Resurgent hub-and-spoke model lurking in the shadows?

The pre-COVID-19 pandemic world in aviation was like it was full of sunshine and glitter. Record profits, unprecedented growth in the industry and most importantly, connectivity like unlike ever before allowed passengers to enjoy direct connections to their favorite vacation spot, or allowed them to visit their families on a whim without any second-guessing whether they would have to endure a long and excruciating connection in a city far away from their loved ones.

But then the sunshine and glitter were replaced by doom and gloom, as airlines cut capacity, parked fleets, while governments around the world imposed travel restrictions to keep the virus under control. Consumers were grounded as well – as business closed down, capital expenditure was becoming more and more limited from the very bottom of the money tree to the very top of it.

And unfortunately, connectivity became very limited. Not only for consumers to put their bottoms somewhere else in the continent, but to also transfer crucial supplies to fight the virus. As airlines parked their fleets, the total cargo capacity went down drastically, as freight was also carried in the bellies of passenger aircraft. International Air Transport Association (IATA) indicated that demand fell by 27.7% in April 2020 compared to the same period last year. However, there was still insufficient capacity to meet the demand of freight “as a result of the loss of belly cargo operations on passenger aircraft.”

After every crisis in aviation, nevertheless, changes were seen. Whether it would be the oil crashes of the 20th century, the post-9/11 shock, or the 2008 financial crisis, changes were apparent to consumers and more avid enthusiasts alike.

The coronacrisis will definitely bring changes to the way we travel. However, could it also bring the hub-and-spoke model back to life?

Point-to-point and ultra-long-haul

Prior to the current pandemic, the point-to-point model seemingly started to overshadow its hub-and-spoke competition. Low-cost carriers forced full-service carriers to innovate regarding their interior outfitting, reduce their prices or risk losing out on customers. In addition, the same no-frills airlines pioneered their own point-to-point routes by stimulating demand just by offering dirt-cheap tickets. While for some, low-cost airlines became the topic of heated discussions in some executive boardrooms, for others the model allowed to explore places like no other airline allowed to do so before.

Full-service carriers were not sitting on their laurels, either though: 2019 was a monumental year for ultra-long-haul travel. Project Sunrise, despite only being in its trial phase, gathered monumental momentum in the public eye, as Qantas connected London and New York with Sydney directly. The airline did it once before, with a delivery flight of a Boeing 747-400 in 1989 – but this time, it carried passengers and was eyeing to make it commercially available. Air New Zealand announced their own plans to connect its capital, Auckland, to New York via Newark’s Liberty International Airport (EWR). El Al, the Israel-based carrier, planned to trial ultra-long-haul connections from Tel Aviv, Israel to Melbourne, Australia.

COVID-19 had shifted those plans. Qantas indicated that it still plans to launch the Sunrise flights, but the decision to do so was postponed indefinitely. Air New Zealand indicated that instead of October 2020, Project Kiwirise would be delayed until late 2021, as the airline anticipates being as much as 70% smaller in two years’ time to weather the crisis. El Al had its chance to “trial” the flights in form of repatriation flights from Ben Gurion International Airport (TLV) to Melbourne Airport (MEL) and back, carrying stranded Israelis back home to Tel Aviv.

Even the pandemic resulted in some curious routes. For example, Air Tahiti Nui operated the world’s longest flight. Technically, it was a domestic flight as well, breaking two records in one dream. Because it was operated by a Boeing 787 Dreamliner, heh.

Terrible jokes aside, not only the ultra-long-haul connections got a boost in 2019. A case in point could be Boston Logan International Airport (BOS), which saw very ambitious plans filed by operators at the airport. While it is no mega-hub due to its relatively close proximity to New York and its three major airports on the East Coast, Summer 2020 was planned to be major for Boston’s main gateway to the world, including numerous connections that would have transferred over to the lower-yield winter season.

The story could be seen elsewhere as well, as point-to-point connections also thrived in Asia and Europe. Garuda Indonesia’s low-cost subsidiary Citilink planned to launch long-haul itineraries to Germany and Saudi Arabia.

Further proof that the point-to-point model thrived in 2019 was data provided by IATA: the association highlighted that in 2019 there were 21,187 unique city pairs. In 2020, however, the number of pairs dropped to 16,102. While it certainly can be attributed to the crisis, the question is how fast can the number of unique cities recover?

“Moreover, there is a risk that the number of unique city-pair connections is not fully recovered, which would undo some of the gains of recent years,” stated the association’s latest update on the economic performance of the airline industry. Airlines alone are predicted to lose $84 billion in 2020.

The basis for point-to-point

At their most basic forms, the point-to-point and hub-and-spoke models have one main difference: point-to-point traffic is viable on routes where there is enough capacity, for example from Tel Aviv to Melbourne: a large Jewish diaspora in the Australian city could warrant El Al’s flights and make them profitable. On the flipside, Berlin’s airports had only seven long-haul flights from the capital of Germany in 2019. In Frankfurt Airport (FRA) 36.3% of travelers flew long-haul from the airport in 2019. In terms of passenger numbers, that would put FRA at 25.6 million, while the two currently operational airports in Berlin carried 35.6 million passengers. Considering the large low-cost presence at the airport and the fact that Frankfurt was the top destination from the two airports located in the nation’s capital that speaks volumes about the roles of the three aforementioned German airports. One is a hub for intercontinental travel, while the other two are pure point-to-point traffic facilitators.

Hubs allow passengers from smaller markets to connect onto their final stops in their journeys. A Berliner catching a Lufthansa Airbus A320 at Tegel (TXL) and switching to an Airbus A380 at Frankfurt Airport (FRA) to reach New York’s John F. Kennedy International Airport (JFK) was not something out of the ordinary.

With economic and infrastructural development, however, this could have changed and even more city pairs could have been noted in IATA’s statistical data. But the coronacrisis could have long-lasting implications, as airlines are predicting and preparing for a short-term future where 2019-levels of demand for air travel would only return in 2023 or worst-case scenario, 2024. With the global economic downturn, in addition to the fact that passengers are still wary of getting onboard an aircraft due to the concerns for their health, it could once again undermine point-to-point traffic. Routes that previously had enough demand now could potentially rely on connecting traffic to make them profitable.

Whether the resurgence of the hub-and-spoke model is in it for the long run, is another question that can be raised. If air travel returns to 2019-levels and as showcased throughout history that it has a tendency to rise despite temporary setbacks, is it the last dance of the business model, or is it the last two years filled with wizardry before finally being put to retirement?


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