On the optimal distribution of traffic of network airlines

Network airlines have increasingly focused their operations on hub airports through the exploitation of connecting traffic. However, in this paper we show that they may also have incentives to divert traffic away from their hubs. More precisely, we examine how the optimal distribution of traffic of network carriers can be affected by the two major recent innovations in the airline industry: the regional jet technology and the low-cost business model. On the one hand, we show that a network airline may find it profitable to serve thin point-to-point routes with regional jets when the distance between endpoints is sufficiently short and there is a high proportion of business travelers. On the other hand, we observe that a network airline may be interested in serving thin point-to-point routes by means of a low-cost subsidiary when the distance between endpoints is longer and there is a high proportion of leisure travelers. We conclude that network airlines are using those innovations to provide services on thin routes out of the hubs.

► We examine the optimal distribution of traffic of network airlines. ► We study the impact of the recent innovations: regional and low-cost connections. ► Network airlines are using these innovations to provide services on thin routes. ► Regional services are used on short routes with a high share of business travelers. ► Low-cost services are used on longer routes with a high share of leisure travelers.