Airport capacity extension, fleet investment, and optimal aircraft scheduling in a multilevel market model: quantifying the costs of imperfect markets

Stefano Coniglio,Martin Weibelzahl,Mathias Sirvent

doi:10.1007/s00291-021-00621-4

Abstract

We present a market model of a liberalized aviation market with independent decision makers. The model consists of a hierarchical, trilevel optimization problem where perfectly competitive budget-constrained airports decide (in the first level) on optimal runway capacity extensions and airport charges by anticipating long-term fleet investment and medium-term aircraft scheduling decisions taken by a set of imperfectly competitive airlines (in the second level). Both airports and airlines anticipate the short-term outcome of a perfectly competitive ticket market (in the third level). We compare our trilevel model to an integrated single-level (benchmark) model in which investments, scheduling, and market-clearing decisions are simultaneously taken by a welfare-maximizing social planner. Using a simple six airports example from the literature, we illustrate the inefficiency of long-run investments in both runway capacity and aircraft fleet which may be observed in aviation markets with imperfectly competitive airlines.

Highlights

Over the past decades, many countries have liberalized their air transportation sector— see, for instance, Bowen (2002), Fu et al (2010), or Burghouwt and de Wit (2015)
Focusing on a set of airports and airlines of interest in the context of a liberalized market environment, the model allows for identifying which capacity expansion options the airports should consider as well as which long-run investments in new aircraft and medium-term aircraft-scheduling decisions the airlines should make so as to maximize their own profits
In the remainder of the section, we describe the different problems that occur in each level of the trilevel model, their dependency on the solution that was determined in the previous levels as well as on the anticipated solution to the problems in the levels and the way in which, in the second level, the players imperfectly compete with each other

Summary

Introduction

Many countries have liberalized their air transportation sector— see, for instance, Bowen (2002), Fu et al (2010), or Burghouwt and de Wit (2015). By deciding on capacity extensions and setting their charges, directly affect the outcomes of such markets while, at the same time, they rely on an anticipation of the market outcomes (as well as on the expected growth of passenger volumes) when taking longterm decisions Such a complex investment structure involving independent decision makers whose decisions affect each other challenges traditional planning processes (see the literature review below), which do not account for the interplay of the different investment decisions made by the different players involved at different points in time and for their impact on market outcomes. We quantify the investment inefficiencies of an imperfect aviation market by comparing, experimentally, the results obtained with our trilevel model to those of a single-level benchmark model with perfect competition among all players The latter is equivalent to assuming a benevolent social planner which, as the unique decision maker, plans the whole industry in an integrated and welfare-maximizing way

Objectives

Discussion

Conclusion