1. This first problem compares the point-to-point route structure operated by the archetypal low-cost carrier (LCC) with

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1. This first problem compares the point-to-point routestructure operated by the archetypal low-cost carrier (LCC) withthe hub-and-spoke network route system typical of full-servicenetwork carrier (FSNC). Recall that the pure point-to-point systemdoes not offer passenger connections to other cities. The networkcarrier, on the other hand, offers many connections at its hub tothe spoke cities in its network. For the problems, assume the LCCoperates a point-to-point route system and the FSNC operates ahub-and-spoke system. Assume both airlines operate aircraftconfigured at 100 seats. A city-pair is City A to City B. A to Band B to A are considered just one city-pair (a two-waynetwork).
a. If the LCC is operating a 100 seat aircraft in city-pair A-B,how many passengers from city A must be bound for city B to achievean 82% load factor (don’t overthink this, it’s easy!)? Answer:
b. The FSNC operates a single hub that connects 29 spoke cities(or nodes in generic network terminology). How many city pairs doesit serve? Recall that the hub is a major destination for the FSNC.Answer:
c. The FSNC adds a 30th spoke city to its network. On a flightfrom this new 30th spoke to the hub, how many passengers, onaverage, does it need to attract to each destination, including thehub, to achieve an 82% load factor? Hint: the number of passengerson this flight cannot be more than the seating capacity.Answer:
d. How can the FSNC profitably serve smaller cities that the LCCcannot? (Hint: Consider 1c above). Answer:
e. A regional partner airline under contract to the FSNC servessome small cities close to the FSNC’s hub with regional jets thathave much higher seat-mile-costs (CASM) than larger mainline jets.The average fare from these cities to the hub does not cover fullyallocated cost. Is this economically rational? Answer:
f. Networks are subject to negative externalities. How mightsuch externalities affect a network carrier’s decision to addanother spoke city to its network? Explain. Answer: