Airport capacity choice under airport-airline vertical arrangements
Access status:
Open Access
Type
Working PaperAbstract
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 ...
See moreThis 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.
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See moreThis 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.
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Date
2015-03-01Department, Discipline or Centre
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