Modeling the selection of airline network structure in a competitive environment

Abstract

This paper deals with modeling the selection of airline network structures for airlines operating in a competitive environment. In order to capture interactions between competing airlines when choosing the structure of their networks, the effects of product differentiation based on prices, flight frequencies, seat accessibility and route length have been considered. Competing airlines are supposed to be able to choose either point-to-point (PP) or hub-and-spoke (HS) network structure. Each choice is expected to have different implications on their profitability (i.e. costs and revenues) strongly influenced by different products offered to passengers. The main results indicate that there are direct benefits to users/passengers due to the simultaneous increase of flight frequencies and unchanging prices, which leads to the socially-optimal choices of prices and flight frequencies. In addition, modeling which includes route lengths opens new perspectives on coexistence between the two different business models. Integration of these parameters results in selecting an airline network structure model in a competitive environment which enables passengers to differentiate among the offered transport services.