COMPETITIVE POSITION OF HUB AIRPORTS IN THE TRANSATLANTIC MARKET, THE

Journal of Air Transportation, 2006 by Burghouwt, Guillaume, Veldhuis, Jan

ABSTRACT

This article puts forward the argument that the measurement of connectivity in huband-spoke networks has to take into account the quality and quantity of both direct and indirect connections. The NETSCAN model, which has been applied in this study, quantifies indirect connectivity and scales it into a theoretical direct connection. NETSCAN allows researchers, airports, airlines, alliances and airport regions to analyse their competitive position in an integrated way. Using NETSCAN, the authors analysed the developments on the market between northwest Europe and the United States (US) between May 2003 and May 2005. One of the most striking developments has certainly been the impact of the Air France-KLM merger and the effects of the integration of KLM and Northwest into the Sky Team alliance on the connectivity of Amsterdam Schiphol. Direct as well as indirect connectivity (via European and North American hubs) from Amsterdam to the US increased substantially. The main reason for this increase is the integration of the former Wings and SkyTeam networks via the respective hub airports. Moreover, the extended SkyTeam alliance raised frequencies between Amsterdam and the SkyTeam hubs (Atlanta, Houston, for example), opened new routes (Cincinnati) and boosted the network between Amsterdam and France. As a result of the new routes and frequencies, Amsterdam took over Heathrow's position as the third best-connected northwest European airport to the US.

INTRODUCTION

Hub-and-spoke networks have been an essential feature of the operations of air carriers since the deregulation of the domestic American air transport market in 1978. Hub-and-spoke networks allow the hub airline to maximize the number of connected city pairs given a certain number of flights. Due to the consolidation of different origin-destination combinations on a limited number of routes, the hub airline may benefit from higher load factors, higher frequencies and the use of larger aircraft with lower unit costs (Dennis, 1994a, 1994b).

In a hub-and-spoke network, the carrier concentrates its network both spatially and temporally (Reynolds-Feighan, 2001). From a spatial point of view, the carrier organizes its network around one or a few central hub airports. At the hub, passengers transfer to their connecting flight. From a temporal perspective, the flight schedule at the hub is organised in a number of daily waves of incoming and outgoing flights, in which ideally all incoming flights connect to all outgoing flights (Bootsma, 1997). The wave system restricts the loss of passenger demand due to the additional transfer time of an indirect connection compared to a direct connection.

Also in Europe, the hub-and-spoke network has gained ground since the liberalisation of the internal European Union (EU) market (1988-1997). Already before the liberalisation of the EU market, the national airlines operated star-shaped networks, spatially concentrated around the national home bases. Yet, most of these carriers could not be characterised as huband-spoke airlines. The star-shaped networks were merely the result of the system of bilateral air service agreements that pinned down the designated carriers on their national home bases. Since the liberalisation of the market, many national and a few regional airlines built up their hub-and-spoke network by means of the intensification and adoption of wave systems (Burghouwt, 2005). However, since 2001 a shakeout on the hub market has taken place. Some hubs were torn down or rationalized by their home based carriers. British Airways dehubbed London Gatwick because the split-hub operation at Heathrow and Gatwick was not profitable. Iberia cancelled its hub operations at Miami because security measures at the airport had been tightened due to the events of September 11, 2001 (9/11), and connecting times had doubled. Air France rationalized the hub operation at ClermontFerrand after the take-over of Regional Airlines in 2000. The hub operation at Clermont-Ferrand (the former hub of Regional Airlines) duplicated substantially the hub operation of Air France at Lyon. Other hubs disappeared or were scaled down because of the bankruptcies of the hub carriers (Sabena at Brussels, Swissair and Zurich, Air Littoral at Nice, Crossair at Basle).

Global airline alliances are increasingly important for the future of hubs. The three global airline alliances (OneWorld, Star and Sky Team) choose one or two hubs at each continent to function as primary intercontinental gateways. Other hubs fulfil secondary, regionally oriented roles (Dennis, 2005).

The growth of hub-and-spoke operations has changed the competition between airlines in a structural way. The competitive position of airlines and airports is usually expressed in terms of top ten lists. Airlines and airports are compared with respect to total passenger enplanements, number of aircraft movements or tonnes of freight. Although such indicators are valuable in itself, they do not give any information on the competitive position of airline networks and hub airports.