Hub & spoke airline model dying, bets Boeing

Way back in 1955, Delta devised the world’s first hub & spoke airline model. It was an idea that did not catch fire till FedEx, the US logistics giant, adopted it in the 1970s, and, by default, changed the airlines business.

Hub & spoke, as the name suggests about one central hub and a phalanx of connecting spokes, just like the humble bicycle of yore.

Transposed on to the airline industry, it’s about routing traffic from one central point, which affords gains in terms of carrying more passengers and less staff and overhead costs, though the journey breaks can annoy passengers.

Well, the model is dead or dying, says Boeing India president Dinesh A Keskar.

To understand why, some stats: The number of flights taking off everyday — within and from India abroad —-has increased 156% over the last decade.

A clutch of airlines have also sprung up in the period, such as Go, IndiGo, SpiceJet, Kingfisher and Paramount.

And when the going was good, most airlines’ strategies revolved around the hub & spoke model.

But now, with more airlines operating and passenger numbers flat-to-dwindling, “the available passenger numbers are getting re-distributed over these choices and has resulted in the average seat capacity per flight falling,” said Keskar.

Airlines, therefore, are reverting to the pre-hub & spoke era, to a strategy called ‘point to point’.

Unveiling its outlook for India’s commercial aviation market for 2009, Boeing said there is increasing appetite for such non-stop flights because of rising city connections being offered from and within India.

The outlook predicted airport connections and frequencies from India could triple over the next 20 years.

Traditionally, the two largest commercial aircraft manufacturers —-Boeing and Airbus — differ on their market outlook, where Boeing believes the future will be point to point and for Airbus it’s the hub & spoke model that will work.

So, Boeing has introduced smaller aircraft (B-777 and the like) that can fly long haul, while Airbus has been experimenting with larger aircraft such as the A-380s (450+ seat).

Boeing, too, has larger B-747 (400+ seater) aircraft, but it feels the appetite is less for this type.

“The strategy to collect passengers from multiple cities and fill a 400-seater aircraft on a Mumbai-Delhi-London flight is no longer working as there are direct connections available,” Keskar said.

So, in a market that is struggling to get passengers on board, airlines are shifting focus to smaller aircraft types.

“More of Boeing-737 and Airbus-320 type of smaller 120-170 seat aircraft will be the most used going forward,” Keskar added.

The company expects almost 77% of the aircraft deliveries to be single-aisle, while the B-747 and larger planes are expected to contribute only 1% of the total order.

Kapil Kaul, CEO, Centre for Asia Pacific Aviation, points out the airlines business is cyclical. “We are looking at recovery in the next 12-18 months and with the growth resuming, we will require larger aircraft as well.”

Kaul is of the view that both point to point and hub models will eventually co-exist as the traffic type differs from region to region.
“We will have more and more direct connections like what Air India is planning with its new fleet. But the hubs like Singapore, London, Frankfurt will also exist and grow catering to specific passenger airlines and needs.”

Boeing is optimistic on India’s growth story and has revised its forecast on the number of planes required by the country down by one aircraft - from 1,001 to 1,000 commercial jets. They are valued at $100 billion.

The number of commercial passenger planes in India has grown from 122 in 2003 to 330 in 2009, with 350 currently on order.

Boeings statistics suggest that South East Asia, where India and China are the largest markets, will be the second-fastest growing market at a 7.9% growth, following the South West Asia.

“With the numbers available we can expect to double the traffic within south-east Asia,” Keskar added.

However, he’s worried about excess capacity in the domestic market. “The Indian industry has grown by 5% in the last five years but overcapacity remains a problem.”