Larger planes aren't significantly more fuel efficient. Look at the A380 vs. the 787.

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.