Hub location with scheduling effects in a monopoly airline market

This paper tests whether it is possible to address the hub location problem using the industrial organization framework. In particular, it focuses on the scheduling effect on the demand side and the number of passengers traveling between each city pair. The study shows that the hub city is not always chosen such that the number of rim passengers is minimized. If this number increases, the monopoly airline loses revenue because many passengers use the airline service with lower airfare. However, the increase in rim passengers can strengthen scheduling effects, thereby increasing revenue. Additional simulation analyses with this strategy further show that the probability of choosing a hub city that is not socially preferable is small. Copyright Springer-Verlag 2012