Federal law restricts the fees airports charge air carriers to amounts that are “fair and reasonable.” These fee restrictions, although promoted as a way to provide nondiscriminatory access to all aircraft, limit an airport’s ability to recover costs for air carriers’ use of airfield and terminal facilities. Airport construction faces significant nonpolitical barriers, such as vocal “not in my back yard” (NIMBY) opposition and environmental noise and emissions considerations. Since 1978, only one major airport has been constructed (in Denver), and only a few runways have been added at congested airports. The number of federal requirements associated with airport finances has grown considerably in recent years and is tied to the awarding of grants from the federal Airport Improvement Program (AIP). Over time, the legacy carriers and the LCCs will likely use some combination of point-to-point and network hubs to capture both economies of scope and pricing advantages.Īirport construction and expansion face almost insurmountable political and regulatory hurdles. The network hubs model offers consumers more convenience for routes, but point-to-point routes have proven less costly for airlines to implement. The hub-and-spoke model survives among the legacy carriers, but the LCCs-now 30 percent of the market-typically fly point to point. Because the size of the planes used varied according to the travel on that spoke, and since hubs allowed passenger travel to be consolidated in “transfer stations,” capacity utilization (“load factors”) increased, allowing fare reduction. After deregulation, the airlines quickly moved to a hub-and-spoke system, whereby an airline selected some airport (the hub) as the destination point for flights from a number of origination cities (the spokes). The dollar savings are a direct result of allowing airlines the freedom to innovate in routes and pricing.
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