Airport Competition Research Articles

Competitive drivers towards improved airport/airline relationships

This paper draws on a recent report from Copenhagen Economics, with which both authors were involved, to argue that the European airport market has changed such that airports are now subject to competitive constraints from a number of sources. While these will bite differentially according to the circumstances of individual airports, airport possession of significant market power can no longer be casually assumed; nor, therefore, can the need for economic regulation. Indeed, the costs and benefits of economic regulation need to be carefully assessed against the extent and nature of the market power it is intended to countervail. In particular, increasing attention needs to be paid to the risks of economic regulation hampering both the further growth of airport competition and the development of more productive commercial relationships between airports and their airline customers which have the potential to create added value for both parties.

Quantitative evaluation model of air cargo competitiveness and comparative analysis of major Asia-Pacific airports

This study develops a quantitative evaluation model for analyzing air cargo competitiveness of airports. First, according to a literature review and expert opinions, quantitative measures for evaluating air cargo competitiveness are derived using the Delphi method. Then the weights and value functions of these measures are obtained through expert questionnaire surveys. Applying the value functions to the operational data of different airports yields the value of each measure. Finally, multiplying the values with their corresponding weights sheds light on the competitiveness of individual and overall measures. Comparison of major Asia-Pacific airports is made in terms of different dimensions of air cargo competitiveness. The analysis results reveal that Hong Kong is the most competitive in terms of airline transport capacity and economic development while Changi is the most competitive with respect to airport facilities and operation. As for overall air cargo competitiveness, Hong Kong ranked top, followed by Changi, Pudong, Incheon, Taoyuan, Bangkok, Narita, Jakarta, Kuala Lumpur and Manila International Airports. Findings of this study can provide airports with useful references for operation management and formulation of development strategies.

Airline market structure and airport efficiency: Evidence from major Northeast Asian airports

This paper investigates the impact of airline market structure on airport productivity, in which airlines are viewed as downstream users of an airport in a vertical airport–airlines structure. Our estimation is based on a sample of eleven major airports in Northeast Asia. A standard two-stage approach is employed: In the first stage, efficiency of the airports is measured by both the data envelopment analysis and stochastic frontier analysis. The resulting efficiency scores are carried over to a second-stage analysis in which Tobit regression is conducted to quantify the impact of airline concentration on efficiency, controlling for such factors as airport governance structure, airport competition and other characteristics. We find an inverse U-shaped relationship between airport efficiency and downstream airlines' market concentration: i.e., either too much or too little downstream concentration is associated with airport inefficiency. Other interesting and useful results are also obtained and discussed.

INTEGRATION AND CONCENTRATION OF EUROPEAN AIR TRANSPORT MARKET

During the last years air transport stakeholder's behaviors have witnessed deep modifications. Airlines competition has been exacerbated by economic downturns, while airport competition emerged as a result of the less governmental intervention in airport investments. The first result of this process is a mix-model adopted by EU airlines in the domestic market, which implies that network airlines have adopted few of the strategies that have guaranteed the establishment of the low fares carriers, while low cost carriers have been continuously increasing the number of major airport served. The volatility of the air transport deregulated market has been analysed in the scientific literature and these aspects can be perceived as further evidences of the increased volatility. In order to limit the negative effects of volatility in the EU market, air transport players have been sought manners to enhance stability. Airlines mergers or acquisitions, buyout of airport operator's shares by airlines, airport-airline partnership for ad-hoc infrastructure development or buyout of airport's shares by other airport operators are examples of this will for a greater stability of the system. This paper analyses all these aspects highlighting the pursuing of greater stability by the fragile EU air transport system.

The Evaluation of Dynamic Airport Competitiveness Based on IDCQGA-BP Algorithm

Aimed at the multidimensional and complex characteristic of airport competitiveness, a new algorithm is proposed in which BP neural network is optimized by improved double chains quantum genetic algorithm (IDCQGA-BP). The new algorithm is better than existing algorithms in convergence and the diversity of quantum chromosomes. The empirical data of eight airports in Yangtze River Delta in 2011 and 2012 is applied to verify the feasibility of the new algorithm, and then the competitiveness of the eight airports from 2013 to 2015 is gotten through the algorithm. The results show the following. (1) The new algorithm is better than the existing optimization algorithms in the aspects of error accuracy and run time. (2) The gaps of the airports in Yangtze River Delta are narrowing; the competition and cooperation are getting stronger and stronger. (3) The main increase reason of airport competitiveness is the increase of own investment.

Dynamic formation mechanism of airport competitiveness: The case of China

With the rapid development of Chinese economy, the demand of air transportation has increased enormously and airports are facing intensive competition, so the issue of how to enhance airport competitiveness has attracted serious concern of the public. The formation mechanism of airport competitiveness is very complex and the research is insufficient on this topic. In this paper, index system of airport competitiveness is built from four aspects: Regional Development, Production Factors, Demand Conditions and Support Industry. Dynamic formation mechanism of airport competitiveness is studied through Structure Equation Model as well as System Dynamic with the historical data of 25 Chinese airports from 2006 to 2010. Then the influencing mechanism of some important influencing factors is analyzed with the help of Vensim software, which verifies the rationality of the model. The results show that airport investment and city R&D inputs are the two most important influencing factors of airport competitiveness, which could provide guidance for decision makers on airport competitiveness cultivation.

Intercontinental Airport Competition

This paper analyzes strategic interaction between intercontinental airports, each of which levies airport charges paid by airlines and chooses its own capacity under conditions of congestion. Congestion from intercontinental flights is common across the airports since departure and arrival airports are linked one to one, while purely domestic traffic also uses each airport. The paper focuses on five questions. First, if both continents can strategically set separate airport charges for domestic and intercontinental flights, how will the outcome differ from the first-best solution? Second, how is the impact of strategic airport behavior affected by the extent of market power of the airlines serving the intercontinental market? Third, what happens if one continent has several competing intercontinental airports, each with its own regulator, while the other has a single airport and regulator? Fourth, how effective is a non-discrimination clause for airport charges, which prevents independent strategic use of the intercontinental charge? Fifth, what is the effect of higher airport operating costs on one continent (a result of security or immigration procedures) on the strategic outcome? The questions are addressed with an algebraic model and results are illustrated numerically.

The impact of airport competition on technical efficiency: A stochastic frontier analysis applied to Italian airport

We investigate how the intensity of competition among airports affects their technical efficiency by computing airports’ markets on the basis of a potential demand approach. We find that the intensity of competition has a negative impact on airports’ efficiency in Italy from 2005 to 2008. This implies that airports belonging to a local air transportation system where competition is strong exploit their inputs less intensively than do airports with local monopoly power. Further, we find that public airports are more efficient than private and mixed ones. Hence, policy makers should provide incentives to implement airports’ specialization in local systems where competition is strong and monitor the inputs’ utilization rate even when private investors are involved.

European airports and airlines: Evolving relationships and the regulatory implications

This paper questions the need for a special regulatory framework for European airports in the light of recent developments in the relationship between airlines and airports. Three factors underlie the changed relationship. These are: the creation of a single European aviation market; the development of airline business models operating on a pan-European basis; and the increasing use of the internet which has reduced the costs of entry for airlines into local markets. In combination these factors have had a profound effect on the dynamics of the airline industry. These dynamics have increased the business risk faced by airports and highlighting the increased buyer power of the airlines. The result has been a shift to bespoke long term contacts between airports and airlines. We argues that the bespoke contracts are also incentive-compatible from the passenger’s point of view and, in combination with the incentive that airports have to secure high-margin commercial sales to passengers, produce an outcome that is favourable to the passenger; direct airport competition merely guilds the lily. Any residual concerns regarding market dominance and possible abuse have then to be set against the significant disadvantages and costs of sector-specific economic regulation; increasingly the remaining competition issues are of a type better handled through the application of normal competition law.

Airport Benchmarking and Spatial Competition: A Critical Review

Airport Benchmarking and Spatial Competition: A Critical Review During the last two decades the European airport industry is liberalised and turned to competitive market environment. This fact attracts an increasing scientific and practical interest to analysis of airport efficiency and its determinants, as well as different aspects of airport competition. This paper contains a critical review of existing researches in these two areas - airport efficiency and spatial competition among airports. We analysed modern approaches to airport benchmarking, their advantages and shortcomings, and systematised a wide range of related academic studies. We paid special attention to empirical researches of spatial competition as a factor affecting airport efficiency. Despite the fact of a well-developed theory of spatial competition and signs of its growing effects in the airport industry, we discovered a lack of studies devoted to the relationship between airport efficiency and spatial competition.

Performance assessment of UK airports: Evidence from a Bayesian dynamic frontier model

This paper analyzes the cost efficiency of UK airports over the period 1998–2008, using a Bayesian dynamic frontier model. This model provides a more structural explanation for the variation in airports inefficiency than has been presented by previous models, and also allows for cost inefficiency effects. On average, the dynamic frontier results, estimated via the Markov Chain Monte-Carlo simulation, indicate that UK airports improved their efficiency over time. Factors found to be important determinants of cost efficiency include airport size, price regulation, price cap variations and airport competition. Policy implications of the results are derived.

Airport competition: The European experience

Airport competition: The European experience

`Airport Competition — The European Experience` by Peter Forsyth, David Gillen, Jürgen Müller and Hans-Martin Niemeier

`Airport Competition — The European Experience` by Peter Forsyth, David Gillen, Jürgen Müller and Hans-Martin Niemeier

Book Review: Airport Competition: The European Experience

Book Review: Airport Competition: The European Experience

European Airports and Airlines: Evolving Relationships and the Regulatory Implications

The purpose of this paper is to question the need for a special regulatory framework for European airports in the light of recent developments in the relationship between airlines and airports; to argue that the airport business should now be treated like most other industries and be subject only to normal competition law. Three factors underlie the changed relationship. These are: the creation of a single European aviation market; the development of airline business models operating on a pan-European basis; and the increasing use of the internet which has reduced the costs of entry for airlines into local (geographic) markets. In combination these factors have had a profound effect on the dynamics of the airline industry. These dynamics have increased the business risk faced by airports and highlighting the increased buyer power of the airlines. The result has been a shift to bespoke long term contacts between airports and airlines. The paper argues that the bespoke contracts are also incentive compatible from the passenger’s point of view and, in combination with the incentive that airports have to secure high-margin commercial sales to passengers, produce an outcome that is favourable to the passenger; direct airport competition merely guilds the lily. Any residual concerns regarding market dominance and possible abuse have then to be set against the significant disadvantages and costs of sector-specific economic regulation; increasingly the remaining competition issues are of a type better handled through the application of normal competition law.

Regulation to Introduce the Airport Competition in Brazil

On this work, we draft an analysis of the principal aspects related to the modification of the role of the State after the Brazilian Federal Constitution of 1988 focus on the airport infrastructure’s exploration. In Brazil, the airport airport infrastructure’s exploration is monopolized by INFRAERO (Empresa Brasileira de Infraestrutura Aeroportuaria) but the Federal Constitution allows the airport infrastrucuture’s exploration by the private agents on force from articles 21, XII, c and 175. Besides the Constitution, the Law no. 9.472 from 1997 has created a new kind of exploration: authorization with obligations. Although this Law is for telecommunication sector there is no prohibition for this institute to be applied on the airport infrastructure’s exploration. This work also studied the main forms of airport’s exploration through the State or by private agents. Besides, this work has studied the main functions of the Regulator Authority and Antitrust Authorities to promote the competition among the airports.

The importance of spatial economics for assessing airport competition

This paper explores the relevance of spatial effects on airport competition. Drawing concentric circles of travel distances around it is the most commonly way to define an airport’s catchment area. The characteristics of the catchment area and available substitutes are compared, and assessments of market power made. It is generally recognized that the existence of spatial competition among airports, lies within one market, although sometimes, overlapping circles are examined on the premise that competition lies within these common areas. We look at economic models of spatial competition where there is no overlapping and argue that the stylized facts inferred from economic models of spatial competition have been overlooked. After a short review of airport competition, we introduce economic models for spatial competition and look at the implications of these in the context of airport competition.

Revenue sharing with multiple airlines and airports

This paper investigates the effects of concession revenue sharing between an airport and its airlines. It is found that the degree of revenue sharing will be affected by how airlines’ services are related to each other (complements, independent, or substitutes). In particular, when carriers provide strongly substitutable services to each other, the airport has incentive to charge airlines, rather than to pay airlines, a share of concession revenue. In these situations, while revenue sharing improves profit, it reduces social welfare. It is further found that airport competition results in a higher degree of revenue sharing than would be had in the case of single airports. The airport–airline chains may nevertheless derive lower profits through the revenue-sharing rivalry, and the situation is similar to a Prisoners’ Dilemma. As the chains move further away from their joint profit maximum, welfare rises beyond the level achievable by single airports. The (equilibrium) revenue-sharing proportion at an airport is also shown to decrease in the number of its carriers, and to increase in the number of carriers at competing airports. Finally, the effects of a ‘pure’ sharing contract are compared to those of the two-part sharing contract. It is found that whether an airport is subject to competition is critical to the welfare consequences of alternative revenue sharing arrangements.

Airport competition – Regional airports losing ground to main airports

Regional airports in Norway are losing market shares to nearby main airports on flights to the national capital, Oslo, and on international travel via Oslo. Travellers are willing to spend several hours extra driving to a larger airport in order to take advantage of lower fares and more convenient airline services. Traffic leakage from regional airports is high when the service from the regional airport is indirect and fare differences are large. Public service obligation tenders (PSO) set maximum fares on the regional legs, but do not cover through travel from regional airports which involve commercial legs. Traffic leakage is particularly evident in the leisure segment. Leakage levels tend to increase as competition is intensified at main airports, but the evidence is rather mixed. Logistic curves of airport market shares have proven to be useful when comparing spatial variations in leakage levels.

Low-cost airlines and airport competition

An important question from the viewpoint of competition analysis in the air transport industry is the extent to which low-cost airlines operating from a secondary airport compete with full-service airlines serving a main airport in a multiple airport region. In this paper we address the issue of the competition between full-service and low-cost airlines serving adjacent airports in the Greater London using econometric estimation of demand structure (own- and cross-price elasticities). Our analysis follows the methodology in (Pels, E., Nijkamp, P., Rietveld, P., 2000. Airport and airline competition for passengers departing from a large metropolitan area. Journal of Urban Economics, 48 (1), 29–45, Pels, E., Nijkamp, P., Rietveld, P., 2003. Access to and competition between airports: a case study for the San Francisco Bay area. Transportation Research Part A: Policy and Practice, 37 (1), 71–83). It is based on the nested logit model which we use to capture three key dimensions of passenger choice: air fare, surface-access costs and frequency. We obtained estimates of the own- and cross-price elasticities, which was the focus of our interest. On the basis of our understanding of the industry dynamics we find these estimates, especially of the cross-price elasticities, to be on the low side.