Network hubs are a central component of todays aviation infrastructure. While hub-andspoke networks provide substantial service benefits to consumers, particularly more nonstop service to a greater number of destinations, there are also drawbacks. From a consumer perspective, the primary disadvantage of network hubs is the level of market power that the hub carrier is capable of amassing and the higher prices consumers pay as a result. This stems from the fact that no airline with a similar cost structure can compete effectively at another airlines hub. DOT and others have reported on the prevalence of high fares paid by passengers at hub airports dominated by a network carrier; indeed, no credible study concludes otherwise.1 The basis of higher fares at hubs is nevertheless a contested issue. It is the view of some, including the Department, that high fares at dominated hub airports are, in large part, a result of the market power exercised by network carriers at their hubs. Some others attribute high fares at hubs to a number of other factors including passenger mix, higher quality of service at hubs, higher costs of serving business passengers, and the Southwest effect. This paper briefly covers each of the four rationalizations commonly used to justify hub premiums, and then presents a new measure of fares at hubs that we believe presents a truer measure of fare premiums at dominated hubs than comparing fares at hub markets with fares at non-hub markets as we have previously done.
Dominated Hub Fares. Domestic Aviation Competition Series
2001
22 pages
Report
No indication
English
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