Covid −19, the collapse in passenger demand and airport charges

Abstract

This paper analyses the price responses of airports to a demand collapse, such as that prompted by Covid-19. In the crisis, airports need to achieve viability, in the short run through sufficient liquidity, and in the long run, by covering costs. From a public policy viewpoint, price increases in a crisis are argued to be undesirable, as they would further jeopardise the viability of airlines and tourism as well as the wider economic transport benefits such as connectivity. The institutional environment of airports differs from airport to airport; some are publicly owned, others are private but regulated, and others face competition. The price response of each (of 6) types of airport is considered, and how policy could respond to keep prices low in the crisis while ensuring longer term viability. Regulated airports could defer price increases until demand had recovered, if regulators insisted they do so. Publicly-owned airports could be directed by governments to keep charges low. Governments might also state that unregulated airports that raised charges could be made subject to price regulation in the future. Competitive airports would be unable to raise charges but this could jeopardise their viability. In this case and others where airports might need financial assistance, assistance could be made conditional on keeping charges low in the crisis.