The economics of being an airport hub city

Abstract

Deregulation of the U.S. domestic airline industry in 1978 and the subsequent and ongoing deregulation of international airline markets, have brought substantial benefits to air travelers. In the past, economic regulation controlled the nature of the air services offered, the route structures, and the fare levels. Liberalization of regulations has given scheduled air carriers the freedom to offer a wider range of service-fare combinations to travelers while improving their efficiency through efficient network strategies and operating practices. This chapter examines the advantages enjoyed by those passengers having access to a major hub airport such as more direct and more frequent service as well as a wider range of interconnecting destinations. The benefits that local urban areas enjoy as the result of a major airline selecting the region as the fulcrum for its hub-and-spoke operations, are considered here. The empirical analysis first looks at the macro effects of hubbing in the United States by considering high technology employment levels in cities with and without hubs. A series of case studies then explores trends in high technology employment in cities with varying degrees of access to hubs. Causality tests show that airports are genuine attractors for high technology jobs, leading to the conclusion that hub airports are important catalysts for high technology growth industries.