The effect of de-hubbing on airfares. (January 2016)

• Record Type: Journal Article
• Authors: Tan, Kerry M.; Samuel, Andrew
• Is Part Of: Journal of air transport management. Volume 50(2016)
• Page Start: 45
• Page End: 52
• Publication Date: 2016-01
• Subjects: De-hubbing -- Legacy carriers -- Low-cost carriers -- Hub-and-spoke network -- Airfares -- Airline competition; Airlines -- Management -- Periodicals; Aeronautics, Commercial -- Management -- Periodicals; 387.7068
• DOI: 10.1016/j.jairtraman.2015.10.002
• Languages: English
• ISSNs: 0969-6997

Abstract

Abstract: This paper studies the price effect of de-hubbing, which occurs when an airline ceases hub operations at an airport. We develop a simple theoretical model to study the impact of de-hubbing on prices and quantities of direct flights at the hub airport. Using an event study of seven cases of de-hubbing between 1993 and 2009, we analyze how average airfares change following de-hubbing. Consistent with the theoretical implications, the empirical results suggest that airfares decrease when there is a low-cost carrier presence at the de-hubbed airport, whereas airfares increase when the de-hubbed airport is not serviced by a low-cost carrier. Highlights: We analyze how airfares change following de-hubbing by a legacy carrier. We perform an event study of seven cases of de-hubbing between 1993 and 2009. Average airfares decrease if the de-hubbed airport is serviced by low-cost carriers. Average airfares increase if no low-cost carriers is present at the de-hubbed airport. A model provides theoretical hypotheses that are consistent with the empirical findings.