The Evolution of Networks with Changes in Industry Structure and Strategy: Connectivity, Hub-and-Spoke and Alliances

David Gillen

Research in Transportation Economics, 2005, vol. 13, issue 1, 49-73

Abstract: This chapter examines the evolution of the structure of airline networks as dominant strategies in the industry have changed. The network strategy is an integral component of the airline strategy, and network structure will be a function of demand side externalities and uncertainty, as well as supply side network economies. Network economies have predominantly been on the demand side, but in airline networks they are viewed as being for the most part on the supply side. The paper first describes the natural move to hub-and spoke (HS) systems after deregulation and the consequences of this network configuration. Network structure choice is not just a cost issue; a network can confer revenue advantages as well. We show these advantages in a discussion of low-cost carrier strategies. Next, the paper examines the current state of the airline industry and the evolution from HS to networks of connectivity. We report on the [opposing] forces that lead to such a result. The network structure ranges from fully connected, to HS to alliance (fully contracted) to middle of the road strategies, which include connectivity, and "rolling hubs." The forces leading to the choice of each strategy are discussed as well as the future sustainable strategies of the airline industry.

Date: 2005
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