>"With the hub-and-spoke system used to defend airlines’ pricing power, there are fewer nonstops"
I hadn't considered the hub and spoke system as a means of defending pricing power before. Is the idea that since there are more flights by that airline into its hub region they can offer better fares to passengers? Is that right? But don't passengers generally try to avoid flights with lay overs? The logic is escaping me.
With the hub and spoke model instead they fly 60 people from Des Moines to a hub, and then 4 transfer to the plane to El Paso, 2 to the flight to (pick a random tiny city). On the return trip they collect all those people again.
Of course if you live in New York city this doesn't matter to you: New York is large enough to have a direct flight to nearly every small city, and could fill them even without being a hub (though as a hub they can fill larger, more efficient planes). To those of us to live in tiny cities we cannot get to other tiny cities because the flights just don't exist. The downside is we pay about twice as much for our tickets as we are paying for two tickets, but we can still get there.
Any time an airline notices a lot of people trying to get from one city to another they will add direct flights. Computers are good at figuring out where the demand is and airlines know a nearly full direct flight will capture the a lot of tickets that otherwise might go to competition. Big vacation destinations thus do not have to be a hub to get regular direct flights.
In the past, I've hypothesized [1] that the sole reason low-cost airlines like RyanAir can even fly to such outlying European airports is because there's significant competition among lesser airports desperate for business and the (supposed) positive knock-on effects that will result. This encourages them to provide subsidies, discounts, or other perks to airlines, because losing commercial air service would be a more severe economic blow.
The US is not adverse to subsidising and providing large tax discounts to companies, if anything this is much more common in the US than the EU because of state aid rules in the EU. Why wouldn't US regional airports also try and attract more airlines?
I've done some research and apparently LCCs now make up 30% of travel in the US. It looks like the US is catching up to the EU now.
Is it simply that that they can charge customers in those small secondary markets a premium on fares into the hub areas? Is that the pricing leverage?
That being said when you look at the locations of some of these hubs they are in pretty undesirable places in terms of incurring flight delays due to weather - Chicago? San Francisco? Minneapolis, Denver, New York?
Chicago [same for New York] is large enough that it will be a hub: enough people want to get from Chicago to every other city that if you don't offer the direct flight someone else will. From there people will figure out you can get from Chicago to anywhere they will will make it a hub despite your wishes.
The other part is historical. Minneapolis was a hub for Northwest Orient Airlines because it started in Minneapolis and thus made that their home hub. Delta eventually bought Northwest and got the hub with the deal. They decided to keep Minneapolis as a hub.
I don't know what the situation is with San Francisco. I suspect historically planes needed to stop there for fuel before crossing the ocean. That is just a guess though.
I am not trying to slight Denver or Minneapolis in any why I'm just using them as an example. It just seem that a strategic rebalancing of hub locations might make help with delays and rescheduling. The situation now seems to be the airline inherited the hub through consolidation and that's where it will stay because they're too cheap to move it.
Though why Fargo isn't a hub by this logic I don't know. Also a population weighted geographic center is probably a better consideration than just pure geographic.
It's more that airports are only so big. It's expensive to build a new terminal, so if one airline takes over most of an airport, the others can't turn it into a hub. If you don't mind a layover, that's not a big deal. If you want nonstop from your nearest airport, the airline that made it a hub will be able to charge you more. But that's only fair, because they invested the capital in making that airport a hub. If they over-invested, that's a lot of capital lost.
The reason airlines thought hub and spoke was more profitable was because they could basically guarantee that every flight would be full. If a flight is only half full, you're lugging an entire airplane around for no reason which is very costly.
Hub and spoke is worse than airlines thought, though — newer planes like the 787 are far more efficient, so that cost of lugging the airplane around is reduced.