Aeronautical Charges Research Articles

Extension in the Airspace of Pakistan – Based on Lack of Harmony Between UNCLOS And ICAO Convention Regarding Distribution of Airspace Over EEZ

This article is -written with a focus on the extension of the airspace of Pakistan from the existing dimension to the extent of the exclusive economic zone which was initially 200NM but now extended to 350NM since 2015 (National Institute of Oceanography Pakistan, n.d.). The stated objective is based on the following agenda points which are further elaborated on in this article: 1) The lack of harmony between the United Nations Convention on the Laws of Sea (UNCLOS) and the provisions of the Convention on International Civil Aviation (Article-12 and Annex-11 of the ICAO Convention) regarding the airspace distribution over Exclusive Economic Zones (EEZ). 2) It is a vested right of the coastal state to regulate the airspace over its EEZ, and if not, then at least all the economic benefits should belong to the coastal state. 3) The difficulties and threats faced by coastal states if they are not provided with the opportunity to regulate their airspace over the EEZ. Based on the stated agenda and the discussion therein, the following results or outcomes are expected:1) The airspace over EEZ could be defined in a more harmonized way in line with all the international laws/bodies for which necessary amendments should be made in the UNCLOS, Article-12 and Annex-11 of the ICAO Convention. 2) Affected countries can approach ICAO through concerned departments/authorities / ANPs either for extension and adjustment of their airspaces over their EEZ or for the acquisition of financial benefits i.e. aeronautical charges or air navigation charges being earned from the airspace over their EEZ.

The Evolution of Canada’s Airports and Airport Policy: A Review

Canada’s airports are unique in the world as a system of private, no-share capital, not-for-profit organizations. This paper reviews the evolution Canada’s airport system and airport policy over the last 30 years and provides an overview of airport performance including an assessment of the likely proceeds should the Canadian government decide to sell its eight largest airports to private investors. The review reveals an airport system with a heavy “user pay” orientation that has become reliant on “airport improvement fees” charged to passengers, over and above regular aeronautical charges, in order to finance the substantial investments in infrastructure made by airport authorities. The paper highlights criticisms of the current airport system that have endured for over 20 years and shows how recent recommendations to sell our airports to private investors reveals an underlying tension regarding whether airports should be regarded as “spark plugs” that create wider economic benefits or “toll booths” that generate government revenues. The paper argues that a viable alternative to selling off airports to private investors is to reintroduce legislation first introduced in 2003 and again in 2006, which, despite broad political support, never became law.

Exclusivity in concession revenue sharing contracts

Our paper studies the effects of concession revenue sharing contracts by endogenizing the choice of the signatory airline. It is shown that an airport finds it profitable to share concession revenues with airlines and this increases both consumer surplus and social welfare. The airport prefers an exclusive agreement when the net per passenger revenue generated on non-aeronautical services at the airport is sufficiently low; it extracts higher payments by exploiting the competition between airlines to become the sole signatory. The level of aeronautical charges, that are regulated, influences the airport’s decision and, consequently, the intensity of airline competition. Welfare is higher under a non-exclusive arrangement, which may be in conflict with the airport’s decision. The incentive to use these contracts remains under airport competition and revenue sharing increases. With an airline alliance, revenue sharing increases traffic for a large enough degree of cooperation between airlines.

Rate-setting methods and U.S. airport aeronautical charge differential: An oaxaca decomposition

U.S. airports adopt three rate-setting methods to formulate their charges. Under the residual method, the signatory airlines pay reduced use fees in return for providing a financial guarantee to the airport. Under the compensatory method, aeronautical charges are determined according to the airline's use of airport facilities, and the airline is under no obligation to bear the airport's financial risk. The third hybrid method combines the features of the residual and compensatory methods. In this study, we examined the sources of the aeronautical charge differential using an Oaxaca decomposition. We found that airports adopting the hybrid method have lower aeronautical charges than the others primarily due to the difference in airport average cost. The difference in aeronautical charges between residual and compensatory airports is not statistically significant.

Application of the markup pricing method as an alternative to the non-cost-based model for airport charges

Abstract The experience of developed countries shows that airport managers seek to increase their profitability, while regulatory agencies aim to guarantee quality, investments and fair charges. This study presents an application of the Tornqvist Index and the markup pricing method to find the market price opportunity for airfares and one of the specific objectives is to present a methodology for comparing the financial results of airports based on ANAC Resolution No. 350/14, which allows a 100% increase in aeronautical charges concerning the tariff ceiling. To predict passenger demand with new airport fares, the least-squares method was used based on empirical equations and the concept of elasticity. The scenario used was the Campinas / Viracopos Airport from January 2014 to March 2017. The results showed that it is possible to increase the price of the domestic aeronautical charges and the revenue from the airport, with the counterpoint of falling demand. This method, based on cost and market opportunity, but on which the financial statement should be audited, is shown to be promising to increase airport revenue.

Airport charges and marginal costs for Spanish airports before the process of partial privatization

Airport pricing is considered as one of the most relevant issues for policymakers. According transport policy, pricing schemes should be at least partially based on marginal costs. This article aims at comparing the most relevant aeronautical airport charges with their corresponding marginal costs for the Spanish airports in the period before the partial privatization process. To that end, we have built very detailed airport charge variables, and then, have estimated a flexible short-run variable cost function system using a panel of thirty-five airports over a 6-year period. The results show that the evolution of aeronautical airport charges does not follow the trend of marginal costs. Moreover, these charges are set above the short-run marginal costs with the exception of the smallest and insular airports. Finally, we find the existence of non-neutral technological change and excess of capacity for the Spanish airports.

The determinants of aeronautical charges of U.S. airports: A spatial analysis

Using U.S. airport data from 2009 through 2016, this study examines the determinants of aeronautical charges of large and medium hub airports and accounts for the spatial dependence of neighboring airports in a spatial panel regression model. Our results show that U.S. airports' aeronautical charges are spatially dependent, and neighboring airport charges are positively correlated, implying that U.S. airports are in price competition with each other even though they are government-owned infrastructure. Additionally, we find evidence of airport cost recovery through non-aeronautical revenues. This may be indicative of the airport's cross-subsidizing aeronautical operations with non-aeronautical revenues. In addition, we found the airports that share revenues with airlines charge lower aeronautical fees than those that do not share revenues. We also found that more congested airports charge higher aeronautical fees.

A three-stage competition game in an air transport network under asymmetric valuation of flight frequencies

This paper analyzes the effects of changes in aeronautical charges as brought by several airport management regimes on the air transport industry. Airlines compete on both price and non-prices variables, where connecting passengers have asymmetric valuations of flight frequencies in different legs. Changes in landing fees trigger airlines reactions on flight frequencies and airfares, whose sign depends on the weight attached to flight frequencies. Thus, an increase in the spoke landing fee leads to more international flights under low valuations of frequencies at spoke airports. Simulation exercises show that profit-maximizing aeronautical charges only at the spoke airport are preferable to those either only at the hub airport or at both airports. Welfare losses are lower when airports are granted to a unique infrastructure manager rather than to independent ones. When frequencies in the hub are highly valued, profit-maximizing charges only at the spoke airport will likely induce a welfare increase.

Single till V. Dual till and the Paradox of Airport Competition

Airports’ regulatory till has been an issue of debate between airlines and airports for some time now. In 1most of the cases the type of till is set by legislation or it is part of concession agreements under which many airports operate now in Europe. As claimed by airlines and airlines associations the use of the single till, under which non aeronautical revenues are taken also into account when considering the level of airport charges, it rightfully reflects the indispensable link between aeronautical and nonaeronautical services provided at an airport, while the use of either the dual till concept where only aeronautical revenues are taken into account for setting airport charges or of the hybrid till mechanism under which only part of the non-aeronautical revenues are considered, is an evidence of lack of competition among airports and of misuse of their market power. Airports on the other hand indicate that the full costs of aeronautical charges and therefore the principle of cost relatedness is ensured under the dual till concept and the choice of regulatory till cannot be related to the competitiveness of the airport market or with abusive conduct. Recent evaluation assessments however carried out by the European Commission does not seem to accept as sufficient evidence of misuse of market power of airports the use of dual till, while airports have long before been subjected to the competition rules.

An exploratory analysis of the effects of ownership change on airport competition

Common or group ownership of airports poses a particular challenge for policy-makers, in that consumers (airlines and passengers) may not have access to benefits that stem from a more competitive system (e.g. lower prices, higher quality of service). However, whilst the arguments for and against group versus individual operations are well known, there are only limited practical cases when a change from common to individual ownership has occurred. One such case is in Scotland where the ownership of Edinburgh and Glasgow airports was separated in 2012. Therefore, the aim of this paper is to undertake a comparative assessment of the impact of this ownership change on the nature of competition between the two airports for the period 2006–2017. Catchment areas overlap, so it was hypothesised that separate ownership would lead to a more intense competitive rivalry with consequent effects on route development, traffic growth, the level/structure of aeronautical charges, financial performance, capital investment and quality of service. A number of key performance indicators covering these areas have been analysed, both before and after 2012 to assess whether there is evidence of a more competitive environment. The main findings are (i) traffic and routes have increased at both airports, although their relative roles appear to have changed; (ii) published charge levels have increased (iii) aeronautical yield has increased at Edinburgh but declined at Glasgow; (iv) prices have diverged reflecting differences in core market price elasticities; strategies have also been driven by a broader financial imperative around maximising EBITDA given declining unit costs and stagnation in non-aeronautical yields; (vi) certain performance indicators suggest that efficiency and service quality have improved. The implications for policy-makers are that airport market re-structuring and ownership change will most likely lead to divergence in pricing and route development strategies.

Did the EU Airport Charges Directive lead to lower aeronautical charges? Empirical evidence from a diff-in-diff research design

In this study we analyse the impact of the EU Airport Charges Directive on the level of aeronautical charges for EU airports serving between 2 and 20 million passengers, over the period 2008–2017, using a difference-in-differences research design. We find that the transposition of the Airport Charges Directive into national legislation has led to a statistically significant reduction in the level of airport charges, but only after a few years. We also find the existence of heterogeneous treatment effects that depend on the quality of transposition of the Directive.

Competition, vertical relationship and countervailing power in the UK airport industry

In this paper, we study whether competition in the airport market and the vertical interactions between upstream airports and downstream airlines influence the airport pricing decisions. Using a panel of the 24 largest UK airports, as well as a refined definition of airports’ market structure, we find that lower concentration in an airport’s catchment area and higher airlines countervailing power are associated to lower aeronautical charges.

How to mix per-flight and per-passenger based airport charges: The oligopoly case

While airport aeronautical charges are traditionally aircraft-weight related, currently an increasing share of aeronautical airport revenues is derived from passenger related charges. This paper compares the optimal mix of per-passenger and per-flight based (cost recovering) airport charges from the carriers’ and the social viewpoints when carrier markets are oligopolistic. We show that positive per-passenger charges might be able to support the implementation of monopoly fares at slot-constrained airports. They can also mitigate strategic frequency reductions at uncongested airports, leading to an increase in both carrier profit and welfare relative to a charging scheme that fully relies on per-flight charges.

Is Mixing Airport Charges Collusive?

While airport aeronautical charges are traditionally aircraft weight related, currently an increasing share of aeronautical airport revenues is derived from passenger related charges. This paper compares the optimal mix of per-passenger and per-flight based (cost recovering) airport charges from the carriers' and the social viewpoints when carrier markets are oligopolistic. We show that positive per-passenger charges can implement collusive fares and reduce welfare at slot-constrained airports. But, an increase in the per-passenger based charges can mitigate strategic frequency choices at uncongested airports leading to an increase in both carrier profit and welfare.

Single-Till versus Dual-Till Regulation of Airports: Where Do Academics and Regulators (Dis)Agree?

Most airports operate under public ownership, while the number of private and economically regulated airports is increasing. Furthermore, airports nowadays earn as much revenue from commercially-oriented business activities as from aeronautical activities. These two observations lead to a natural question: How to optimally integrate profits derived from commercial activities into the regulation of aeronautical charges? This question is addressed in this paper by comparing literature results on the relative benefits of regulatory regimes with regulatory practice in Ireland and the United Kingdom to identify avenues for future research which could be useful to support and improve future regulatory decisions.

A frontier-based hierarchical clustering for airport efficiency benchmarking

Purpose – When large samples are used to estimate airport efficiency, clustering is a necessary step before carrying out any benchmarking analysis. However, the existing literature has paid little attention to developing a robust methodology for airport classification, instead relying on ad hoc techniques. In order to address this issue, this paper aims to develop a new airport clustering procedure. Design/methodology/approach – A frontier-based hierarchical clustering procedure is developed. An application to cost-efficiency benchmarking is presented using the cost function parameters available in the literature. A cross-section of worldwide airports is clustered according to the relevant outputs and input prices, with cost elasticities and factor shares serving as optimal variable weights. Findings – The authors found 17 distinct airport clusters without any ad hoc input. Factors like the use of larger aircraft or the dominance of low-cost carriers are shown to improve cost performance in the airport industry. Practical implications – The proposed method allows for a more precise identification of the efficiency benchmarks, which are characterized by a set of cophenetic distances to their “peers”. Furthermore, the resulting classification can also be used to benchmark other indicators linked to airport costs, such as aeronautical charges or service quality. Originality/value – This paper contributed to airport clustering by providing the first discussion and application of optimal variable weighting. In regard to efficiency benchmarking, the paper aims to overcome the limitations of previous papers by defining a method that is not dependent on performance, but on technology, and that can be easily adapted to large airport datasets.

The importance of concession revenues in the privatization of airports

We investigate the tradeoff between the airport’s concession and aeronautical revenues—two complementary services. Increasing the frequency of flights may result with congestion which could stimulate demand for concessions, but may also harm the demand for flights. When passengers have a low valuation for the concession good, the opportunity for concession revenue is small and the airport focuses its revenue on the aeronautical (i.e., landing) fees. With a sufficiently large valuation for concession goods, the airport may lower the aeronautical charges to stimulate greater flight frequency in order to lower airfares thereby attracting more passengers ultimately to increase concessions revenues. It is in the latter case where we observe minimal loss of aeronautical welfare when airports are privatized. Thus, our research could help guide decision makers in the airport privatization process. Namely, we find that privatization is not recommended unless the potential for concession revenues is sufficiently large.

Joint impact of competition, ownership form and economic regulation on airport performance and pricing

The combined impact of ownership form, economic regulation and competition on airport performance is analyzed using data envelopment analysis to measure cost efficiency in the first stage and regression analysis to measure the impact of the environment in the second stage. The empirical results of an analysis of European and Australian airports over a 10year timeframe reveal that under relatively non-competitive conditions, public airports operate less cost efficiently than fully private airports. Irrespective of ownership form, regulation is necessary to emulate competitive forces thus pushing airport management towards cost efficiency and reasonable pricing policies. Under potential regional or hub competition, economic regulation inhibits airports of any ownership form from operating and pricing efficiently. Although public and fully private airports operate equally efficiently in a competitive setting, private airports still set higher aeronautical charges. Furthermore, mixed ownership forms with a majority public holding are neither cost efficient nor low price, irrespective of the level of competition.

Factors affecting aeronautical charges at major US airports

This paper investigates the factors affecting airport aeronautical charges i.e. landing fee and passenger fee using a panel dataset covering 59 United States airports from 2002 to 2010. The findings reveal strong evidence of cross-subsidization from non-aeronautical revenue to aeronautical charges. In addition, unit cost strongly correlates to airport charges and aeronautical fees are more expensive for hub airports and airports with higher international traffic. While the aeronautical fees for Southwest airports are cheaper, it is not evident for airports dominated by low cost carries in general. Finally, there is a substitution effect in the price setting of landing charges and terminal charges: a higher landing charge leads to lower terminal charge and vice versa.

Are you getting enough? Concerns about airport revenues

Many airports rely on data received from external sources to bill aeronautical charges for the use of their facilities. Billings apply to landing and terminal fees, which are intended to recover the costs associated with constructing and operating airport infrastructure, including runway systems and terminal buildings. This paper addresses the question of whether airports are ‘getting enough’ in fees for the use of their facilities. By independently observing and recording aircraft landings at a major North American airport and tracing these movements through the airport's billing system, it was observed that the data provided by outside parties to charge for the use of facilities were both incomplete and inaccurate. This means that not all revenues were collected because they were either not billed or incorrectly billed. The results of this investigation suggest that a case can be made for an airport acquiring its own system for capturing and recording aircraft movements. This will ensure correct billings for the use of airport runways and terminal buildings.