Tuesday, August 6, 2013
Posted by D. Daniel Sokol
Volodymyr Bilotkach, Newcastle University Business School, Xavier Fageday, Universitat de Barcelona, and Ricardo Flores-Fillolz, Universitat Rovira i Virgili discuss Airline Consolidation and the Distribution of Traffic between Primary and Secondary Hubs.
ABSTRACT: Several airline consolidation events have recently been completed both in Europe and in the United States. The model we develop considers two airlines operating hub-and-spoke networks, using different hubs to connect the same spoke airports. We assume the airlines to be vertically differentiated, which allows us to distinguish between primary and secondary hubs. We conclude that this differentiation in air services becomes more accentuated after consolidation, with an increased number of flights being channeled through the primary hub. However, congestion can act as a brake on the concentration of flight frequency in the primary hub following consolidation. Our empirical application involves an analysis of Delta s network following its merger with Northwest. We find evidence consistent with an increase in the importance of Delta s primary hubs at the expense of its secondary airports. We also find some evidence suggestin! g that the carrier chooses to divert traffic away from those hub airports that were more prone to delays prior to the merger, in particular New York s JFK airport.