Aeronautical Charges Research Articles

Airport valuation: Using passenger generalised cost to measure competitive advantage and pricing power

The standard method of valuing airports through cash flows does not necessarily measure the competitive advantage of an airport as aeronautical charges are often subject to economic regulation. Still, understanding the potential valuation of an airport arising from its competitive advantage is important because it gives an indication of the pricing power of the airport and of the sustainability and riskiness of its cash-flows. In addition, it is a necessary ingredient when calculating the value of an airport to society at large. This paper shows how the potential financial value of an airport granted by its competitive advantage can be gauged through the passenger generalised cost, a measure commonly used in cost-benefit analysis in the transport sector. The paper focuses on valuing the competitive advantage granted by the location of an airport. It is shown that the potential financial value of an airport can be much higher than its actual financial value. When that is the case, an airport has greater financial room to face unexpected demand shocks, over-building and changes in government policy. The approach can also be used to estimate how a new competing transport facility affects the potential value of an airport. The paper concludes with suggestions of how the method illustrated can be expanded and refined.

In praise of hybrids

In setting cost-based airport charges, there has been an extended debate on the relative merits of single till regulation (under which aeronautical charges are set to cover all costs less non-aeronautical income) and dual till regulation (under which aeronautical charges recover only aeronautical costs, with non-aeronautical income not taken into account). As non-aeronautical activities are often highly profitable, airlines typically strongly support single till approaches in order to benefit from these profits, while airports correspondingly typically support dual till. In this polarised arena, hybrid approaches tend to be portrayed by academics, airports and airlines as unsatisfactory second bests, lacking in rigour. In contrast, this paper explores the drawbacks in the extreme positions, and examines why hybrids may have significant practical advantages. In particular, a hybrid approach may reduce the setting difficulties and perverse incentives associated with single till, while offering the prospect of lower charges than dual till. The paper goes on to examine some of the practical implications of different approaches to deriving the commercial contribution and the benefits of hybrid approaches for transitional purposes. Overall, it concludes that hybrid approaches, despite their neglect, have major practical benefits and should form an important option in regulatory considerations.

Regulation, privatization, and airport charges: panel data evidence from European airports

This paper examines the determinants of airport aeronautical charges by employing a unique panel dataset covering sixty-one European airports over an eighteen-year period. We are able to extend the literature on the role of airports as an essential element in transport infrastructure by offering the first analysis of the impact of different regulatory policies and privatization on airport charges in a panel data setting where fixed effects can be employed to mitigate endogeneity concerns. Our main empirical results indicate that aeronautical charges are lower at airports when single-till regulation is employed, when airports are privatized, and—tentatively—when ex post price regulation is applied. Furthermore, hub airports generally set higher aeronautical charges, and it appears that price-cap regulation and the presence of nearby airports do not affect aeronautical charges.

Airport regulation in Europe: Is there need for a European Observatory?

This paper provides an overview of how the major airports are regulated in Europe. In order to eliminate the potential of airports to exercise market power and protect the public interest, it has become increasingly necessary to set a common regulatory framework. We intend to discuss the need for a single regulator in Europe to monitor or establish the quality of service and the charges practiced by the airports, to ensure cost-relatedness, transparency and non-discrimination. The existing regulatory approaches regarding aeronautical charges and their economic implications are also analyzed. We propose the creation of a European Observatory for this sector.

Determinants of fares and operating revenues at US airports

This paper investigates the effects of market structure on prices that airlines charge to passengers and, in particular, on revenues that airports obtain from airlines and passengers. The estimated effects of market structure on airline fares are similar to earlier findings, and the results of the passenger, airline demand, and delay equations are as expected. Airports' aeronautical and concession charges are related to market structure, but the relations are less straightforward than in the case of fares, especially regarding the vertical relations between airports and airlines. The results on aeronautical charges are consistent with the practice of charging on the basis of airplane weight.

Low-cost airlines, secondary airports, and state aid: An economic assessment of the Ryanair–Charleroi Airport agreement

This paper builds a vertical differentiation model to analyse the effects of subsidies, or lower aeronautical charges, for secondary airports on competition between low cost and full scheduled carriers. The Ryanair–Charleroi Airport agreement in Europe is used as an example and as a basis for the model. The main findings are that subsidization or lower airport charges benefit consumers and negatively affect incumbent airlines. However, they may be more affected by competition than by the subsidy. An empirical analysis provides a few insights on the influence of dominating airports in Ryanair fares. We conclude that this airline sets lower fares when flights depart from or arrive at dominated airports.

An exploratory study into airport choice factors for European low-cost airlines

Low-cost carriers are an increasingly important part of the European aviation industry. Airport choice is a crucial factor in determining their success or failure. While research has been conducted into airport choice factors, their relative rankings have not previously been investigated. This paper addresses this through an exploratory survey of eight European low-cost airlines. The paper finds that demand for low-cost services is the most important choice factor, with aeronautical charges ranked fourth. Further analysis reveals different requirements depending upon airline characteristics. This implies that airport managers need to tailor their service offering to individual low-cost airlines rather than treating the sector uniformly.

Airports’ perspectives on the growth of low-cost airlines and the remodeling of the airport–airline relationship

This paper explores the way in which airports have responded to the apparent opportunities afforded them by the growth of low-cost airlines. The adoption of a so-called low-cost model by airlines has made many airports fundamentally reconsider who their customers are. The low-cost model impels airlines to negotiate contracts which significantly reduce aeronautical charges by the airport, consequently seeking to make up this short fall by commercial revenues from the increased passenger numbers. This is not however without consequences for the airports, their passengers and the relationship between the airport and its existing airline operators. The recent growth of low-cost airlines has naturally attracted the attention of airport managers as a source of volume to alleviate commercial pressures; however, due to low-cost airlines’ unwillingness to pay high airport fees there is the difficulty of translating any increased volume of passengers into increased revenue. This paper reviews the behaviour of a number of different airports in Europe and identifies important issues for airport management to consider when negotiating with low-cost airlines.

Aeronautical Charges: The Need for a more Specific Legislative Context

Aeronautical Charges: The Need for a more Specific Legislative Context

A new German dirigible airship

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.