Effects of Increased Nonstop Routing on Airline Cost and Profit

Abstract

Delays in the United States air transportation industry are increasing every year, with correspondingly increasing costs. Delays are particularly bad at hub airports, due to the extra demand placed on these connecting points. This paper addresses one approach to help alleviate this problem, that of shifting capacity from hub-and-spoke flights to nonstop flights. In order to evaluate the effects of such a change, we analyze the market share and revenue benefits of adding new nonstop flights to a market previously served only by connecting service, and examine the actual cost of delays. The MIT Extensible Air Network Simulation, developed in support of this work, is also presented. For a sample analysis for Continental Airlines, it is found that over $550,000 per day in additional profit could be obtained by reassigning flights away from the congested hubs.