Hubbing and Airline Costs

Abstract

Airline hubbing can be viewed as a strategy to increase airline network efficiency and to reduce operating costs. Alternatively, hubbing can be viewed as a marketing strategy permitting airlines to achieve dominant market shares at their hub airports and to take advantage of market preferences for the increased frequancies that the strategy permits. This study inquires into the hypothesis that significant cost reductions can be achieved by hubbing. Using a detailed cost analysis of 13 airlines with different degrees of hubbing over the period 1976‐1984, we find no evidence of a relation between the degree of hubbing and cost levels. The current conclusion is that the explanation of hubbing is likely to be found in an analysis of airline marketing strategies and in market response to airline routing and networking decisions.