Airport Congestion in EU: More Investment or Better Pricing?

Abstract

Airport congestion has been generally dealt in the literature in a similar fashion as road congestion. However, the phenomenon is quite different, because entry at airports is not random. Flight delays are a consequence of system overload, which is linked to profit maximization decisions of airports and airlines. Moreover, airport congestion exhibits a cascade-type of effect not present in roads: one single delay may generate congestion accumulating over the next hours. Therefore, congestion costs depend on the time of the day which is studied. This paper analyzes airport congestion from this perspective, arguing that a combination of peak-load pricing and investments in new capacity is probably not the best solution to airport congestion. A theoretical model shows that a pricing system based on congestion fees both for airlines and airports could do a better job to mitigate EU congestion costs. Data from flight delays at Madrid airport are used to illustrate our results.