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The Role of Demand Uncertainty in Airline Network Structure

Author

Listed:
  • Barla, P.
  • Constantatos, C.

Abstract

In this paper, we provide another reason that may explain the adoption of the hub-and-spoke network structure in the airline industry. We show that when an airline has to decide on its capacity before the demand conditions are perfectly known, a hub-and-spoke network structure by pooling passengers from several markets into the same plane helps the firm to lower its cost of excess capacities in the case of low demand and to reduce its opportunity cost of rationing in the case of high demand.

Suggested Citation

  • Barla, P. & Constantatos, C., 1999. "The Role of Demand Uncertainty in Airline Network Structure," Papers 99-04, Laval - Recherche en Energie.
    • Handle: RePEc:fth:lavaen:99-04
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    Cited by:

    1. Barla, P., 1999. "Demand Uncertainty and Airline Network Morphology with Strategic Interactions," Papers 99-06, Laval - Recherche en Energie.

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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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