Airport Regulation Research Articles

Price-cap Regulation of Airports: Single-till Versus Dual-till

This paper takes up the debate whether price-cap regulation of airports should take the form of single-till or dual-till regulation. The contribution is to model single- and dual-till regulation, evaluate their welfare implications, and compare them to Ramsey charges. We show that single-till regulation dominates dual-till regulation at non-congested airports with regard to welfare maximization. However, none of them provides an airport with incentives to implement Ramsey charges. A Ramsey optimal price-cap regulation, which achieves this goal, is also presented.

Making airport regulation less imperfect

Making airport regulation less imperfect

Auction-Based Slot Allocation for Traffic Demand Management at Hartsfield Atlanta International Airport: A Case Study

Ongoing research is described for an auction model, a hybrid demand management approach for congested airports. This approach is intended to optimize the use of airport time slots by maximizing passenger throughput with safe capacity, decreasing congestion, and less delay. The two submodels mathematically formulate conflicting optimization problems of efficiency-driven airport regulators and cost-driven airlines. By ranking key factors such as monetary bidding, flight origin-destination pairs, enplanement capability, and airlines' previous investments, a framework is presented that is open to many design alternatives. Two design alternatives are analyzed in a case study of Hartsfield Atlanta International Airport, Georgia, to compare different allocation schemata and resulting airport performance. The performance analysis used a queuing model simulation. By varying weighting coefficients for bid vectors, it is proposed that the effects of administrative coordination and market force on outcomes of the auction process could be monitored to achieve airport-specific benefits. It is also suggested that the conventional auction format that uses monetary bidding alone could lead to potential distortions of the marketplace and fail to meet air transportation officials' concerns about the efficient use of national resources and policy makers' concerns about market structure and competitiveness. Future work will enlist the input from both airlines and airports.

Does airport regulation benefit consumers

Airport regulation is aimed to impose price caps or other schemes on services supplied by airports to airlines that use them. However, it is not clear that regulation benefits the final consumers, the passengers. In the context of a very simple model, this paper finds out that this doesn’t always happen, and that passengers may be worse off with price capping than in an unregulated equilibrium. Besides, the paper provides an insight of the results of other regulation approaches (other than price caps) that have been suggested for airports.

Auctioning capacity at airports

Market mechanisms for slots need a clear definition of capacity. This paper suggests that a slot should be treated as a bundle of various aspects of airport capacity, combined in flexible proportions according to the type of air movement. Ancillary rules to prevent the build-up of market power would be required in any market mechanism for slots. Slot auctions have considerable potential to increase economic efficiency, though there is also a complementary role for secondary markets. The need for economic regulation of airports will not be removed simply by auctioning slots, though the price signals provided by auctions can be used to improve the planning of airport capacity expansions. Even if receipts from auctions are used to fund capacity expansions, there is likely to be excess revenues due to the scarcity of airport capacity caused by environmental and planning constraints.

Regulation under stress: developments in Australian airport policy

Regulation of airports in Australia has been under stress: the problems which have emerged have resulted in the replacement of regulation by less prescriptive price monitoring. The development of policy towards airports, and the debates surrounding them, are analysed. Two major reports, on Sydney airport pricing, and on airport price regulation in general, are discussed. Attention is given to a number of problems areas which have arisen. These include investment incentives under regulation; the level and variability of profits; the existence, use and efficiency cost of market power; and the problems of cost based regulation. The issues posed by the privatisation of Sydney airport, which is subject to excess demand, are also considered. The shift to price monitoring has been a response to these problems, though the content, and likely impact, of monitoring has yet to be determined.

International Survey of Performance Measurement in Airports

The seemingly relentless growth in air traffic and the introduction of commercial and private models of airport ownership have changed the scope and significance of performance measurement for airport management, regulators, and stakeholders. The findings of a questionnaire survey are reported. The survey examined the nature and prevalence of the performance measurement of airports. Previous studies have examined specific airports or groups of airports and compared performance. This research assesses the way in which performance measures are used by management at the world’s busiest passenger airports using empirical evidence collected principally through the means of a worldwide questionnaire survey of the 200 largest passenger airports. A rich picture of various performance measurement practices was discovered.

Privatisation and regulation of Australian and New Zealand airports

The paper offers a brief background on the Australian and New Zealand airports. A discussion of the approach to price regulation being implemented by Australian regulators in other industries is provided to give an indication of how the as yet new regulation of airports will develop. Some specific regulatory issues which are emerging are also considered; first, the merits of the dual till approach are considered, and then how the regulator is handling investments in new capacity. The New Zealand policy of no formal price regulation is examined. The main problems in privatizing and regulating Sydney are discussed.

Airport regulation and competition

In the airports industry, there is a trade off between imperfect (or monopolistic) competition and economic regulation (with the latter introducing separate economic distortions). The nature of the imperfectly competitive market in the supply of airport services is examined and it is suggested that market power is the consequence of the problems of gaining access to competing sites rather than of natural monopoly. Nevertheless, there are opportunities for substitution between airports (and other modes of transport) depending upon the characteristics of the market and historical and geographical circumstance although substitutability is too narrow a criterion for judging market power because of the transmittal effects of price competition in a spatial market. It is then suggested that some unusual economic characteristics of the industry provide an incentive for airports not to exploit market power and, absent these incentives, the adverse economic costs of exercising market power might be small. The paper concludes by suggesting that ex-post regulation of conduct provided for under normal competition law is probably sufficient to curb monopolistic excesses.

Regulation of airports: the case of Hamburg airport—a view from the perspective of regional policy

There are currently divergent trends in the regulation of airports in Germany. While traditionally airports have been regulated by cost-based regulation, a price cap regulation for Hamburg airport has been implemented in 2000. Given the objectives of economic welfare and efficiency the paper argues that the old system is inefficient and results in a misallocation of resources. Regulation should be reformed by capping prices. An independent regulator should be established. Regulatory reform should be combined with reforms to intensify competition such as slot auctioning, further privatization with cross-ownership controls and open skies.

Airport Regulation: Reflecting on the Lessons from BAA plc

This article discusses the implications of airport privatization and regulation with reference to the case of BAA plc. It concludes that regulation should be implemented in a coordinated manner which is consistent with wider policy goals and which respects the outcomes for all stakeholders. The need for countries to have a strategic airports policy to guide development towards national economic and environmental goals is highlighted. The implications of the regulation of BAA to protect public interest is both timely and topical given that the next government airports policy is due to be released in 2002 and current plans for the privatization of air traffic control. Regulation may be the only policy lever to shape a privatized and commercialised airport system and its role within a wider integrated transport strategy.

Lessons from Airport Privatization, Commercialization, and Regulation in the United Kingdom

The possible lessons of airport privatization, commercialization, and regulation in the United Kingdom (U.K.) are discussed. This is both timely and topical because of the huge financial pressures on governments to meet the infrastructure investments required to accommodate the forecasts of growth in air traffic and modernization such as new, larger aircraft. In response to these trends, the U.S. government and governments around the world have looked at the U.K. as a model of privatization. It was the first nation to privatize its airports, and a variety of ownership structures have been adopted. The history of privatization, commercialization, and regulation in the U.K. is traced, and important lessons are highlighted. Regulation may be the only policy lever available to shape a privatized and commercialized airport system and its role within a wider integrated transport strategy. The authors contend that a commercialized model of ownership similar to that at many U.K. municipal airports could be adopted in the United States, potentially relieving the financial pressure on the federal government to fund development. Countries need to have a strategic airports policy to guide development toward national, economic, and environmental goals.

Price regulation of airports: principles with Australian applications

This paper analyses the various issues that are likely to arise with price regulation of privately owned airports. It begins with a brief background on Australian airports, and a review of regulatory experience elsewhere. Issues which can create problems for price regulation include congestion, noise and other externalities, quality degradation and underinvestment, and the choice of the initial price level. Price regulation limits the use of prices as rationing devices where congestion is present. Efficient handling of congestion can be reconciled with price caps if the regulator determines the appropriate congestion/capacity trade off, and supervises allocation of slots, e.g. through auctions or creating a market for slots. Noise externalities can be handled through noise charges set by a regulator who may also be called upon to resolve capacity/noise trade offs. Resolving the problem of quality degradation and underinvestment is inherently difficult, and may need to involve active participation in investment decisions by the regulator and airlines. The difficulties of setting initial price levels arise from conflicts in ensuring that existing assets are utilised efficiently, and that prices give efficient signals for future investment. Regulatory design issues, dealing with whether pure price caps or mixed regulatory rules are superior, are examined in the airport context. The paper concludes with a brief examination of the price regulatory regime as announced by the Australian government.

Airline Deregulation and Airport Regulation

Airline Deregulation and Airport Regulation