Passenger Market Equilibrium for Competing Airports in Multiple Airport Region

Abstract

Major metropolitan areas are often served by two or three air carrier airports. Researchers have developed airport choice models that focus on the decision structures and attributes of the passengers’ choice of departure airport. A study extended the scope of airport choice models in a multiple airport system region and tried to estimate from the viewpoint of airport authorities how many flights a competing airport should seek and the resulting passenger shares when market equilibrium is reached. Each airport aims to maximize its own payoff in this game in an air travel oligopolistic market by determining its own strategies while being affected by those of its opponents. The payoff function is formulated to reflect the airlines’ and the passengers’ responses. The prices charged by airports to airlines are assumed to influence flight frequencies and, hence, the passengers’ preferences among airports. The passenger market shares equilibrium is then determined when no airport has incentives to deviate from its own pricing strategies. The structure of the model can help analyze the impact of airports’ strategies and those of their competitors. To demonstrate the model's potential as a policy analysis tool, a simple numerical example is designed and solved.