From Hub & Spoke To Long & Thin: How Airline Routes Are Changing

Posted by The MRJ Team on Aug 16, 2018 11:00:00 AM

In an air travel market expected to roughly double by 2036, and with a new wave of improved regional aircraft entering service, airlines are taking a hard look at how they organize routes. 

The hub-and-spoke model that connects destinations through central airports has long been the standard. But today, the industry is shifting toward an orientation dominated by longer, thinner, point-to-point routes.

The aging fleet of regional aircraft that serviced the old order is reaching the end of its life, and more than 5,000 new regional jets will be required over the next 20 years to replace it. A new breed of regional jet like the MRJ – with improved fuel efficiency, updated aerodynamics and lower operating costs – brings new choice to a regional market saddled with few options, and added potential for increased point-to-point service, reduced travel times and a better travel experience.

This story was previously published on Forbes BrandVoice.

Air travel continues to grow at an astonishing rate and is more commonplace than ever. According to the Federal Aviation Administration’s Air Traffic By The Numbers report, U.S. airlines alone saw a daily average of 2.5 million passengers in 2017.

But this growth masks the fact that we are in a period of significant changes, the aftershocks of a period of strong competition in the late 20th century and an extremely difficult period of losses and contraction in the early 2000s. The current decade has been profitable due to a number of factors, including carrier consolidation. An overall reduction in flights has been offset by growth in available seat-miles stemming from increasing numbers of seats per plane and longer flight stages.

Today, the hub-and-spoke routing that has dominated the industry for decades is under pressure. Here’s why.

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The World Before: Regulation And Regionalism

Air travel wasn’t always built around today’s familiar hub model. The U.S. air business was originally constructed around linear routes served by mostly regional specialists. This regional legacy can still be seen in the names of active carriers, such as Delta (which flew out of the Mississippi River delta) and Southwest, and in defunct or retired names, including Eastern, Northwest Orient, and Midwest.

For the four decades preceding deregulation in 1978, air routes were established and maintained by the Civil Aeronautics Board. The system was organized around trunk carriers, who provided long-haul service in a predominantly thin-route, point-to-point model. Getting passengers to their final destinations often required a flight on intrastate carriers such as Southwest, which at its inception was not allowed to fly outside the state of Texas.

Although deregulation allowed many of the smaller carriers and new entrants to experiment with low-cost point-to-point travel, virtually all of them except Southwest failed or became subcontracted suppliers (“feeders”) to the hub-and-spoke carriers that grew to dominate the market. Hub-and-spoke design connects destinations through one or more central airports, resulting in most journeys being completed with two flights. This helps airlines maximize passenger capacity on each flight. Hub-and-spoke approaches improved return on capital at a time when wide-bodied jets were the major focus for most airlines.

And as it turned out, the seeds of the hub-and-spoke model were already in place when the regulatory era ended. As a 2008 survey of airline network models noted, the trunk carriers of that time – including United, American and Delta – were already concentrating operations around hubs such as Chicago, Atlanta and Dallas. Those economies of scale, along with control over the end-to-end passenger experience, proved valuable in the decades to come.

Today, Point-To-Point Is Getting Another Look

Because route scheduling is so complicated, most airlines actually operate a hybrid of hub-and-spoke and point-to-point models. Even Southwest – long considered the prototype of a point-to-point airline – has soft (“rolling”) hubs in cities like Dallas and Chicago to handle passenger connections between smaller destinations.

And the industry as a whole has been experimenting with the advantages of point-to-point in a lower-regulation environment since the 1990s, when the first commercially successful regional jets entered the market. Point-to-point operations reduce systemic disruption from severe weather or other delays, can boost passenger satisfaction by reducing time spent in flight and in airports, and allow more precise flight-crew scheduling.

Overall, point-to-point travel typically means lower operating costs when you compare the same aircraft type. But that last clause is where the model often breaks down. Smaller cities with lower passenger volume are usually served by smaller regional jets. Today’s smaller jets have a lower upfront price tag than the wide-body jets that major carriers fly, but can have higher per-seat-per-mile operating costs.

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New Aircraft, Thin Routes For The Decades Ahead

The U.S. airline business has enjoyed a long stretch of prosperity, but that prosperity has not been evenly distributed. According to FAA data, although mainline carriers have increased capacity and passengers since the 2007 economic downturn, regional carriers are serving fewer passengers with less capacity – and are being squeezed by feeder arrangements.

Internationally, Lufthansa and other carriers have stated their intention to increase point-to-point operations, even with intercontinental flights. This willingness to innovate makes perfect sense, as there will be far more customers to serve. The International Air Transport Association projects passenger traffic to roughly double over the 20-year period through 2036.

The answer to many of these challenges is coming in the form of a major disruption: a new breed of regional jet. These fuel-efficient aircraft – like the Mitsubishi Regional Jet (MRJ) – outperform their decades-old predecessors by offering larger configurations, in the 70- and 90-seat ranges. Instead of being legacy iterations, these jets are completely new designs focused on boosting passenger comfort while reducing environmental impact and noise. Overall, they offer a 20-percent improvement in operating cost over prior alternatives.

Smaller isn’t better for every use case, and these regional jets are not suited for major tasks such as trans-Pacific hauls. But unlike new super-jumbo aircraft which cannot land at – or be serviced by – many smaller airports, these new regional jets do not put new burdens on airport infrastructure.

These new designs are already in live tests and are scheduled to take commercial flight as soon as 2020. The FAA Aerospace Forecast, Fiscal Years 2018-2038 predicts that by 2030, aircraft in this 70-to-90-seat sweet spot will almost completely displace smaller regional jets. With higher capacities and longer ranges than first-generation regional jets, these new craft may break through and – combined with new, mid-sized long-haul craft – disrupt hub-and-spoke routing more effectively than any prior innovation.

One of the limitations of point-to-point routing has long been the difficulty in providing efficient, profitable service to small and remote markets. As the FAA notes in its 20-year forecast, hub-and-spoke carriers have already slashed costs in that area by paring back routes and schedules – that genie is out of the bottle. The next step could be improvements in high-speed ground transportation that make it easier to reach slightly larger airports. Combine that with greater point-to-point service enabling passengers to reach their destinations in single flights, and the result could be travel times that are shorter than those that today’s hub-and-spoke approach produces.

And the hub-and-spoke model is not equally profitable for all involved. According to the FAA’s 2018-2038 forecast, “The regionals have less leverage with the mainline carriers than they have had in the past as the mainline carriers have negotiated contracts that are more favorable for their operational and financial bottom lines.” As these arrangements become less appealing, smaller carriers may be spurred to give up feeder subcontracts and become branded point-to-point carriers, with new fleets of larger regional jets and 40 years of industry lessons under their belts.

Combined with the potential return of supersonic jets – the splashiest way to travel point-to-point – it’s clear that the years to come will entail a renewed focus on longer, thinner air routes. That’s great news for all of us – unless you love layovers.

Tags: New Standard, Program Management Office