Introduction
Will the Hub & Spoke model dominate civil aviation in 2050? This is one of the most controversial questions in aviation logistics. Put another way: Is it more feasible to have a selection of hub airports which are completely connected, or a series of smaller airports, which eliminate the need to transfer through a hub? This question does not solely relate to aviation, but to nearly all branches of transport, and therefore is a topic of heated debate in almost every sector.
What is the Hub & Spoke Model, and how is it in action today?
In order to understand the question, “Will the Hub and Spoke Model Dominate Civil Aviation in 2050,” a simple clarification must be made: “what is the hub and spoke model?”.
The key to a hub and spoke model is having one large airport from which airlines, fly to numerous destinations concentrating passengers on that airport.
ONERA, the French Aerospace lab takes up this definition (see Figure 1): “As indicated by its name, the Hub & Spoke system comprises a major airport, or hub, linked by spokes to smaller, regional airports, which funnel passengers to the hub. Long-haul flights leave from the hub to other hubs.”
On the other hand Wikipedia’s definition (see Figure 2) is as follows: “Airline hubs or hub airports are used by one or more airliners to concentrate passenger traffic and flight operations at a given airport. They serve as transfer (or stop-over) points to get passengers to their final destination. It is part of the hub-and-spoke system”
The difference between the two is that ONERA highlights the fact that short haul services provide feeder flights to the hub, while long haul routes connect between the hub.
From the main hub there are short haul routes to non-hub airports known as spokes. Therefore, to get between 2 spokes you fly through the hub. As well as services from the hub to smaller spokes, there are long haul service to similar hubs, usually flown with large equipment. To get between a spoke and distant hub you transit through your nearest hub, and to get from a hub to a distant spoke you transit through another distant hub. Mostly, airlines that operate with the hub and spoke model are legacy carriers, who favour the idea of connections. An example of a carrier based on the hub and spoke model is Emirates (see Figure 3), with its hub in Dubai, roughly central, enabling easy connections from the East to the West.
In summary, “hub and spoke” is the concept of having one large hub from which all short and long haul services by one airline depart.
Hub and Spoke vs Point to Point
The competition to the hub and spoke model is the “point to point system”. This system takes away the connection via a hub, and therefore is a direct service. While the term point to point is often used interchangeably with Low Cost, the two are different, but there are certain similarities.
Indeed Low Cost Carriers (LCCs, see Figure 4) favor the point to point system, which have been seen the largest growth in the market over the last decade. However, legacy carriers have found ways to match this new market and therefore these days the sector is a balance between both models.
Point to point systems do not rely on another flight being punctual, as each flight caters for its own demand for its individual route, and therefore there is no domino effect that impacts hub airports and airlines.
Hub and spoke systems give passengers more freedom, flexibility, and choice due to the higher route frequencies from the hub. Also, due to most legacy carriers adopting the hub and spoke system, the service is generally better on board. On the ground is where the issues arrive, due to the stress of having to connect and relying upon your flight not being delayed.
Because of the growing Low Cost dominance on point to point sectors, prices are being driven down (Global Avaition Blog 2015), as airlines continue to compromise service for price. However at the same time network carriers are becoming greedier: as demand for their services increases, they invest in larger, more efficient airplanes, with good service and low prices.
These days the reality is that we, as customers or consumers nearly always tick the box for direct flights, when booking (see Figure 5). This automatically leads us to low cost carriers and point to point service. The next criteria we consider is price. Some people are prepared to go out their way, connect and pay less, but usually, if direct flights are available we stick to them, unless we consider the price to be unreasonable. Over the last few years the market has seen the most obdurate growth in service between secondary cities, driven by low cost carriers who offer cheaper and faster services than other modes of transport or connecting via a hub.
GoAir, and Indian low cost carrier adopts this view: “Demand is growing from secondary cities and younger folks simply prefer to fly and save time. Air travel is the fastest (and now even cheapest) mode of transport. For instance, the train takes 18 hours from Mumbai to Delhi and the flight takes 2 hours. Earlier, since the prices had a huge difference, people would take the train. However, now the fares for the trains in Air Conditioned coaches on Rajdhani and Shatabdi in many cases are more expensive than a flight. So taking the flight gets you to your destination faster and cheaper”
The airline also has a very distinct view that a point to point system caters better than a hub and spoke system, though this view comes from only knowing the Indian market, which currently lacks connections between secondary cities: “GoAir is a point-to-point carrier. This enables us to connect more points with shorter travel times. For example: if you travel Bengaluru to Patna – we have a direct flight of 2 hours. If we put this through a hub – say Delhi – the flight time (and price) goes up.”
Hub and Spoke vs Point to Point Competition Amongst Manufacturers
There is not only controversy between the hub and spoke and point to point models in the airline industry: the two largest aircraft manufacturers also envisage differing futures as aircraft are adapted to each model.
For instance, the aircraft sustaining a hub and spoke model consist of large super-jumbo’s such as the Airbus A380 or Boeing 747. These aircraft are meeting the large demand for trunk routes between the world’s hubs, while smaller regional jets supply capacity for the routes from hubs to spokes.
On the other hand, the point to point system requires the newest generation of aircraft, twin engine wide bodies, with long ranges, and medium size, transporting passengers directly to their destination. It is this market which is seen to be the future of aviation, with jets like the Boeing 777 and 787, and the Airbus A330 and A350. It is notable that despite Airbus favoring the hub and spoke model, it still produces twin jets. Meanwhile, the point to point believer Boeing has kept up production of the venerable Boeing 747, having even further developed the design with the updated 747-8 model.
These pros and cons of the two systems mean that today there is a duopoly between Airbus and Boeing.
Factors influencing Hub & Spoke vs other Models (now to 2050)
Which model will dominate the aviation sector in 2050 is mostly dependent on (i) how the world will change between now and then, and (ii) how consumer priorities will evolve.
(i) How will the world change between now and 2050?
It is predicted that by 2050 today’s developing countries will be the leading economies of the world. In 2035, China would have taken over the USA as the world’s largest economy, while India, Brazil, Mexico and Russia will not be far behind. By 2050, the global population would have risen by 2 billion from where it is today to close to nine billion.
Meanwhile the airline industry would have grown exponentially by 2050: “An industry that carried 2.4 billion passengers and shipped 40 million tonnes of goods in 2010, will carry 16 billion passengers and ship 400 million tonnes of goods by 2050. Air transport will grow at almost twice the rate of GDP expansion between 2010 and 2050, meaning that more people are travelling than ever before and more frequently than ever before……Travelling by air will be faster (when desired), safer, and more seamless than ever before.”
Standing in the way of ever more international air travel, could be an ever greater deterioration of international relations coupled with a growing insularity that the electoral successes of Brexit in the UK and Donald Trump in the US may be indicative of. Indeed, it is not hard to adopt a pessimistic view that the world is heading in the wrong direction. Regardless, in its 2011 report, IATA remained optimistic: “After the turbulent period between 2010 and 2030, when tensions relating to ethnicity, religious beliefs and natural resources threatened to become unmanageable, global geopolitics will become generally more stable in the run-up to 2050.” . Assuming that no huge world changing event takes place that will veer economic development off its predicted course, over the next century the biggest growth will be seen in today’s developing markets, with more interfaith and cultural travel, and a better connected world.
(ii) How will consumer priorities evolve between now and 2050?
So, as explained by IATA (International Air Transport Authority), the chances are aviation will still be a consumer’s first choice when travelling. But who are the consumers? Obviously, one of the leading consumer markets is business travel, as Figure 8 shows. Despite the overall percent of business flyers being slightly lower than that of leisure fliers, the business segment accounts for by far the most airline revenue and profit. This is due to demand for premium products, premium economy, business and first class originating from business flyers. These classes generate the highest revenue and profit, leading to airlines valuing business travelers as their more important customers.
It is hard to judge consumer’s priorities, being a fairly infrequent flyer myself. To discover more about what frequent flying businessmen’s priorities are, I spoke to M.S. Banga, one of British Airways’ most frequent flyers, about his views on the point to point and hub and spoke models. Mr. Banga flies on a weekly basis, and when medium or long-haul in first or business class. His choice airline, British Airways is understandable for someone based in London due to its extensive route network throughout Europe, Asia and North America.
Mr. Banga highlighted the fact that people traveling on business have two first priorities when travelling, timing and time. More often than not, these two factors are hard to find together, especially when flying on longer routes. An airline, like Emirates for instance, has high frequencies on all its routes due to the high demand, as Dubai is a mega hub, with demand for almost every route. This means that when travelling for example to Asia from Europe, you have much more choice if you fly via Dubai, however, understandably, the duration of the journey exceeds the duration of a direct trip by a few hours. After outlining this issue to Mr. Banga, he stated that he preferred to fly direct, as his first criteria, and work his meetings around his flight schedule. This is one of the greatest competition points between hub and spoke and point to point systems, to connect hub and spoke, and land when it is ideal, or to save time, fly direct, but be restricted to one or maybe a few airlines and infrequent slots.
From my conversation with Mr. Banga I drew the conclusion that business travelers value their time over anything else, and therefore will almost always fly direct due to the shorter journey times. This is backed up by IATA: “Business people still value their time above all else and are therefore willing to pay a premium for the fastest available transport options.” This leads to them favoring point to point models; taking advantage of reduced durations, albeit for higher prices or worse timing.
The other main segment of travel is for leisure or pleasure. These trips account for the largest proportion of air travelers. These travelers place price as their first priority, though often, especially for long haul journeys, the flight is seen as part of the journey, an aspect which will continue into 2050. Flights will be “part of the experience as opposed to just a means of getting to [the] final destination” while the global “shift [is] away from air travel just being a means of getting to their destination; it is making the travel itself an important part of the whole trip”.
This shift towards air travel being an experience in itself will be partly due to the “access to information [that] has made price transparency almost absolute, which has made price differences between comparable products almost extinct”. . This will lead airlines to invest heavily in their onboard products to attract demand and secure customer loyalty. Subtly, the increase in customer service will favour hub and spoke carriers. Such operators are at a disadvantage to point to point carriers flying direct, and therefore will invest more in their products to attract demand, advertising equal prices, with better reputation and service, though with a transfer.
Imagine you want to fly to Delhi from Birmingham. You find out that the only direct option is with Air India, however you can fly with a transfer in Dubai with Emirates for a cheaper price. You assume that you will fly Air India as the flight was direct, but before you purchase the ticket, you decide to check Air India customer reviews. You find out that they have a bad customer service and safety reputation. When you check up Emirates, you find out that they were voted Airline of the Year 2016, and have brilliant reviews. You book your flight with Emirates, and so, the hub and spoke model has won.
This is how hub and spoke carriers win over passengers, offering better service and value for money, albeit with a transfer. This transfer is however sometimes seen as a bonus for leisure flyers. For flights over 8 hours passengers become almost unwilling to fly direct, being stuck in an airplane seat for up to 15 hours can become quite boring. However, flying seven hours, stretching your legs, having something to eat, before continuing for another eight hours is perhaps a much friendlier solution. Over shorter distances this plays no role. The time spent at the transfer airport would often exceed that of a direct flight, and time, being one of the most valuable possessions, especially in 2050, is not worth wasting for such a short trip, where comfort plays less importance.
Furthermore, it is likely that by 2050 “short haul flights” of less than 2 hours will almost cease to exist. Current predictions are that the norm for all journeys of under 500 miles will be high speed train networks, in particular in developing countries. These journeys would not significantly increase the duration, and would replace short haul flights. So we can assume that due to flights only being necessary for longer journeys, and with almost identical pricing and better service, that hub and spoke models will be the choice for leisure flyers in 2050, due to better service.
Conclusions
In this essay I have attempted to answer the question “Will the Hub and Spoke Model Dominate Civil Aviation in 2050”. Having thoroughly researched the topic and explored the impact of consumer preferences, competition between airlines, as well as competition between aircraft manufacturers, I reach the conclusion that the aviation industry in 2050, will be a duopoly, with both the hub and spoke and point to point models playing roles in the industry.
The basis for my prediction stands on the grounds that the point to point system is ideal for business travellers, while, leisure flyers will come to prefer the hub and spoke model. This will lead point to point carriers to further develop luxury, premium economy, business and first cabins, to cater for increased business demands. Meanwhile, hub and spoke carriers will invest in economy products to secure leisure demand, and ensure that air travel is seen as an enjoyable way to start a trip, at an affordable price.
It is likely that airlines will specialise in either transporting leisure passengers to/from hubs, or directly providing routes for business travellers, connecting both primary and secondary cities point to point. It is possible though that some carriers will adopt both models, employing their smaller twin-jets on point to point business routes, and reserving larger aircraft, fitted with high density seating for busy hub to hub leisure segments.
Overall, this project leads me to conclude that the hub and spoke will not dominate civil aviation, but still play a role for leisure passengers in 2050.
27.1.2019