HUB-AND-SPOKE NETWORKS AND THE INCLUSION OF ENVIRONMENTAL COSTS ON AIRPORT PRICING

Previous studies into hub airports have tended to concentrate on the e conomic dimensions, such as market power, airline fares and barriers t o entry. Airline hubbing has considerably altered airport economics: i t increases the number of flights into and out of a major airport and it increases externalities such as airside and landside congestion, ai rcraft noise and emissions. The principal contribution of our paper is to focus on the environmental externalities associated with extensive hubbing. Such externalities are equally relevant to other large airpo rts. We first present a conceptual spatial model which addresses the e nvironmental impacts related to extensive hubbing: increase in environ mental costs,and spatial redistribution of environmental externalities . Then, we formally address the conceptual problem by proposing a mode l of airline economics, Schmalensee's model (1977, Bell Journal of Eco nomics 8, 565-576) is adapted to allow for a monopolist airline to det ermine the optimal network and, to set prices and the number of flight s. Finally, the paper explores the effect of charging the airline for these externalities through an 'enviromnental' tax when it operates a huband-spoke network. We examine two scenarios, a passenger-related ta x and an aircraft-related tax and show the extent to which prices and the number of flights are affected by the tax. (C) 1998 Elsevier Scien ce Ltd. All rights reserved.