What Type of Organizational Structure Do Airlines Use?

Written by catherine capozzi
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When customers book airline tickets, the availability and price of a given route has everything to do with the company's organizational structure. While some of the large legacy carriers, such as United and US Airways, prefer a hub-and-spoke system, smaller carriers like Southwest prefer a point-to-point structure. The benefits of each model differ depending on the company's size and scope.

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Hub-and-Spoke

A hub-and-spoke system operates by having a few key cities serve as a hub. From these hubs, the aircraft flies to the next destination. For instance, a passenger wants to fly from Wichita, Kansas, to Buffalo, New York. A large carrier does not likely fly directly from Kansas to New York. Instead, the passenger will probably stop at a hub city first, thereby going from Wichita to Chicago and then onto New York. Each airline has a different hub. US Airways, for example, has hubs in Phoenix, Philadelphia and Charlotte. United has hubs in Chicago, Denver and Los Angeles.

Benefits

Jody Hoffer Gittel, author of "The Southwest Airlines Way" explains the benefits of this system derive from a carrier's economy of scale. The larger the airline, the more the company benefits from the hub-and-spoke model. Gittel cites American Airline's VP of planning that the consolidation effect brings a hub flight 20 per cent more revenue than a point-to-point flight. Additionally, when airlines concentrate flights from one location they can operate from more gates at the airport. If airlines own most of the gates, they can charge a higher price per ticket based on its monopoly power and consequently generate higher revenue.

Point-to-Point

A point-to-point organizational structure operates by building a flight schedule where planes fly from one point directly to the next. Layovers are much more infrequent with this model and airlines determine routes by demand and seasonal considerations. For instance, a point-to-point airline may offer service from Dallas, Texas, to Vail, Colorado, in the winter and end the service in the summer. Southwest Airlines is one of the most successful airlines to implement this model. Short, direct routes are one reason the company can sometimes offer lower airline tickets with respect to competitors.

Benefits

This system has several benefits, specifically for small carriers with homogenous fleets of aircraft. For one, a point-to-point system offers flexibility. Whereas a large carrier must operate from its hub and incur system-wide delays if the location experiences inclement weather, a point-to-point system can avert such weather delays with greater ease. Clayton Barrows, author of "Introduction to Management in the Hospitality Industry" cites other benefits including short aircraft turnarounds and fewer staff members to accommodate the system.

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