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On the optimal distribution of traffic of network airlines

  • Fageda, Xavier
  • Flores-Fillol, Ricardo

Network airlines have increasingly focused their operations on hub airports through the exploitation of connecting traffic. However, in this paper we show that they may also have incentives to divert traffic away from their hubs. More precisely, we examine how the optimal distribution of traffic of network carriers can be affected by the two major recent innovations in the airline industry: the regional jet technology and the low-cost business model. On the one hand, we show that a network airline may find it profitable to serve thin point-to-point routes with regional jets when the distance between endpoints is sufficiently short and there is a high proportion of business travelers. On the other hand, we observe that a network airline may be interested in serving thin point-to-point routes by means of a low-cost subsidiary when the distance between endpoints is longer and there is a high proportion of leisure travelers. We conclude that network airlines are using those innovations to provide services on thin routes out of the hubs.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 6 ()
Pages: 1164-1179

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:6:p:1164-1179
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  1. Morrell, Peter, 2005. "Airlines within airlines: An analysis of US network airline responses to Low Cost Carriers," Journal of Air Transport Management, Elsevier, vol. 11(5), pages 303-312.
  2. Bilotkach, Volodymyr & Fageda, Xavier & Flores-Fillol, Ricardo, 2010. "Scheduled service versus personal transportation: The role of distance," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 60-72, January.
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  6. Flores-Fillol, Ricardo, 2009. "Airline competition and network structure," Transportation Research Part B: Methodological, Elsevier, vol. 43(10), pages 966-983, December.
  7. Jan K. Brueckner & Vivek Pai, 2007. "Technological Innovation in the Airline Industry: The Impact of Regional Jets," Working Papers 060720, University of California-Irvine, Department of Economics.
  8. Brueckner, Jan K., 2002. "Network Structure and Airline Scheduling," Working Papers 02-0112, University of Illinois at Urbana-Champaign, College of Business.
  9. Brueckner, Jan K & Spiller, Pablo T, 1994. "Economies of Traffic Density in the Deregulated Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 379-415, October.
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  11. Swan, William M. & Adler, Nicole, 2006. "Aircraft trip cost parameters: A function of stage length and seat capacity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 42(2), pages 105-115, March.
  12. Dresner, Martin & Windle, Robert & Zhou, Ming, 2002. "Regional jet services: supply and demand," Journal of Air Transport Management, Elsevier, vol. 8(5), pages 267-273.
  13. Flores-Fillol, Ricardo, 2010. "Congested hubs," Transportation Research Part B: Methodological, Elsevier, vol. 44(3), pages 358-370, March.
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