Airline network design

The goal of this paper is to understand choices of networks and schedules by a profit maximizing airline. By ‘network’ we mean the routing pattern for planes and by ‘schedule’ we mean the frequency of service between cities and the amount of time put into the schedule to assure on-time arrival. This paper analyzes network and schedule choice using an ‘idealized’ model that permits derivation of analytic, closed form expressions for airline and passenger costs. Many important conclusions are obtained. It is optimal for a profit maximizing airline to design its network and schedule to minimize the sum of airline and passenger costs. Profit maximizing choice of schedule frequency depends on the network. Direct service has lower schedule frequency than other networks. Parametric studies are performed on the effect of distance between cities, demand rate, and the number of cities served on the choice of the network. Some conclusions are: (1) If the distance between cities is very small, then direct service is optimal; otherwise, other networks, such as hub and spoke are optimal. (2) Similarly, for very high demand rates, direct service is optimal; and for intermediate values, hub and spoke is optimal. (3) If the number of cities is small, direct service dominates; and if it is large, hub and spoke is optimal. We note that any airline's schedule includes safety time as a buffer against delays, and we demonstrate that schedule reliability is highest for direct routing. Surprisingly, the amount of time that is added to the schedule to buffer delays is relatively less in direct networks than in other networks. This can explain the superior on-time performance and high equipment utilization of direct carriers such as Southwest Airlines.