraction of the service for
questions that arise in the course of understanding and the end user is not a function of the routing of the
modeling hub location. I propose to examine the air packages. (Ultimately, the cost of operating the system,
passenger and the air freight sectors, with specific which is a function of location, will translate into the
reference to the features of these systems that lead us price charged for the service, and this will affect the
to expect different hub-and-spoke outcomes. The demand for the air express delivery system.) Since air
particular features of these systems which I want to freight systems may organize themselves without
review are: location, routing, rates, and agglomeration. worrying about the travel itinerary of the individual
The remainder of the paper is organized as follows: in packages, they may exploit the hub-and-spoke method
the next section, the features of the hub-and-spoke to a great degree, and therefore, many express package
system that are interesting from a basic economic delivery companies have similar locational incentives
geography viewpoint are surveyed; then, examples of and imperatives. This observation goes a long way to
air passenger and air freight networks are given, with explaining the clustering of air freight hubs in the same
special emphasis on the building blocks of spatial locations: we have a relatively dense cluster of hubs in
organization (i.e. location of nodes, routes and rates the Ohio Valley, in an area that is demonstrably a low
along linkages, agglomeration, and patterns of hinter- cost solution to the hub-and-spoke system design.
lands and hierarchies). Finally, the implications of For air passenger traffic, on the other hand, the role
different routing models arc explained in the case of a of consumer behavior and the inconvenience of making
sample network. The paper ends with a brief intermediate stops cannot be ignored. In the air
concluding section. passenger system, the location of hubs and the routing
 Analysis of hub-and-spoke networks: M E O’Kelly 173

of aircraft is under the control of a single decision under some economies of scale, density or scope,
maker (see Wollmer, 1990; Daskin and Panayoto- giving incentives to the operator to route the flows
poulos, 1989) but the impact of these decisions on air away from their myopically preferred alternative. In
passenger acceptance of the carrier and the level of delivery systems, network planners may unquestionably
service/demand must be considered. The critical differ- direct flows along paths that are optimal for the
ence between the air passenger system (a user system, with the lowest cost for the entire network
attracting system) and the delivery systems mentioned being achieved by indirect routing and the amalgama-
above, is this tension between price, routing and tion of flows (O’Kelly and Bryan, 1997). The best level
demand. Weidner (1995) has stated that the more of service in a delivery system, therefore, does not
efficient the network from the operator’s point of view, necessarily require shortest paths between origins and
the less convenient that network would be for destinations, as traffic is deliberately detoured to form
passengers. Thus there is great scope in the air bulk shipments. In a user attracting system the network
passenger system for competition, and the need for air planner would like to have a highly efficient flow
passenger systems to locate their hubs with a view to system, but users would resent the indirect routes,
much more than aggregate system travel time: they opening the possibility for other carriers to fill gaps in
must also worry about aggregate demand, and the level the market (see the discussion of Southwest Airlines
of diversion of demand to other systems from key below). In the case of air passenger transportation
market pairs if the service falls below an acceptable systems, the ability of the carriers to exploit the
level (see related research by Dobson and Lederer, hub-and-spoke concept is tempered by the need to
1993). While certain origin-destination (O-D) pairs recognize the impact of the network design on revenue
are adequately accommodated by the hub-and-spoke as well as costs.
system, others are not, and this provides the oppor-
tunity for competitive services to emerge. A key Rates. A major element of the hub-and-spoke network
ingredient in a competitor’s ability to offer a preferable design is the presence of inter-hub connectors. A key
alternative level of service is the position of that question is the comparative cost of routing flow,
carrier’s hubs vis-a-vis the particular market. Consider indirectly, over these connectors. In models of network
three regions: if the origin/destination pairs from flow, the analysis of so-called ‘system optimal’ or ‘user
region 1 to region 2 and from 2 to 3 are well served, equilibrium’ networks is typically driven by a cost
but pairs from region 1 to 3 are poorly served, then the function that is an increasing function of the congestion
possibility of an inter-regional carrier to take the ‘slack’ on a link. In hub networks, we actually want to
arises. encourage controlled congestion, as greater load
factors lower per unit costs for aggregate interactions.
There are many sources of economies of scale in hub
Linkages: routes and rates
networks, ranging from the efficient bundling of all
Routes. In many conventional logistics problems, we flows from a source onto a single flight to a hub, to
expect to see the shortest path emerge as an ideal centralized ground support and maintenance shops at a
candidate for shipments between origins and destina- location where the majority of an airline’s equipment
tions. In hub-and-spoke systems, however, determina- can be expected to make a stop. The development of
tion of the optimal routing for any particular high capacity connectors between hubs has been
origin-destination pair is a complex question, which is thought of as the major source of scale effects. To
sensitive to the alfowable connections between nodes continue the varied examples: in air passenger and air
and hubs. If we assume that spoke cities are allowed to freight systems the inter-hub flights could be serviced
connect to all the hubs (a situation seen in some air with larger aircraft, and in communications, the
passenger networks), then it is reasonable to assume backbone connections between major hubs are often
that the flow from an origin to a destination will T3 lines or better.
proceed in a very logical fashion: go from the origin
city to the hub which gives the best connection service
Hinterlands and service regions
to the destination city, and then complete the trans-
action by proceeding to the destination. In this simple In the typical location model, such as the median
case, the hub-and-spoke system operates as a series of location problem and the Weber problem, it is usually
shortest path problems. But there are many ways in safe to assume that service will be provided to the user
which this intuitive first guess about routing might from the nearest facility. For example, in a system of
break down: (1) the network may be organized so as to distribution centers, warehouses are expected to have
economize on the number of spoke-to-hub connec- non-overlapping service areas or ‘hinterlands’, whereby
tions, so that the origin city cannot simply select its the goods are shipped to cities from the closest avail-
choice of hub; (2) there may be capacity limitations on able source. In turn, this fact can be exploited to great
the preferred shortest route forcing some interactions effect in the design of solution methods for typical
to be re-routed; and (3) the network may operate location models. Somewhat surprisingly, this nearest
174 Analysis qf’huh-and-spoke networks: M E 0 ‘Kelly

center property is not appropriate for the service areas nodes and hubs become the focal points for agglomer-
of hubs! An immediate implication is that the ating economic activity.
non-overlapping hinterland is not an expected property Another way to see the role of agglomeration as
of hub service regions. In the cast of hub networks, WC being different in the cast of the hub-and-spoke system
seek the facility locations that provide the best means is to observe that the conventional definition of
of completing a number of transactions between the agglomeration economies reflects the reduction in the
many origins and their desired destinations. A few costs of operation (or incrcascd revenues) that accrue
moments rcflcction on the nature of the trip from to a business as a result of its location near to other
origin to destination will convince us that the ‘nearest firms in similar or dissimilar industries. If the industries
is best’ rule does not apply in a straightforward way to are similur we call these localization economics, and if
hubs. Examples of origins include an automatic teller the industries are dissimilur w(: call them urbanization
machine (ATM); a point of embarkation on a journey economies. In the case of the savings gcncrated by a
or flight; or an office manager sending off a shipment hub-and-spoke system, the classification is a little bit
by FedEx. These interactions arc completed when an more cloudy: in freight, many firms from a wide range
account is credited or debited at a bank, a passenger of industries can benefit from location near to a hub,
reaches their destination city. or when the package largely from cost savings. Certainly the ability to
reaches its intended recipient. The entity demanding manage the supply chain is a key to cost reduction, but,
service is therefore an interucting pair, and so hub at the same time, top quality customer service ultima-
placement should be made not just to minimize tcly lcads to greater demand and revenue.
distance from an origin to a hub. but rather it should In the air passenger sector, the kinds of agglomcr-
be done in a way that facilitates interactions between ation effects that accrue to a hub are related to confer-
pairs of places (see also Ray ct ul, IYXY). ences, meetings, and convention business. A hub
In locational terms, then, it makes no sense to place increases a city’s ability to attract conventions and
hubs to facilitate these interactions with regard to just business meetings. Also the opportunity to call a one
the origin or the destination: we must consider the day fy-in business meeting is enhanced if the meeting
routing of the transaction via one or more intcrmediatc is located at a hub airport.
sorting centers. This observation is especially true for In the next section, I would like to focus on the
time sensitive delivery services. In such cases, the issues which arise in selected applications of hub-and-
length of the trip from home to hub to finish point. spoke networks. The generic concern is for the provi-
within an available time window, is a critical factor in sion of transportation infrastructure to facilitate
judging a system’s feasibility. In each of the three interaction between places.
examples, the central hub function is performed by a
facility: in the case of the ATM customer transaction
Air passenger examples
the hub is a bunk clearing house; in the case of the air
passenger, the hub is an ubport; and in the cast of the Some of the most interesting recent research from a
express package, the hub is a sorting center. geographical perspective has been concerned with the
The key to contrasting hub-and-spoke location effects of ‘fortress’ hubs on the domination of local air
models with simple location-allocation models, is that markets, and the implication of these hubs for
while in basic location theory, the unit of demand is passenger fares. Consider the domination of certain
represented by a point, line, or area, the entity nodes by major airlines. The following example was
demanding service in a hub-and-spoke system is a puir discussed recently in Zhang (1996) and Borenstein
of places. At one end of the ordered pair is the origin (IYY2): Atlanta is Delta’s major hub; United Airlines
of the transaction and the second half of the trans- offers a non-stop service to Atlanta only from its mu@
action is to be completed at a destination. hnhs in Denver, Chicago O’Hare, and Washington
Dullcs. The point here is that if a city becomes a hub
for a major carrier. it makes it difficult for another
Hierarchy
non-hub carrier to match the level of service from that
Finally, in this brief survey of the ingredients of the hub, and essentially removes this city from considera-
spatial organization of hub-and-spoke networks, we tion for entry as a hub by another airline. This
come to the topic of hierarchy. The hub-and-spoke argument is basically sound, but has been subjected to
system is at least a two-level system and is often intense analysis by Hansen (IYXX) and Hansen (IYYO).
analyzed as such in the telecommunications literature He determined that: (a) there are a few selected hub
(Balakrishnan et ul. 1995; Gavish. lYY2). In the air cities; and (b) the domination of a hub market by one
transport sector. Chou (1YYO) and Kuby and Gray (or a small number) of competitors is the outcome of a
(lYY3) have discussed examples of systems which allow competitive game played between major airlines. There
hierarchical levels of service to emerge naturally from has been a lively debate on the economics of hubbing:
the extent of connection provided at a node. Less for example, Hansen and Kanafani (1980) wcrc unable
directly, hierarchies arc evident in the way that some to find significant cost savings due to hub-and-spoke
 Analysis qf huh-and-spoke networks: M E O’Kelly 175

operations, and so fell back on ‘structural’ reasons for depend on the degree of domination of the market,
airlines to operate hubs; in other words, the ability to with higher fares from cities which are fortress hubs for
control the local traffic from a city and the possibility a major carrier (see, for example, Borenstein, 1989).
of creating local monopolistic conditions are attractive. If the plane flying into a hub from a spoke city is
The pre-emption of entry by an established hub opera- tilled with passengers with a variety of destinations who
tion is so intense that the ability of the non-hub carrier will fly onwards from the hub, how should the airline
to compete for the demand that is serviced by that hub price or cost the spoke-to-hub service? Should they
is weakened. Tretheway and Oum (1992) on the other take into account the fact that, by delivering a group of
hand, confirm the existence of economies of traffic passengers to the hub, and providing an enhanced load
density (declining cost per passenger as the number of factor from flights out of the hub to many destinations,
passengers per station increases). Evidence for econo- the outbound flights will have improved profitability?
mies of scale in the airline industry is reviewed by There are obviously more questions than can be
Antoniou (1991). answered in one research paper: they require a full
Other practices which enable the successful opera- equilibrium analysis beyond the scope of this particular
tion of a hub-and-spoke system include the ability to work. The interested reader is referred to recent
offer many connections, over the course of a day, to theoretical analysis of networks by, among others,
passengers routed through various intermediate stops/ Brown (1991) Brueckner et al (1992) Skorin-Kapov
hubs. The fact that aircraft are full, or close to full, (1995) and Sorenson (1990).
with a blend of passengers with various elasticities of
demand means that the airline can engage in very
Air passenger networks: linkages
sophisticated demand management and pricing
schemes, effectively micro-managing the yield from the Recently, a fascinating advertisement appeared in the
contents of the flight based on the passengers’ ability New York Times for Northwest Air (New York Times,
and willingness to pay. Tuesday 4 February 1997): it uses the term ‘hubs and
To make the examples a bit more concrete, consider spokes’ in bold lettering and shows a stylized diagram
the case of United Airlines, with hubs in Denver of the Northwest hub-and-spoke system. The
(DEN), Chicago O’Hare (ORD) and Washington interesting thing about the stylized diagram is that the
Dulles (IAD). A passenger flying from Columbus hubs are shown as a set of interlocking cogged wheels,
(CMH) to Boston (BOS) on United has route choices thereby emphasizing the connection between hubs,
which include transit stops at Dulles or ORD. A while de-emphasizing the need for spokes to reach
passenger on United flying to San Diego (SAN) from hubs and the need for changes between aircraft at the
Columbus would have route choices (depending on the hub locations. It is as if the airline wants to create an
time of day) via DEN or ORD. This observation is illusion that the hub-and-spoke system requires very
consistent with the multiple allocation model, which few transfers and connections. Yet connectivity is what
will be illustrated further in the final section. Notice hubs are all about, as is painfully obvious as soon as
that the same pair of trips (CMH to BOS and CMH to this connectivity breaks down. On a recent stormy
SAN) on American Airlines would also use hub stops: Friday (18 February 1997) in the Southeastern US, the
in this case the most likely routing on American to air traffic system was placed under a lot of stress (not
BOS is through O’Hare or JFK, but the most likely to mention the passengers)! The delay to inbound
routing to SAN is either through O’Hare or Dallas/ flights to the US Airways hub in Charlotte reverber-
Fort Worth. The point here is that for both airlines the ated through the late afternoon and early evening as
connection of their spoke cities (in this case CMH) to flights were canceled or delayed beyond the departure
a variety of hubs allows the carrier to offer multiple time of the next flight from the gate. Equipment could
alternative times, with reasonably convenient trips for not be moved to gates because of the backlog. The
an air market pair that, on its own, would hardly suffice information boards in the departure area could not
to support direct service. The interesting side bar to keep track of all the delays. Attendants reassured
this is that the CMH to BOS market is served by one passengers that, although the gate might say Rochester
carrier for which this is a direct connection: America (NY), the flight was actually going to Cleveland; and,
West offers three direct flights, departing at 7:lO a.m., of course, the nature of the way hub-and-spoke systems
9:3O a.m., and 1:40 p.m., and their fare for the 27-30 bundle flows ensured that as soon as a single flight is
March 1997 round trip, if booked by 25 March, was delayed or canceled, passengers scramble to get
quoted as $458. Not bad considering that the cheapest bookings on other flights, which, in turn, are already
indirect flight on United is around $844, although that packed with other delayed passengers.
is a ‘no penalty’ fare. This example clearly shows the As two contrasting examples, consider US Airways
connectivity advantage that a city has if it is a hub for and Southwest Airlines. The former is heavily invested
an airline (as CMH is for America West), compared to in hub-and-spoke systems, while the latter is noted for
networks in which it is only a spoke city (United and serving selected high demand city pairs with point-
American Airlines). The implications in terms of price to-point service. US Airways in early 1997 has over 500
 176 Analysis of hub-and-spoke networks: ME O’Kelly

daily departures (including Express) from Pittsburgh, others to fill in, especially when a region has a low
PA, and almost as many (481 including Express) from level of service from a hub carrier.
the Charlotte hub that was mentioned above. A
hub-and-spoke system with this degree of concentra- Freight
tion has implications for the fare structure out of the
dominated city (Kling et al, 1991; Brueckner et al, As much as air passengers love to hate the hub-and-
1992) and results in an intense complex array of inter- spoke system, the emotional reaction of air packages
changes between gates during successive waves of can be safely ignored. The air freight system is free to
flights peaking in the evening rush hour. Many hub make extensive use of vast sorting centers, strategically
airports have the kind of bustling big city crowds that located to make the inter-regional transfer of materials
are not seen at comparable densities anywhere else as efficient and as time sensitive as possible. Although
during the day in many US cities. Certainly this kind of an air passenger has to worry about making a connec-
intense crowd creates a very good market for business, tion by running quickly to a gate, packages on the
and several modern hub facilities including Denver and other hand are easily sorted and bustled through miles
Charlotte have plaza-like food courts which rival major of conveyor belts in the middle of the night.
shopping centers for selection and quality (though not There is a continuum in terms of time sensitivity for
price!). It is these kinds of economic realities that give express packages. In the case of canceled checks, time
hub-and-spoke networks a very mixed set of costs and is literally money, and a very clever hub-and-spoke
benefits for late 20th century passengers. system based in Columbus (US Check) operates a high
While the hub-and-spoke system has become a much tech delivery system to make sure that items reach
studied feature of the air transport system and is clearing banks by very exacting deadlines. This is fine-
unlikely to be dismantled any time soon, there are tuned to such a degree that the company can justify
alternative means of connection. There are many expenditure on specific routes, with specific high speed
markets that have sufficient demand to warrant and level of service. A recent company newsletter
frequent service, and the emerging new technology of mentions an example of tailoring service to deadlines;
smaller jets give airlines the flexibility to service these quoting from their newsletter: ‘We believe that there
markets. The best example of a point-to-point service may be considerable interest in the Utica 07:30
is the case of Southwest Airlines. Quoting from the deadline and, given enough interest (read “money”!)
Southwest homepage fact sheet: we may be able to create a Lear routing to satisfy that
deadline.’
The airline began service June 18, 1971 with flights to Of course not all air express has the same degree of
Houston, Dallas, and San Antonio. Southwest has grown to time sensitivity. Packages and plans can be delivered by
become the fifth largest U.S. airline (in terms of domestic the next business day, or the second business day.
Customers carried). Southwest has 23 years of consistent Apart from the marketing advantages that emerge
profitability, and was the only major carrier in 1990, 1991,
from segmenting the service, the express package
and 1992 to make net and operating profits. Southwest
delivery system has the ability to use cheaper modes
became a major airline in 1989 when it exceeded the billion
dollar revenue mark. Southwest is the U.S.‘s only major for connections that are less time sensitive. Trucking
shorthaul, low-fare, high-frequency, point-to-point carrier. packages to a sorting center is always going to be
cheaper than flying them there, provided that the truck
Southwest has earned the ‘Triple Crown’ for its 1992, connection can reach the hub in good time. A recent
1993, 1994, and 1995 performance. This consists of best paper by O’Kelly (1998) builds on the earlier analysis
baggage handling, fewest customer complaints, and by O’Kelly and Lao (1991) to determine the optimal
best on-time performance, according to statistics hub connection strategy. What is the best way to
published in Department of Transportation (DOT) Air connect cities? The trade-off between the need to sort
Travel Consumer Reports. and the need to ship in economical bundles is a key to
The contrast between point-to-point and hub-and- understanding the hub-and-spoke arrangement. The
spoke systems is stark. The fact that there are conflicts are between sort times, volumes, and time
successful examples of each kind of system indicates sensitivity.
that there are multiple solutions to the design of air Stockpiles of important parts, supplies, and
passenger networks. Point-to-point systems have an medicines may be held at hub locations in preparation
advantage in short-haul market pairs with a dense level for rapid distribution to the spokes. Specific examples
of demand, and work well provided the carrier does include Frankfurt (Germany) which is a major military
not try to offer service between all pairs of places. hub. Emery, with a domestic superhub in Dayton
Hub-and-spoke systems in contrast seem to be the (Ohio), is an example of a company that provides
ideal solution (from the carrier’s viewpoint) whenever integrated logistical services to their customers. For
the flows can be channeled through convenient example, quoting from their homepage:
switching points (such as Chicago or Atlanta). The Emery’s logistics unit provides customers an international
hub-and-spoke system leaves potential markets for base of multi-modal transportation and logistics services to
 Analysis ofhub-and-spoke networks: M E O’Kell) 177

help them streamline operations and improve customer great inconvenience for passengers. In contrast, the
service. Some of the coordinated single-source services multiple hub allocation model has better convenience,
provided by Emery Global Logistics include scheduled or but dilutes the inter-hub flows to such an extent that
chartered air, ocean, and truck transport; shipment
the original premise for hubbing (scale economies in
monitoring and expediting; warehousing, inventory manage-
the hub-to-hub links) is greatly weakened. Finally, a
ment and order fulfillment; customs clearance; management
reports; and single-source invoicing. (3/24/97) newer model, one where flows are assigned a cost on
Emery Global Logistics manages ‘over 20 logistics the basis of scale economies, which must be earned, is
centers around the world, including multi-user regional illustrated, and is suggested as a good prototype for
distribution facilities in strategic locations,’ including freight networks, and perhaps for future policy related
Dayton, Singapore, and Brussels. studies.
According to information obtained from the home- These points of contrast are illustrated for a large
page of Emery (3/24/97), companies served by Emery’s hypothetical case: a 100 node interaction system repre-
logistics unit include General Motors - India; 3COM; senting sample flows in 1970 between major US cities.
Motorola Land Mobile Products Sector; Dade Inter- Approximately 16.5 million origin to destination inter-
national, a provider of in vitro diagnostic products; actions are represented in this data set. The older data
Flexlink; IOMEGA; Liebert; Compaq; GTE/Codetel; have been used extensively in other spatial interaction
Durametal; and Dennison Hydraulics. model exercises and so are used to provide continuity
in the examples, and to emphasize the academic as
opposed to the applied aspects of the methods and
Numerical analysis of different allocation systems
analysis. There is nothing to stop the analysis being
Much of the preceding part of the paper has dealt with re-created with company data if these methods were to
general contrasts between air freight and air passenger be used for an actual case study.
systems. Now, the analysis proceeds with some The purpose of this exercise is simply to examine
numerical examples. The basic premise is that the air logical applications of flow models to some reasonable
passenger side can be best represented as a multiple sets of hub locations. A heuristic method called tubu
allocation hub model, where each origin and destina- search was used to generate five sets of hub locations,
tion is potentially linked to a variety of hub cities, and and each set has four selected hubs (Skorin-Kapov and
therefore the passenger has an option to pick a Skorin-Kapov, 1994). These sets of hub locations will
convenient hub through which to make a transfer. In be used as the basis for calculating the performance of
other words, it is possible for the passenger to go from all three models. The sets of hub locations used are
origin to destination through hub ‘A’ or ‘B’ depending listed in Table I. Then, using the locational patterns
on the relative locations of the destinations. This shown in Table I, I solve three different versions of the
arrangement of course invites the possibility that a hub allocation model. The first uses a SINGLE hub
niche carrier (such as Southwest Airlines) can profit- allocation rule, the second uses a MULTIPLE hub
ably operate in competition with hub-and-spoke allocation rule, and the third, called FLOWLOC, uses
airlines, and indeed that the hub-and-spoke airline will a method that gives a discount for larger flow.
choose to service some O-D pairs directly (see Aykin, In solving the model in three different ways, each
1995b for further discussion). The identification of the version is designed to produce a network that is a
multiple allocation hub model with passenger air stylized example of a different kind of case: [A] Singfe
networks is therefore a simplification of reality. hub allocation which economizes on node-to-hub links
For a new entrant to the air passenger network, the and ignores inconvenience of routing; [B] Multiple hub
problem would be to optimize the service provided to allocation which is similar to the assumption that
passengers, by identifying those links where interaction matches the passenger system and where the travelers
is poorly served. The difficult part of this problem that select their own preferred path. While the flows may
needs further research is to measure the sensitivity of not actually warrant a discount, I am going to assess
demand to the level of service provided by the the costs of the inter-hub links at a lower level,
network. A more partial approach, which looks at some presumably because lower cost, high capacity equip-
of the problem, but not all, is to ask how the allocation ment can be used there. [C] The final case is a flow
of the nodes to hubs responds to the ‘rules’ and to the
location of major centers. For air freight, on the other Table I Sets of hub locations used
hand, the opportunity to maximize load factors, regard-
Hub locations
less of routing, gives the carrier every incentive to
divert flow towards major hubs, and to make allocation Hub set cx Eastern Midwestern Southern Western
decisions depend on the ability of flows to capture
1 0.1 NYC Chicago Birmingham Los Angeles
scale economies. 2 0.2, 0.3 NYC Chicago Birmingham Las Vegas
The general idea in this part of the paper is to show 3 0.4, 0.6 Allentown Chicago Birmingham Las Vegas
that the construction of a pure single hub allocation 4 0.8 Harrisburg Cincinnati Tulsa Las Vegas
5 I.0 Pittsburgh Chicago Tulsa Las Vegas
model would result in an efficient system, but one with
17X Anulysis qf hh-cd-spoke networks: M E O’Kelly

rqxmsil~e n~orld which gives a smaller per unit cost to is explicitly encouraged since the discount increases as
larger flows. the amount of flow traveling across the inter-hub link
The aim of this portion of the paper is to examine increases.
some readily comprehensible features of the hub-and-
spoke system, as illustrated by some idealized
Single allocution
examples. The key points of comparison arc: allowable
connections and routing (allocation rules); inter-hub Allowable connections and routing (allocation rules) in
flow volume; complexity of the analytical steps needed; the case of the single allocation model are limited to
and last, but not least, the geographer’s interpretation one direct link from each origin to a single hub. The
of the results. pointing to appropriate examples where result is a very economical network in terms of connec-
the idcal or mathematically optimal solution (while tions. In the case of the 100 node problem with four
titting within the constraints and parameters of the hubs, there are 96 non-hub cities connected directly to
system) might be especially difficult to rationalize or one hub each, plus of course the fully interconnected
understand. The analysis is presented without any inter-hub links. The level of inter-hub volume is
mathematical formulae, but for each of the major types expected to be high in the case of this network,
of analysis that arc presented, reference is made to because all the nodal flow is channeled to the hubs and
recent formulations, where a more or less standard set they have to make use of the inter-hub links to get
of terms, variables, and equations have been formu- from one regional system to another. An example for
lated in a common mathematical model (set, for the 100 node problem is shown in Figure I which
cxamplc, Campbell, lYY4, IYYh). The FLOWLOC illustrates the connections from origins to hubs in
formulation is detailed in O’Kelly and Bryan (lYY7). Allentown, Chicago, Las Vegas, and Birmingham; this
Space dots not permit a complete formulation here, happens to bc the best known (from the tabu heuristic)
but one important feature of the model should be location pattern for cx= 0.6. The inter-hub flow
mentioned: the sample data set used has symmetric volumes created by assigning all the flow to the appro-
flows between places, and this symmetry is exploited to priate shortest path between each origin and dcstina-
keep the number of variables in the model as small as tion are shown by line width. Examination of the map
possible. Obviously, network design is sensitive to reveals several two stop trips, and a lot of inconvenient
changes in the structure of the flows. In some casts, links: for example Seattle, Portland and Spokane are
such as air freight, the data would be very likely allocated to a hub in Las Vegas and must interact with
asymmetric. The formulation is quite general, however, each other via that hub. The inter-hub link between the
and is not dependent on the assumption of symmetry. East coast and the Southeast (in the example, Allen-
Throughout the following discussion, I will refer to town to Birmingham) is very heavily loaded, as is the
an inter-hub discount factor ‘x’, which can be between main street connection from Allentown to Chicago.
zero and one. The idea of this effect is to apply a lower This network has some especially easy to calculate
transportation rate to the inter-hub links than to the properties, once the nodal allocations are determined,
spokes. If x is large (i.e. close to l), then the inter-hub as all the origin to destination flows are connected by
links do not enjoy any special discount, and they have an obvious shortest path. The routing from each place
the same rate as spokes; in this case the calculations to every destination is a spuming tree routed at the
basically assess the costs of interaction between hubs at origin. An example for Dallas to some selected cities in
the same rate as those between spokes and hubs. On the Midwest and East is shown in Figure 2. For a given
the other hand, a value of x approaching zero is the location and connectivity pattern, the routes are fixed.
other extrcmc case and assumes that the inter-hub If the inter-hub discount applies equally to all inter-
portion of the flow costs are deeply discounted. The hub links, then the routing stays the same even if the
role of x as a representation of the inter-hub discount discount is varied. The location and allocation stages of
factor has been discussed in detail in many of the this model are difficult to solve, however, and a
operational models in the literature (O’Kclly et ul, powerful optimization program (CPLEX) was used to
1996). Recent interest has also focused on the creation confirm the optimality of the allocation variables.
of a cost per unit of flow that is more closely repre- Tuhle 2 reports the results of the calculation of the
sentativc of how much flow is actually allocated to the network cost for each of the five hub sets, for seven
links. The problem with the r method for inter-hub different values of the inter-hub discount. Reading
costs is that it applies to all flows between hubs regard- down any column of this table shows the values of x for
less of the volume. In fact this discount would apply to which this is the ‘winning’ set of hub locations in
any inter-hub flow, and dots not realistically require an boldface type. For example, hub set three turns out to
amalgamation or bundling of flows. In the FLOWLOC be the low cost alternative if CI is 0.4 or 0.6. Reading
model, the inter-hub discount is determined by the across the rows, we see that for a fixed level of x, the
amount of flow actually utilizing the inter-hub links five different hub sets have costs which vary quite
and is determined separately for each inter-hub link. In dramatically: thus if x = 0.2, we could operate hub set 2
this way, agglomeration of flows on the inter-hub links for 666.98 but operating hub set 5 with the same
 FLOW

0 200 400 600

Miles

Figure 1 Single hub allocation model, with x = 0.6. Lines are proportional to flow.

Figure 2 Single huh allocation model: Dallas based routing tree to sclccted Midwestern and Eastern cities.
I80 Analysis ofhuh-and-spoke networks: M E O’Kelly

discount factor would cost almost 100 units more inter-hub portion of the trip, this model is forced to
(763.95). Previous research (O’Kelly, 1987) has shown assign the nodes to the hubs which make the most
that, as (x approaches zero, the model effectively acts as sense in terms of completing their interactions. The
a set of medians (the inter-hub costs are washed out geographical interpretation of the results is that the
completely when x = 0). In this case the nearest center model has to decide where to assign a node; this is a
allocation is recovered, and the hinterlands of the hubs delicate balancing problem: routing through hub A or
are non-overlapping as shown in the example in Figure B effectively commits all traffic from that node to go a
1. The assigned regional service areas for another hub particular path. When the inter-hub portion of the trip
location set are shown in Figure 3. As we move to costs less than the spoke portion, the network has an
higher inter-hub cost factors, and examine a hub set incentive to connect the nodes to the hubs as quickly as
(this is hub set 4, which was optima1 for the value of possible, to take advantage of the cheaper inter-hub
CI= 0.8) with locations in Las Vegas, Tulsa, Cincinnati, costs.
and Harrisburg, we get overlapping service regions.
Notice, for example, in Figure 3, that several nodes Multiple allocation
which are close to the Tulsa hub are allocated to the
This model allows free play in the choice of route:
hub in Cincinnati. Without a steep discount on the
flows get the same discount no matter how much flow
is on the inter-hub link, and no matter who/what else is
Table 2 Average cost per unit flow: single assignment model
flowing on that linkage. The mode1 mimics reasonably
well the way that an individual forced to route through
Hub set hubs would go. The inter-hub discount factor again
plays a key role.
r 1 2 3 4 5
The geographer’s input to this problem is to under-
1.0 1223.54 1197.29 1181.08 1157.05 1153.66 stand the fact that even when a node has several alter-
0.8 1084.83 1066.56 lOSS.68 1049.33 1057.54 native routes technically available, some of these may
0.6 946.11 933.39 927.85 94 1.39 96055
0.4 807.40 800.22 800.03 833.01 862.60 not be used, and the usage pattern depends on the
0.3 738.04 733.63 736. I I 778.68 8 13.40 discount pattern (see O’Kelly, 1998 for a discussion on
0.2 668.62 666.98 672.20 723.94 763.95 hub allocation). When there is no discount, and we
0.1 597.89 600.26 608.25 669.00 714.38
allow nodes to connect to all hubs, they will of course

w
I
Figure 3 Single hub allocation model, with x = 0.8. Allocations to four hubs illustrate non-nearest center asssignment.
 Analysis of hub-and-spoke networks: M E O’Kelly 181

do so, yielding a comparatively large number of links previously. It is now clear that Dallas makes use of two
(96 non-hub nodes connected to all four hubs, plus the connections to hubs: Chicago and Birmingham.
inter-hub connection). Of course, since almost every Interestingly, it does not have any direct connection to
flow has an opportunity to by-pass the inter-hub links, the third hub in Allentown. Because of the wide variety
there are very small flows on the inter-hub connections, of allowable connections from each origin, the inter-
and the incentive to build the hubs in the first place as hub linkages are relatively underused, and in the
a conduit of flows onto dense inter-hub corridors is lost particular case of the multiple hub system shown in
(see Aykin, 1995a,b). As soon as an incentive to route Figure 4, no inter-hub link has more than 500000 units
flows between hubs is introduced, the grip of the of flow. Finally, the extent of the overlap between
triangle inequality is loosened, and some trips will be service areas can be seen, when the links to each hub
routed via the seemingly longer path from i to k to m are colored separately: thus we see in Figure 6 that the
to j, using the longer (but cheaper) k to m portion of regional service areas around each major hub overlap.
the network. The analysis can still use an all or nothing
assignment rule, which operates to load up the flow on
the shortest path between each origin and destination. Flow related costs
Those links with zero flow, or an uneconomically small An example that matches the freight case is explored
flow, can be eliminated. An example of four hubs next: this is the case where the nodes are allowed to
serving 100 places is shown in Figure 4. In drawing this link to as many hubs as make sense, but the costs are
figure, an inter-hub discount factor of 2 = 0.6 was used. assessed on a sliding scale that gives an incentive to
The results of optimization for the five hub sets, with bundle materials together on high volume links. I use
the seven different values of inter-hub discount are four different cost functions, with the live different
shown in Table 3. Generally, using the multiple hub locational schemes, which results in 20 runs (Table 4).
allocation models, only hub sets 1, 2 and 3 need to be The five different ranges in each cost function are:
considered because they always beat hub sets 4 and 5.
The multiple allocation model also produces a (1) 100-250000 units of flow;
different routing tree, and a different hinterland (2) 250 000-500 000;
diagram from that seen in the single assignment model. (3) 500000-750000;
In Figure 5, for example, consider the Dallas connec- (4) 750000-2000000;
tions in contrast to the single allocation example shown (5) > 2000000.

Miles
I U

Figure 4 Multiple hub allocation model, with ‘x= 0.6. Lines are proportional to flow.
 IX2 Anulyis c?f’huh-und-.sl,oke networks: M E O’Kelly

So if the total inter-hub flow on a certain link is the case shown in Figure 8, the routes are very similar
100000 units, it will receive the discount associated to the multiple allocation model, with two significant
with that flow - the smallest allowable. If another differences. First, Dallas to Washington, DC in
inter-hub link carries 2.5 million units of flow, it will be FLOWLOC is routed via Birmingham only, but in the
at the fifth lcvcl and will rcccivc the largest availahlc multiple allocation model the how is routed via
discount. Birmingham and Allentown. The reason for this diffcr-
The results of this analysis show that out of the live cnce is that in the FLOWLOC model, the Birmingham
hub sets considered. the optimal one is hub set 3. The to Allentown inter-hub link is rarely utilized and so no
lcvcl of inter-hub flows on this linkage pattern is quite major discount is earned. In this case then it makes no
heavy compared to the multiple allocation model. The sense to route the Dallas to Washington, DC flow over
results of the allocation of the flows using the ccono- an undiscounted inter-hub link. This exemplifies the
mies of scale approach arc shown in Figure 7. Note Ilaw in the multiple allocation model: the Birmingham
now that the fact that flows have an inccntivc to bundle to Allentown inter-hub link gets a cheaper rate simply
together makes the routes emphasize the Allentown- by being designated an inter-hub connection, and does
to-Chicago and Chicago-to-Las Vegas connections. In not have to earn this lower cost by virtue of its
order for thcsc flows to reach a size sufficient to ensure combined how. The second point of contrast is much
that the discount is earned, there inevitably has to bc more signiticant in terms of the number of routes
some rc-routing of flows away from their myopically affected: while the Eastern cities would prefer to be
preferred shortest path. The best way to see this is to routed via the Birmingham to Allentown inter-hub link
consider the Dallas based tree, in contrast to the (as shown in the multiple allocation solution), notice
example seen above for the multiple allocation models that in the FLOWLOC model they are forced to utilize
(refer now to Figure 8 and compare it to Figure 5). In the Chicago-Allentown inter-hub link, even though it
is more cxpcnsive for the individual O-D pairs. These
Table 3 Air passcngw multiple assignment model flows arc deliberately routed over a longer path so that
they may contribute to the bundle of flows between
Hub set
Allentown and Chicago, a bundle that eventually ends
2 1 2 3 4 5 up paying substantially less per unit of flow as a result
of this routing.
I .o Yhl.13 9Sh.J I 956.36 Y72.SX 1001.81
0.x 024.3X 916.Sh 916.15 Y38.00 962.77
0.0 X02.52 XSh.32 855.67 X70.5X 9OS.81
0.4 775.00 772.19 772.65 X01.78 8.15.0s
Conclusions
0.3 719.75 720.42 723.32 759.55 JYh.30
0.2 658.57 002.0 I OhX.2X 714.0s JSO.35
This paper has rcvicwcd some distinctive features of
0. I 594.93 SOY.68 607. IO h67. I Y 7 I2.YX
hub-and-spoke networks, and has contrasted the spatial

Figure 5 Multiple hub allocation model: Dallas based routing tree to selected Midwestern and Eastern cities.
 Analysis qf huh-and-spoke networks: M E O’Kell)

Figure 6 Multiple hub allocation service areas around the four hubs.

organization of such nets to more conventional results would then be more useful to an applied
problems in locational analysis. So far the literature decision analysis. The paper’s simulation exercise has
has presented a large number of strong analyses of shown quite clearly the merits of various prototypical
abstract models, and to get to a more robust applica- hub-and-spoke networks: the single hub allocation
tion of these models to real network systems, more model minimizes the number of links, at the expense of
research is needed. Certainly to get to more realistic relatively inconvenient routing between city pairs. This
applications, we will need to consider multiple object- would be an especially inconvenient network for
ives, non-systematic (stochastic) changes in flows, passengers, but might be ideal for regional freight or
making sure to design and build networks that do not communications systems.
lock in on flows which will inevitably change over time. The multiple assignment model has much less
Network designs that are capable of handling multiple passenger inconvenience. If the inter-hub links arc not
objectives as well as uncertainty must be worked out. discounted, the model will use its ability to route to
The data analysis examples in this paper were many hubs to crcatc a set of complete linkages
performed with interactions that reflect the urban between every node and every hub, thereby by-passing
system from almost 30 years ago, and clearly there the inter-hub links. If the inter-hub links arc given a
should not be any attempt made to extract from these substantial discount, then some nodes route via the
results prescriptions for actual contemporary networks. hubs, but probably not enough of the flow goes
The interactions, though, could easily be plugged in for through the hubs to warrant the discount that is
any appropriate urban system, for any date, and the offered. Thus while the network appears to bc ideal for
the passenger system, it seems to make a serious
miscalculation in the nature of flow economics of scale.
Table 4 Freight It is the last simulated model, FLOWLOC, that has
Hub set gone a long way towards improving this situation. In
this latest model, discussed fully clscwhcre (O’Kelly
Cost function 1 2 3 4 5 and Bryan, l9Y7) the flows must be deliberately routed
A 959.50 954.63 954.31 Y72.09 999.62 to make up economical bundles, and the incentives are
B 956.92 Y48.89 947.94 Yh6.45 9Y3.65 stacked in favor of large flows. The resultant pattern
C 9s I .23 Y37.YO 936.33 950.98 98 I .62 certainly requires the ability on the part of the network
D 941.55 920.89 917.59 931.22 964.50
operator to route and direct traffic, but if that ability is
184 Analysis of hub-and-spoke networks: M E O’Kelly

Costs Depend on Flow

Figure 7 Flow related costs. Lines are proportional to flow.

Figure 8 FLOWLOC: Dallas based routing tree to selected Midwestern and Eastern cities.
 Analysis of hub-and-spoke networks: ME O’Kelly 18.5

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