Economy of Frequency and Airline Network Structure

Recently, emerging airline companies providing frequent point-to-point (PP) flight services have proven to be more profitable than those operating hub-spoke (HS) networks. Customers can enjoy more flexibility to arrange their itinerary by choosing PP flights. The strategic complementarity appeared in customers' choices of air carriers brings about thick-market externality. In the markets where thick market externality works, more customers choose PP flights, more frequent PP flights become available. Thus, the positive feedback mechanisms could be geared in by economy of frequency. In this paper, a market equilibrium model with economy of frequency is presented to investigate the comparative advantage of PP networks over HS networks. The de-hub mechanism where PP networks takes over HS networks is also investigated