The Role of Demand Uncertainty in Airline Network Structure

Philippe Barla and Christos Constantatos

Cahiers de recherche from Université Laval - Département d'économique

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.

Keywords: Airlines; Network; Demand uncertainty; Hub (search for similar items in EconPapers)
JEL-codes: L11 L13 L93 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Role of Demand Uncertainty in Airline Network Structure (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:laeccr:9903

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