The Airline Economics of the Bicycle Wheel: Point-to-Point vs Hub-and-Spoke Flying

John McDermott

There are multiple advantages to both the hub-and-spoke model of transport and the point-to-point model of transport. Photo Source: University of Michigan

This article is part of a series that examines airline regulation, culture, and business in the United States and around the world. Check back for more articles each week on new topics, and reach out to our team at layoverhub@gmail.com with ideas, tips, or updates.

Flying is expensive. For each flight, airlines have to pay crew costs, gas costs, gate fees, takeoff and landing fees, and, indirectly, maintenance and aircraft fees, the salaries of aircraft executives, crew accommodations, and more. Since airlines have such a small profit margin, they look for any way to cut costs. One of the biggest ways to cut costs is to decide which method of flying is best for the airline: the point-to-point model or the hub-and-spoke model. Though a seemingly irrelevant decision, the choice of how to operate flights has the power to make or break an airline (if everything else is done right). This article examines the differences between the two methods of travel, including basic differences between the two methods, advantages of both, and how each is economically viable for airlines.

 

The Hub-and-Spoke Model

The hub-and-spoke model of flying is one used by many major airlines around the world. The words “hub” and “spoke” help to create vivid imagery to describe this method of transport. It involves a system of connections to destinations around a single hub, generally cities that are the largest or most economically viable in their area. With this model, airlines will require that you stop in their hub to connect between two cities, creating the spokes of the system.

Thing of this model like a bicycle wheel. A bicycle wheel has a central “hub”. Dozens of spokes poke out of this hub and travel to the edge of the wheel. The hub of the wheel symbolizes an airline’s hub, while the spokes of the wheel symbolize the many connections through that hub. If the wheel’s rim were to disappear, you would have to travel through the hub to get from the end of one spoke to the end of another.

For example, think of Dublin Airport. Aer Lingus, the Irish National Flag Carrier, has a hub in Dublin. If you wanted to fly from Bristol to Manchester in England with Aer Lingus, you would have to stop in Dublin to switch planes on your journey. In this scenario, Dublin is the hub of the bicycle wheel, and the connections of Bristol-Dublin and Dublin-Manchester are the spokes that run through it.

Most large airlines operate most of their flights into and out of a ‘hub’ airport.
Photo Source: hobotraveler.com

Why do airlines choose this method? First, it allows airlines to be efficient. Imagine an airline (let’s call it AirLayoverhub) that has six destinations in the United States: Boston, New York, and Washington DC on the east coast, and Los Angeles, San Francisco, and Seattle on the west coast. If AirLayoverhub flew one flight between each destination (the point-to-point model, which is discussed below), it would need to run sixteen flights. However, if AirLayoverhub has one hub on each coast (maybe San Francisco and New York), then the carrier only needs to operate five flights. This means that they have to pay fewer landing and takeoff fees, they’ll have lower crew costs, and they’ll be able to use five efficient, distance-specific aircraft (one for each route).

In addition, the hub-and-spoke model allows airlines to schedule flights efficiently around their hub, allowing passengers to get from “anywhere to everywhere”. Since people often prefer to fly one airline on a trip, this model also allows airlines to manage their aircraft, personnel, passengers, and other assets efficiently.

“Passengers making hub connections benefit from closely timed flights, single check-in, more convenient gate and facility locations, and reduced risk of lost baggage,” reads a report on the two models by Jeremy Goodwin and Gerald Cook entitled Airline Networks: A Comparison of Hub-and-Spoke and Point-to-Point Systems.

In other words, the hub-and-spoke model allows airlines to have a lot of passengers flying at one time without having to worry about transporting aircraft or losing baggage, and allowing them to focus less on transporting crew members by centralizing them around one or two hubs. This efficiency also allows airlines to increase flight frequencies since routes into and out of hubs will have higher demand than flights between two non-hub destinations will.

Second, the hub-and-spoke model allows airlines to reduce seat mile costs. As route demand increases, especially between two major hubs or international destinations, airlines can use larger aircraft. This means that they can fly more passengers between two cities with fewer flights, allowing them to reduce airport fees and pilot costs. Lower seat miles allow airlines to have higher profit margins or lower their prices to better compete with other airlines.

The hub-and-spoke model allows airlines to choose which planes they use on each route more effectively, reducing costs and increasing efficiency.
Photo Source: Boeing Images

Third, the hub-and-spoke model allows for easier expansion. Let’s say that United Airlines wants to fly into Boyne City, Michigan. Instead of having to find a small airport near Boyne to fly to, United can just fly to a major hub in the airport like Detroit or Chicago. This allows United to open a new route easily while allowing people in Chicago or Detroit access to a new destination to consider for vacations.

The Hub-and-Spoke model is often used by airlines because it is efficient, flights are cheap, and it allows for easy expansion. However, this method also has its downfalls. First, facility costs are high. Goodwin and Cook estimate that up to 60% of flights only pass through hubs to make outbound connections.

 

The Point-to-Point Model

The Point-to-Point model is a little different from the hub-and-spoke model. Instead of flying lots of flights into and out of one or two major airports, the point-to-point model emphasizes flying between two cities directly, regardless of size. It would be as if Aer Lingus flew directly between Bristol and Manchester, instead of connecting the two to Dublin as in the hub-and-spoke example.

The point-to-point model of transport allows for direct passage between two destinations.
Photo Source: Arachne

The point-to-point model was very “popular” in the United States before air travel became deregulated in the late 1970s. Since the government controlled the routes that airlines flew before 1978, many airlines flew direct, small-demand routes between small cities. This means that many flights weren’t completely full, driving seat mile costs and ticket prices up.

One of the biggest advantages of the point-to-point model is reduced travel time. Passengers could save time without having long layovers between connecting flights, and wouldn’t have to deal with the consequences of a delayed flight. If, for example, Aer Lingus’ Bristol-Dublin flight got delayed due to weather, passengers would have to re-book their flight from Dublin-Manchester. However, if the Bristol-Manchester point-to-point flight got delayed, passengers wouldn’t have to rebook another “spoke” flight as they would in the hub-and-spoke model.

“Point-to-point flights reduce total travel time, primarily by eliminating the intermediate stop, but also by avoiding circuitous routings and increasing aircraft block speed,” reads Airline Networks.

The point-to-point model also decreases airport dependency. Many hub-and-spoke airlines and their alliance partners operate flights through a limited number of continent hubs, each of which represents a high share of business. The dependency on these airports reduces the number of new routes that can enter the airport, limiting the entrance of new airlines or the addition of new routes. However, the point-to-point model reduces this dependency greatly, as every route from each airport is actively important.

In addition, the elimination of a “dependent airport” reduces the risk an airline faces if a route fails. Point-to-point airlines simply eliminate the struggling route, while hub-and-spoke airlines may be forced to make dozens of accommodations for passengers affected by the route change. The elimination of hub-and-spoke routes might also severely damage the profits of the airport, which depends of the hub-and-spoke airlines for a majority of its business.

 

How Are Differences Solved?

Both the hub-and-spoke model and the point-to-point model have advantages. Some successful airlines have been able to combine the two methods to maximize profits. Take, for example, Southwest Airlines. Southwest uses what Goodwin and Cook call the “linear” method of transportation. Southwest flights often fly from one point to another, making several stops in between hubs or other profitable destinations.

Southwest Airlines depends on the linear form of travel for most of its flights.
Photo Source: Alternet

“Similar to a bus or train system, on a linear system, an aircraft makes several stops en route between an origin and destination collecting and disembarking passengers at each stop,” the pair writes. “Thus, the linear system combines aspects of both point-to-point and [hub-and-spoke] architecture.”

JetBlue, an American low-cost carrier, also combines point-to-point and hub-and-spoke features.

The linear method allows for multiple stops along the way between two destinations.
Photo source: dreamstime

“JetBlue’s interesting route system combines elements of the [hub-and-spoke], point-to-point, and linear,” write Goodwin and Cook.

JetBlue and Southwest have become some of the most visible airlines in the U.S. and Central America, along with United, American, Delta, Virgin, and Volaris.

The point-to-point and the hub-and-spoke model of flying both have very storied histories. Though the hub-and-spoke model is becoming the more popular mode of transport, the point-to-point model has its own distinct advantages. Many successful airlines, especially in the Americas, use factors of both models to create business models that work best for both the passenger and the company.

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