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Strengthening Internetwork Links: Airline Networks Under Mergers and Partnerships

The airline industry’s ability to function effectively- regulated or deregulated, in the United States or anywhere else – is predicated on an ability to satisfy the demands of the mechanics of many-edged networks. Airlines face multifaceted pressures on their operations that cause interesting developments over time. In recent years, it seems that airlines are changing the cities they serve, altering their fee structure, merging with other airlines, or buying one another outright perennially. From a review of the attached source and this discussion, we’ll see that, for example, the tendency toward mergers and partnerships at at least two levels makes a lot of sense from the perspective of networks under pressure to perform. To reach this understanding, let’s first consider some of the challenges various airline networks face and some of the ways in which they meet these demands, providing massive crucial transport ability and maintaining profitability.

There are two main distinct types of networks that apply to airlines which really lie on either end of a spectrum of logistical solutions. These are point to point networks and hub and spoke networks (http://www.slideshare.net/pgarodia/introduction-to-airline-networks). These two approaches tend to emerge when a network exists for the purpose of continually and arbitrarily distribute a real good. The point to point and hub and spoke models each have advantages and vulnerabilities. In a point to point network, every trip exists as a direct flight; every trip the airline wishes to furnish must have a direct flight that accounts for it. Every destination is created equal. The hub and spoke model flies every passenger from the various markets the airline wishes to serve into a hub. The passenger then boards a flight to their destination from there. Far and away the most powerful advantage of the hub and spoke model is its ability to handle large and growing numbers of destinations. The capital investment to provide a similarly broad point to point network is simply impossible. However, the hub and spoke model does have some undesirable characteristics. First, such a system naturally leads to high traffic at hubs, such that hubs must expand their infrastructure so that traffic may pass through these nodes satisfactorily quickly. Further, the point to point system is much more robust against lateness. No one misses a connection in a pure point to point model and one late flight remains a contained issue instead of propagating delays across a large segment of the network. Capacities are higher on hub and spoke networks and markets can be served that would otherwise be infeasible, but point to point networks are faster, at least for those who can get a seat.

These two approaches are radically different and require completely separate logistical analysis and management to maintain. It is no surprise, then, that these systems manifest in the airline industry as very different companies, specifically regional carriers and major airlines. Indeed this is a mutually symbiotic relationship. Major airlines don’t have to concern themselves with offering what would essentially be unwieldy point to point networks to get people to the middle or major market airports. Likewise, regional carriers see an increase in fares because the regionals’ services tie in to the major airlines’ networks; even people traveling great distances are likely to start and/or end their journey on a regional airline. The balance between formation of new regional airline links versus the establishment of more major airline hubs (and spokes) is more complex than the scope of this post, but it is a clear example of airlines working to handle network traffic most optimally.

A behavior we see among airlines is formation of alliances (an example of a very large one being the Star Alliance; http://en.wikipedia.org/wiki/Star_Alliance gives some good basic information on how and why such partnerships work). Alliances tend to be global in scope. Forming alliances allows passengers to move across a much broader network, all over the world in many cases, and do so more seamlessly. Alliances also mean that airlines can share massive, but very well improved, hubs instead of having to invest in several individual poorly linked hubs. Airlines who share a node (city) or have nodes nearby strengthen ties between each other by, often literally, bringing them under one roof (http://www.staralliance.com/en/press/lhr-move-under-one-roof-prp). Already large airline networks are more effectively linking themselves into a contiguous, accessible global network.

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