Hubbing in U.S. Air Transportation System: Economic Approach

Abstract

The dynamics of airline hubbing in the postderegulation U.S. air transportation system are examined. It is asserted that hubbing is not the result of arbitrary decisions by airlines but of economic forces that allow hubbed traffic to be understood and possibly predicted. On the basis of three primary hubbing criteria, an economic model of hub choice is developed. In the model, hubbing is assumed to be (a) intricately tied to the national air network, (b) grounded in the airlines' economic cost structure, and (c) the result of a balance of supply and demand forces. The route choice model is estimated for domestic U.S. hub markets. The model results support the first two of the three hubbing criteria and produce relative valuations of in-flight time, airport capacity delays, and schedule delays for connecting flights. These results are valuable in understanding the interplay of forces that lead to hub development and decline. In addition, the model structure is promising as a planning tool to investigate the redistribution of traffic in the U.S. air transportation network under various development scenarios and policy actions.