Investigation into the Hub-and-Spoke model using brand and frequent-flyer program

Johannes Boroh

doi:10.3926/jairm.190

Abstract

Purpose: This paper seeks to understand if customer acceptance on flying through a hub has changed today, compared to the findings from past research conducted many years ago. The study involves investigations of Singapore Airlines, a successful FSC in terms of its ability to generate sustainable profits for many consecutive years as reflected in its annual financial reports. The carrier also has a strong corporate brand, a world-class airport hub as well as a frequent flyer program, which makes it attractive to explore. Design/methodology/approach: The survey method is utilized in order to seek the answers to the three questions developed in the literature review. Descriptive statistics are employed to analyze 723 datasets using SPSS v20. Findings: Although the paper shows that some findings resonated past arguments, some others have changed. Brand has no longer become a significant factor for passengers when deciding to travel with a full-service carrier (FSC) via its hub, and an FFP that is likely to hold less compelling attractiveness with passengers with regard to purchasing consideration.Research limitations/implications: The research involved only passengers traveling two routes in Southeast Asia, therefore the generalization of the findings must be carried out with caution. Future studies to extend this research to different geographical markets are necessary to investigate if similar behaviours are also observed, as described in this study.Originality/value: This paper offers insights into in the hub-and-spoke airline business model discipline. The author suggests that the role of strong brands and frequent flyer program to attract passengers travelling via a hub have diminished. Nowadays, even FSC passengers are more concern with airfare.

Highlights

Similar to full-service carriers (FSCs) in other parts of the world, Southeast Asian FSCs, such as Garuda Indonesia, Malaysia Airlines, and Singapore Airlines have been under pressure from low-cost carriers (LCCs) and other FSCs on their point-to-point segments
Since scholars argue that frequent-flyer programs may contribute to passengers’ decision to deflect their journeys through a hub (Flores-Fillol, 2009; Narangajavana et al, 2014), this study aims to examine if Singapore Airlines’ frequent-flyer program (FFP) does support this claim, which in turn, strengthen the company’s hub-and-spoke business model
The socio-demographic data shows that the majority of the passengers surveyed (33%) are young adults. This finding resonates with previous research that describes that the majority of their FSC respondents belonged to a similar age group (Lu, 2017; O’Connell & Williams, 2005)

Summary

Introduction

Similar to full-service carriers (FSCs) in other parts of the world, Southeast Asian FSCs, such as Garuda Indonesia, Malaysia Airlines, and Singapore Airlines have been under pressure from low-cost carriers (LCCs) and other FSCs on their point-to-point segments. Malaysia Airlines serves Denpasar – Kuala Lumpur four times a day (Garuda does not provide a direct connection between Bali and Kuala Lumpur) and runs three daily flights between Surabaya and Kuala Lumpur. This observation is likely to be in line with a couple of previous researches, which suggest that FSCs can still survive despite facing the ferocious competitions from LCCs, for example, Charitou and Markides (2003), Hazledine (2011), and Taneja (2004). The study involves surveying passengers of other carriers, such as Air Asia, Garuda Indonesia, Jetstar Asia, and others, in order to enhance the discussion, such as examining respondents’ decisions under a few different scenarios

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Conclusion