A note on the competitive advantage of large hub-and-spoke networks

This note explores the extent to which airlines operating large hub-and-spoke networks secure a competitive advantage. More specifically, this paper explores the intricate relationship which arises among productive efficiencies and profitability when the size of the hub-and-spoke network expands. To this end, Brueckner and Spiller (1991, International Journal of Industrial Organization 9, 323-342) airline economics model is generalized by allowing the size of the hub-and-spoke network to vary. The central result shows that, although the model exhibits decreasing returns to firm/network size (RTNS), nonetheless there is a competitive advantage to increasing the size of a network.