Networking Policies for Hub-and-Spoke Systems with Application to the Air Transportation System

Abstract

Recently, hub-and-spoke networks employing central hub facilities to channel flows between interacting nodes have become popular with successful applications in ground and air transportation. In this paper, we introduce a framework for the design of this type of distribution network with networking policies and models together with exact and heuristic solution procedures. We consider two networking policies: (i) Nonstrict hubbing, in which channeling flows through hubs is not required but chosen if found cost efficient and (ii) strict and restrictive hubbing, in which all flows to/from a node are channeled through the same hub. Variations of these policies are discussed together with various aspects of air passenger and cargo transportation, effects of network organization on demand and network design under continuous economies of scale. The performances of the proposed algorithms and the effects of the networking policy implemented on the hub locations and the route structure are studied using data on air passenger flows between the top forty U.S. cities in 1989.