1. This first problem compares the point-to-point route structure operated by the archetypal low-cost carrier (LCC) with the hub-and-spoke network route system typical of full-service network carrier (FSNC). Recall that the pure point-to-point system does not offer passenger connections to other cities. The network carrier, on the other hand, offers many connections at its hub to the spoke cities in its network. For the problems, assume the LCC operates a point-to-point route system and the FSNC operates a hub-and-spoke system. Assume both airlines operate aircraft configured at 100 seats. A city-pair is City A to City B. A to B and B to A are considered just one city-pair (a two-way network).

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 achieve an 82% load factor (don't overthink this, it's easy!)?

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b. The FSNC operates a single hub that connects 29 spoke cities (or nodes in generic network

terminology). How many city pairs does it serve? Recall that the hub is a major destination for the FSNC.

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c. The FSNC adds a 30th spoke city to its network. On a flight from this new 30th spoke to the hub, how many passengers, on average, does it need to attract to each destination, including the hub, to achieve an 82% load factor? Hint: the number of passengers on this flight cannot be more than the seating capacity.

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d. How can the FSNC profitably serve smaller cities that the LCC cannot? (Hint: Consider 1c above).

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e. A regional partner airline under contract to the FSNC serves some small cities close to the FSNC's hub with regional jets that have much higher seat-mile-costs (CASM) than larger mainline jets. The average fare from these cities to the hub does not cover fully allocated cost. Is this economically rational?

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f. Networks are subject to negative externalities. How might such externalities affect a network carrier's decision to add another spoke city to its network? Explain.

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