Airline network structure under demand uncertainty

In this paper, we provide another reason that may explain the adoption of t he hub-and-spoke network structure in the airline industry. We show that wh en an airline has to decide on its capacity before the demand conditions ar e perfectly known, a hub-and-spoke (h&s) network structure by pooling passe ngers from several markets into the same plane helps the firm to lower its cost of excess capacity in the case of low demand and to improve its capaci ty allocation in the case of high demand. (C) 2000 Elsevier Science Ltd. Al l rights reserved.