1-Hub, 2-hub or fully connected network? A theoretical analysis of the optimality of airline network structure

- The paper investigates the optimality of 2-hub (2H) networks versus 1-Hub (1H) networks and FC networks.
- Assuming symmetric markets, a 2H network is dominated by a 1H or an FC network.
- Assuming asymmetric market there exists a portion of the feasible parameter space where 2H network is preferred.
- Under Cournot duopoly, where a network airline is competing with a competitor who offers direct flights connecting the smaller cities, it is more profitable for the network carriers to switch to 2H.

Multi-hub network structures are an increasingly important phenomenon in today's airline networks. With current theoretical arguments for the single-hub solution leaving little room for the kind of multi-hub networks that exist nowadays, this paper sets up a formal model to explore the optimality of multi-hub networks, with or without competition. It is shown that a single-hub or a fully connected network may not be the optimal network configuration, while a 2-hub configuration may be favored under certain circumstances. In addition, the paper shows that competition can also affect an airline's optimal choice of network: a 2-hub network can be preferable if a competitor enters the market.