Hub And Spoke Vs Point To Point – How COVID Will Change Both Models
One of the interesting side effects of COVID-19 is the resurrection of the hub and spoke model. It’s not a new idea, but it had fallen out of fashion. Changes in the aviation industry, new types of planes, and passenger expectations all contributed to this. The hub and spoke model is dead, many industry pundits said.
But those people didn’t factor in COVID-19 and the subsequent aviation crisis. Airlines are rediscovering past operating models and the virtues of hubbing flights. And the casualty? Point to point travel. But will this trend continue post-COVID-19, or will it only last as long as the pandemic itself?
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The pre-COVID decline of the hub and spoke model
Most of us are familiar with the hub and spoke model. You fly from one airport into a hub airport and connect there for a flight to your final destination.
Until a generation ago, the hub and spoke model was big. Delta Air Lines pioneered the idea in the mid 20th century. It was designed to benefit airlines and optimize network coverage. Under a hub and spoke model, Delta could fly nine routes to connect ten destinations. If it offered point to point flights between those destinations, it would require 45 routes.
In more recent times, the hub and spoke model fell out of favor. But it still exists, particularly when it comes to international flights. Most airlines with both domestic and international operations will funnel passengers to key hubs to connect onto international flights.
Many international airlines have a single hub airport – the Gulf airlines, Singapore Airlines, and Cathay Pacific are good examples. In each case, the vast majority of their flights either arrive or depart from their hub. If you want to fly from Los Angeles to Laos on Singapore Airlines, you will connect in Singapore. If you’re going to fly from Auckland to Athens on Emirates, you will change planes in Dubai.
The rise of point to point travel
The hub and spoke model survived because it suited the times. It enabled airlines to operate efficiently while ensuring good network coverage. But a few trends rose to challenge it.
Firstly, new fuel-efficient aircraft reduced operating costs, making flying otherwise marginal point to point routes a more viable proposition. Secondly, low-cost airlines took to the air. These airlines would prove good at reducing operating costs even further. In addition, they didn’t have the inherited cost base many legacy airlines have.
Finally, passengers generally preferred point to point travel. Who wants to spend two hours in Denver Airport when flying from Albuquerque to Chicago when you can do it direct? Low-cost airlines played a significant role in busting open the hub and spoke model. Their lower operating costs made flying previously marginal or unprofitable point to point routes a workable idea. Passengers soon discovered the benefits.
To an extent, legacy airlines got onboard the trend. But it has always been a big ask to wean airlines like American, United, and Delta away from their hubs. But the trend was undeniable. The hub and spoke model was declining at the expense of the point to point model. At least it was until 2020 and the onset of COVID-19.
The hub and spoke model is on the rise
In effect, that trend is now reversed. The hub and spoke model is in the ascendancy once again at the expense of point to point travel. As with Delta Air Lines in the 1950s, the move is driven by economics and the need for efficiencies at the airlines.
Passenger numbers have declined everywhere, and that’s put pressure on airline revenues. Airlines have high levels of fixed costs, that is, money that still needs to get paid out, regardless of what’s coming in.
Until earlier this year, most airlines were growing. In the five years to the end of 2019, American Airlines’ annual passenger numbers grew over 9% to 215,182,000. At United Airlines, annual passenger numbers had grown over 13% to 162,443,000. Over the same period, passenger numbers at Delta Air Lines grew by nearly 20% to 204,000,000.
Point to point travel is on the decline
At the same time, bumper profits were getting reported. But the party is over in terms of growth and profit. Airlines are moving to rein in outgoings. Suddenly, flying more marginal point to point routes with few passengers onboard isn’t a viable idea. That’s seeing a pivot back to the hub and spoke model – at least for the short-term.
Airlines argue that it makes sense for them to get as many people on a plane as they can. So if United Airlines has a flight operating from Chicago to Los Angeles, they’ll position as many passengers as they can in Chicago to fill up that flight. The alternative is to run a few flights from different airports across to Los Angeles, all with lots of empty seats.
“We are using this opportunity to hit reset and create a network using the strength of our strategic hubs that we can build and grow upon and be profitable on in this new environment,” said American’s Chief Revenue Officer Vasu Raja in July.
Airlines rediscover the virtues of the hub and spoke model
American Airlines isn’t alone here. Competitor airlines across the United States and elsewhere are suddenly rediscovering the virtues of the hub and spoke model. Those airlines that have always used it, even if by necessity rather than choice, are in the box position. Qatar Airways, in particular, has capitalized on other airlines grounding their fleets and canceling flights.
Qatar kept Hamad International Airport open to transit passengers, and the airline has kept flying passengers around the world throughout 2020. It hubbed them through Doha and effectively utilized the classic hub and spoke operating model.
It’s all a bit of a return to the past. But fewer flight options means passengers have little choice. However, post COVID-19, the re-emergence and growth of the hub and spoke model is unlikely to continue. Once airlines get their mojo back, the point to point travel trend should pop up again.
It’s not a perfect scenario for the airlines, but modern aircraft and lower operating costs can profitably facilitate point to point travel. Most of all, passengers will demand it. In the airline industry as elsewhere, it’s passenger demand that will dictate where airlines fly. As airlines respond to declining demand now, they’ll respond to growing demand in the future.