Minot, N. Dakota, USA, is served over one Hub This shows the diversity of destinations a hub can serve This is data from 2q03 US tickets for MOT The air service was 3 110-seat seat jet departures to Minneapolis hub, per day. These are one-way passengers Fares have tax added back in, estimated. Some fares are from trend of fares vs. distance, as sample was too small for actual in that market.

Minot Feeds to Minneapolis Hub MOT MSP

18:00 Bank Gives Minot 38 Destinations Inbound Bank Outbound Bank This is the MSP (Minneapolis) hub of NW airlines. It shows only one of 8 banks throughout the day. Some hubs have as many as 12 banks. Some as few as 3. Minot has three inbound flights: at 6:27 in the morning, 12:30 midday, and this one, at 18:00 in the evening. Connections for Minot also happen to the first outbound bank, roughly 1 hour after arrival. Connections can also be made for the next later bank, about 2 ½ hours after arrival. Because Minot is a small station with no other competition, even these slower connections are valuable. Most US cities connect to more than one hub. Competition means that the slower connections only collect traffic diverted to them by lower fares. This bank has 41 inbound flights connecting to 38 outbound flights with connecting times from 30 to 94 minutes. Many of the connecting city-pairs will only see one passenger a week. However, there are 1596 connecting pairs, with every flight having over 30 places to connect to. So even those small flows add up. Without such connecting banks, the small flows end up taking perhaps two connections and over a whole day to get where they want. The hub’s banks coordinate flights to provide the most valuable to the most people. The key to success is creating lots of value—and then charging people a fair price for it.

Minot Connects to the World

This is world O&D data, including US

Half of Travel is in Connecting Markets Hubs are not likely to disappear. Measured in RPKs, near half the travel is in connecting markets. (46% of the RPKs are in connect-only markets. On top of this, markets with only one or two nonstops have 25-50% connecting traffic.)

Short trips are usually nonstops Short trips are usually nonstops. Longer trips often require one or more connections. This data is for non-US travel. The US domestic network has lots of medium and large hubs, so most trips can be made with only one connection.

Half the Trips are Connecting This is world data, with US domestic trips not included. The blue area are miles traveled nonstop. The dark red are miles traveled using a connection, almost always at a hub and almost always on one carrier or one alliance. The yellow area are mile traveled using two connections—from an feeder city to a hub, to a second hub, and beyond to another small feeder city. The long haul has many of these double-connects, although the number is reduced as developing secondary hubs increase single-connect services.

Connecting Share of Loads Averages about 50% For most flights into a hub, less than half the onboard load is local and half is connecting to or from some other hub flight. Only isolated short markets have high local loads.

Long-Haul Flights are from Hubs, and carry mostly connecting traffic The few highly-local markets are not hub flights. They are tourist destinations like Honolulu, Hawaii. They are like charter vacation flights.

Hub Concepts Hub city should be a major regional center Connect-only hubs have not succeeded Early hubs are centers of regional commerce Early Gateway Hubs get Bypassed Early International hubs form at coastlines Interior hubs have regional cities on 2 sides Later hubs duplicate and compete with early hubs Many of the same cities served Which medium cities become hubs is arbitrary Often better-run airport or airline determines success Also the hub that starts first stays ahead There are really three kinds of hubs. The most natural is the large city that is the center of business and government for a region. Flights to this city form connections that allow any city in a region to connect to any other city in the region, and connect to major long-haul destinations. When one airline organizes these connections so they work easily, a hub is formed. The other natural evolution of a hub is at a major gateway city. In early days when airplanes could barely make it across larger oceans, major coastal cities were the starting points for long-haul international trips. A concentration of such flights made the long-haul part of a hub, and feeder flights naturally develop. However, as networks develop the emphasis changes. Early networks are sparse. Only the most obvious natural hubs work. But soon a second tier of hubs develops at medium-sized interior cities. These hubs provide nonstop service bypassing the early hubs. And they also divert traffic from connections at the early hubs to their own connections. This is the reason you see smaller cities like Cincinnati in the US or Amsterdam in Europe with hub operations. Which city gets a hub is a matter of either chance or planning. It is not driven by the size of the city, or even its location within reason. There are always several reasonable choices. The reason there is a hub in Cincinnati instead of near-by Dayton or Columbus is that Delta built a good operation there. Piedmont in Dayton failed. The airport in Columbus did not try as hard to attract an airline. So Cincinnati got it. Something similar probably happened in Amsterdam. Brussels might have worked instead. These secondary hubs become a focus of growth, each in their own time period. They add both nonstops to the hub city, and competitive connections. Often a developing hub will ‘steal’ all the growth for a time from the existing hubs. For instance the Air France hub in Paris was one of the more recent to get fully functioning. It has been growing briskly while London, Amsterdam, and Frankfort have stood comparatively still.

Regional and Gateway Hubs in US JFK ORD SFO DEN LAX ATL DFW MIA

Three Kinds of Hubs International hubs driven by long-haul Gateway cities Many European hubs: CDG, LHR, AMS, FRA Some evolving interior hubs, such as Chicago Typically one bank of connections per day Regional hubs connecting smaller cities Most US hubs, with at least 3 banks per day Some European hubs, with 1 or 2 banks per day High-Density hubs without banking Continuous connections from continuous arrivals and departures American Airlines at Chicago and Dallas Southwest at many of its focus cities International hubs have a high proportion of international flights. They suffer less from competition with low-cost regional airlines. Much of the traffic connects to places regional airlines cannot go. Many of the major European capitals have such hubs, with a bank or two of flights serving North America and Asia. Tokyo is the most extreme example of such a hub. Even the shorter feeder flights to Narita are international. Regional hubs create value by connecting smaller cities throughout a region or country. Most US hubs are regional hubs. In the US, they tend to start with three banks a day. A morning, midday, and evening time for connections. The biggest hubs, such as Chicago or Atlanta, have 6 banks a day, and each bank is divided into a two banks itself. One for Eastbound connections and the other for Westbound. So they really have 12 banks a day. This is about all that time permits. Finally, some hubs that have high numbers of flights stop using banks of simultaneous arrivals and departures. They move to smoother continuous operations, letting the many natural connections form as they may. American has just done this with their Chicago hub. The United hub in Chicago is 80% banked. The American one is 45% banked. This measure means take-offs and landings are more often alternating than grouped. At 50%, they are random. High values mean organized waves of arrivals or deparutres. Surprizingly, the most famous point-to-point carrier, Southwest Airlines, actually forms hubs, by coincidence. 30% of Southwest traffic is connecting (For hubbed carriers 50%-60% of their traffic is connecting.) It turns out Southwest’s frequencies at its major airports are so high that they form many convenient connections, without direct schedule coordination.

Secondary Hubs in US SEA MSP DTW PIT JFK SLC ORD SFO EWR DEN CVG STL LAX ATL PHX DFW IAH MIA

Value Created by Hubs The idea in business is to Create Value Do things people want at a cost they will pay Hubs make valuable travel options Feeder city gets “anywhere” with one connection Feeder city can participate in trade and commerce Hubs are cost-effective Most destinations attract less than 10 pax/day Connecting loads use cost-effective airplanes

Hubs Build Loads First, then Frequency

Hubs Give Competitive Advantages Less peaking of demands, as variations in different markets average out Dominate feeder legs Connect loads allow dominant frequency Connect loads avoid small, expensive airplanes Feeder cities can be “owned” Dominant airline will get 15% market share advantage Dominant airline can control sales channels Control of feeder cities makes airline attractive to alliances

Hubs Compete with Other Hubs Compete on quality of connection Does the airport “work?” Short connecting times Reasonable walking distances Reliable baggage handling Few delayed flights Recovery from weather disruptions Later flights for when something goes wrong

Hubs Develop Pricing Mixes Higher fares in captive feeder markets Low discount fares in selected connecting markets to fill up empty seats Low connecting fares compete against nonstops Select low fare markets against competition It pays to discount and fill Unless you discount your own high-fare markets