|Title:||Airport capacity choice under airport-airline vertical arrangements|
|Keywords:||Airport Capacity; Airport-airline Vertical Arrangement; Demand Uncertainty Keywords|
|Abstract:||This study investigates the effects of airport-airline vertical arrangements on airport capacity choices under demand uncertainty. A multi-stage game is analyzed, in which competing airlines contribute to capacity investments and at the same time share airport revenues. Our analytical results suggest that for a profit-maximizing airport, such a vertical arrangement leads to higher capacity although its profit may not be higher. For a welfare-maximizing airport, such an arrangement has no effect on capacity or welfare. Capital cost savings brought by airport-airline cooperation, if any, always leads to higher capacity, higher profit for a profit-maximizing airport, and higher welfare in the case of a welfare-maximizing airport. Numerical simulations reveal that win-win outcomes may be achieved for an airport and its airlines without government intervention.|
|Type of Work:||Working Paper|
|Appears in Collections:||ITLS Working Papers 2015|
|ITLS-WP-15-05.pdf||447.71 kB||Adobe PDF|
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