Could market power explain hub premiums?

Hub carriers tend to charge higher fares to their passengers at their hubs. The additional charge is called the hub premium. Different studies have discussed the possible causes of the hub premium. Using the fare data at Hong Kong International Airport, this paper aims at empirically examining the factors affecting the hub premium for both economy and business class markets. The random effect models are employed in the analysis. Consistent with the theoretical results in the literature, airport market concentration, market power, flight frequency and distance are identified as significant factors that affect the hub premium in Hong Kong. In addition, this paper further investigates the impact of strategic alliance and the acquisition of Dragonair by Cathay Pacific on the hub premium.