Meeting economic and social viability goals in regional airline schemes through hub-and-spoke network connectivity

Abstract

We examine the viability of regional connectivity schemes by considering both social and economic objectives. In India the scheme is called UDAN (loosely translated affordable air travel) which is designed to include economically backward communities in India into the air travel grid. Using secondary data sources from the airline sector in India, and qualitative interviews of knowledgeable personnel in the airline industry, we demonstrate the importance of hub-and-spoke network design in comparison to point-to-point connectivity for regional connectivity networks. Specifically, we develop Viable Hub Location Problem for Regional Connectivity (VHLPRC) for resilience and sustainability through bilevel optimization with single leader and two independent followers. We test our proposed approach using datasets from USA and India. Our analyses suggest strategically choosing primary hubs and re-routing traffic through regional hubs for long-term commercial viability or survivability of regional connectivity schemes. The introduction of regional hubs had mixed effects. On the positive side, it improved reach, albeit at considerable (hidden) costs. On the negative side, several sub-programs had to be abandoned for a variety of reasons, including lack of demand traffic. The lessons learned from this study inform policy makers, academics, and practicing managers on how to remain viable and sustain operations in regional connectivity schemes. With the introduction of social variables, commercial viability has been shown to face specific real-life challenges. An attempt to help solve these problems is also presented in this paper through risk reduction, capacity augmentation, and by continuing fare subsidies.