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Point-to-Point versus Hub & Spoke

Ben Baldanza
Former CEO at Spirit Airlines

Learning outcomes

  • The advantage of LCC’s running point-to-point services

Executive Bio

Ben Baldanza

Former CEO at Spirit Airlines

Ben has over 35 years of experience in the airline industry. From 2005 - 16 he was CEO of Spirit Airlines and is known for defining the ultra low cost carrier model after transforming the business to become the 7th largest airline in the US. Ben was previously SVP at both American Airlines and Continental Airlines and also led the restructuring of Avianca Holdings. He now consults with the largest US airlines and is an Adjunct Professor of Economics at George Mason University.Read more

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Interview Transcript

What’s your view, more broadly, on the evolution of the point to point, versus hub and spoke models?

Customers would, certainly, rather travel point to point. I don’t know that anyone really likes connecting. But for many, many O&Ds, as the industry calls them – origin and destination, from one city to another – there are so many combinations around the world, it’s not really practical to fly every possible combination non-stop. So the hub has been proven to be a very efficient way to move a lot of people, without as much capital. But it’s not cheap to run a hub. You have to have a lot of resources at the airport, you have to have a lot of gates, so all the planes can come in at the same time. You tend to have real big peaking with the employees, so when every plane is on the ground, everyone is working really hard, unloading bags, loading bags, cleaning, boarding people, taking people off. Then everything leaves and the airport is dead for the next two hours, until everybody is back again. So you have this big peaking effect. It’s like building a church for Easter Sunday. You don’t build it for Easter Sunday. You’re just crowded on Easter Sunday.

Hubs require lots of resource. So they’re inefficient from a cost standpoint. But they’re really efficient, in terms of a moving people standpoint. I think newer airplanes, lighter airplanes, more efficient engines, more fuel-efficient airplanes are going to drive more and more point to point service. The service that British Airways announced and I don’t know if they’re going keep now, called Level, where they’re going to fly, non-stop, from non-UK European points, into the US, as a way to win back some traffic they lost to carriers, like Norwegian and others, that no longer connects at Heathrow.

I think the industry would like to move more to point to point. Airplanes like the A321 XLR is an example of a plane that promises to offer lots of non-stop routes that, otherwise, would be hub-graded. That said, hubs just make sense for lots of traffic. If you think of the mid and smaller-sized cities, on one continent and all the mid and small-sized cities on another continent, there’s no way you’re going to fly non-stop routes, in an among every pairing you could come up with there. A hub is going to be the way to do most of that.

But if you live in a big city, such as Paris or Frankfurt or Munich or London, or even a Manchester, I think, over time, you will have more non-stop services than you may have had before Covid.

Do you think that the LCCs will be tempted to move into the hub and spoke model in some way, over the next years?

The undisciplined ones will. The LCCs who are profitable, because they can sell tickets at a lower average price and make money on that ticket, do so because they keep their costs low. Giving into a hub and spoke network is a great way to move passengers, but it’s not cheap. You become dependent on business-intent travel. You become dependent on higher average revenues, if you adopt a hub model. It’s also not as efficient on the equipment. You buy a really expensive airplane, you can fly it more hours a day, point to point. If you put it in a hub, it has to sit on the ground for an hour, waiting for all of its peer airplanes to land and people to move around, you just don’t get as many hours out of that plane. You spend the same money for the airplane, but you can’t utilize it as much as your low-cost competitor. That’s another advantage that the low-cost carriers have.

That’s why I said that the undisciplined ones will move to a hub and spoke model, because they’ll do it to win more volume of traffic but in so doing, they’ll give up the one huge advantage they have, which is the unit cost advantage.

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