Airline Network Structure with Thick Market Externality

In the past decade, low-cost carriers that offer point-to-point connections with frequent services have been consistently more profitable than those operating hub-and-spoke networks. Therefore, we study the advantages of each network as compared with the other. In addition to actual fares, time costs also affect the consumers' preferences, so the increase in flight frequency causes an increase in demand. Besides, the more passengers the airline carries, the more frequent services it offers. Thus, a positive feedback mechanism is incorporated into an economy of frequency. Additionally, the complementarity that arises from the demand for two-way trips is investigated.