The Hub and Spoke operations model is frequently used in small package operational systems. Describe how this system operates and what are the advantages and disadvantages of working within a Hub and Spoke system? What other modes or examples of transportation operations have used the Hub and Spoke system?

Describe how this system operates and what are the advantages and disadvantages of working within a Hub and Spoke system?

The Hub-and-spokes system was developed as one of the results from the US airline deregulation. Prior to establishing this system, airlines operated point-to-point routing which was often not cost efficient. The concept of the Hub-and-spokes system was to concentrate traffic to one airport- the major hub from smaller national airports or other means of transport, and then the gathered group of passengers would be transported from the major hub to another major hub.

A hub is a central airport that flights are routed through, and spokes are the routes that planes take out of the hub airport. Most major airlines have multiple hubs. They claim that hubs allow them to offer more flights for passengers. Under the direct-route, or point-to-point, system used prior to deregulation, airlines were forced by the federal government to fly directly between two small markets. This resulted in many flights that were routinely half empty, which resulted in airlines losing money. Today, most airlines have at least one central airport that their flights have to go through. From that hub, the spoke flights take passengers to select destinations.

Advantages of hub-and-spoke operation

The following two points are the major advantages that the hub-and-spoke system had initially brought to the airline business; however some disadvantages had been developed later due to changes in external environmental factors.

•  Encouraged the rapid growth in the airline business
  • The hub-and-spoke system since developed after deregulation, has allowed a rapid growth in size, competition strategy and traffic demand in the airline business.  As a result of this, some airlines restructure their business model to return to the point-to-point system and move out of the constant need for a large hub, and utilise hubs in a more uniform matter in terms of arrivals and departures. This phenomenon is known as the rolling hubs.
•  Efficient use of scarce transportation resources.
  • The system has less number of routes connecting all spokes enabling a more efficient use of scarce transportation resources. This however had small airports and economies of smaller regions suffering as per the reduced capacity. As a result this encouraged airports to agree with low cost carriers to offer low airport fees and commissions from local businesses to bring in traffic and passenger flow. The passenger market favoured this type of airline business as lower fares were rolled out to the market from these smaller hubs; which caused great competition to full service carriers that were operating with large amount of airport fees to use large hubs, and can no longer return to these small hub markets as it is not cost efficient and are dominated by low cost carriers.

Disadvantages of hub-and-spoke

Besides the aforementioned advantages, the hub and spokes system also holds risks for the airlines and the airports which are highlighted in the following sections.

• Congestion and delays at hub airports
  • To limit waiting times and provide a large variety of possible connections for passengers at the hub airport, it is essential for the hub airline to schedule as many incoming and outgoing flights as possible during a short time frame. This results in high traffic peaks during these times and often causes delays due to scarce airside facilities such as taxi- or runways.
    At the same time the hub-and-spokes-system however allows hub airlines to increase their benefit exponentially by adjoining an additional destination to the network compared to point-to-point-carriers. Another reason for congestion stems from the fact that many airports do not limit the number of take-offs and landings. One possibility for airlines to prevent further congestion and coevally increasing the passenger count is the use of larger (feeder) aircraft. 
• Discontinuous use of airport facilities
  • The merging of traffic in a hub-and-spoke-system implies a traffic structure consisting of high peaks at certain times a day when airport facilities are highly in use. At some airports, costly additional capacity and infrastructure are required to cater for the demands at these peaks. During off-peak hours, as traffic is less, terminal and airside facilities are used inefficiently or even idle.
• Airport dependency
  • Hub airlines and the corresponding alliances (refer to Airline alliance for more details) have selected a limited number of airports on each continent through which they route their traffic. For these few hub airports in turn, they represent a high share of their business. As airport capacity is limited and usually not sufficient for other extensive networks, and the necessary slots at attractive times are not available, other airlines tend to chose alternative options.
     

What other modes or examples of transportation operations have used the Hub and Spoke system?

Many transportation services have adapted to include a hub-and-spoke structure. The most common examples involve air passenger and freight services, which have developed global, national, and regional hubs, such as those used by parcel carriers such as UPS, FedEx, and DHL. A good example of a hub-and-spoke system is that of Delta Airlines, which has its hub at Hartsfield Atlanta International Airport.

Here are some examples of transportation operation have used the Hub and Spoke system.

• Feeder ships transport shipping containers from different ports to a central container terminal to be loaded onto larger vessels.
• Cargo airlines: most UPS Airlines flights travel through its Worldport at Louisville International Airport, and many FedEx Express parcels are processed at its "Super Hub" at Memphis International Airport.
• Freight rail transport in which cargo is hauled to a central exchange terminal. At the terminal, shipping containers are loaded from one freight car to another, and classification yards are used to sort freight cars into trains and divide them according to varying destinations. Intermodal freight is often loaded from one mode to another at central hubs.
• Public transit uses various transport hubs to allow passengers to transfer between different lines or transportation modes. Often those hubs are intermodal linking buses, trams, local trains, and subways.

Step-by-step explanation

The hub and spoke model refers to a distribution method in which a centralized "hub" exists. Everything either originates in the hub or is sent to the hub for distribution to consumers. From the hub, goods travel outward to smaller locations owned by the company, called spokes, for further processing and distribution.

The development of this system had enabled travelers a more integrated travelling system and experience, where passengers originating from smaller regions had the ability to make transits at a major hub where connecting flights to many other destinations are possible. At the era of point-to-point travelling passengers may have to make land transport to smaller towns, whereas the hub-and-spoke systems increases possible city pairs they can enter into. However at the same time the frequency of flights in and out of many smaller airports had decreased as a result of major airlines exiting the market of these smaller airports and concentrate on more profitable connection routes.

For the airport, this dependency on one major hub airline has advantages and disadvantages: as long as the airline is stable and successful in the market the airport can be sure of a consistent operation and therewith a steady income stream. As soon as the airline however struggles, this will have negative repercussions on the airport and might severely profitable operations at the airport.