Two-sided platforms in airport privatization

This paper develops an empirical model to examine the relationship between ownership change and two-sided-platform formation in the air transport industry. We investigate whether privatization enhances the dynamic capabilities of airports so that they more closely resemble a two-sided platform. We study the case of the recent privatization of Brazilian airports. We find evidence of a permanent, ceteris paribus increase in demand triggered after the privatization program. The results are consistent with a preemption of assets with a view to expanding operations and so benefiting from the network effects offered by a two-sided platform.     

Canadian airport security: The privatization of a public good

Economic theory would define airport security as a public good; no different than border control or the military, but this is not how it is treated in many countries. In Mexico, airport security is financed entirely from the public treasury. In the U.S., the cost is split evenly between air passengers and the public treasury. In Canada, air passengers pay the entire cost of airport security. The Canadian case is examined in detail. Forcing air passengers to bear the full cost of airport security creates a number of economic distortions. Air travel in Canada is discouraged by the added cost of security, but worse it encourages travelers to cross the Canada-U.S. border where they can fly from lower cost U.S. airports. The tax losses to the public treasury because of this policy are arguably greater than the total security fees collected.Airport security evolved organically rather than by design because governments were forced to react quickly to escalating threats. As a result, a “user-pay” financing system was put in place in Canada without careful policy analysis.     

Pro-competition rules in airport privatization: International experience and the Brazilian case

This article aims to demonstrate the importance of establishing pro-competition rules in the concession of multiple airports to private companies by describing the recent Brazilian experience. More specifically, it addresses: (i) how the economic literature deals with potential competition among different airports, and how this competition was dealt with in the concession programs of Australia, Mexico and the United Kingdom; and (ii) Brazil's recent experience with airport concessions, where international benchmarking led to cross-ownership restrictions. As a conclusion, this paper defends that governments should design regulatory restrictions that account for the existence of competition among airports. Nevertheless, these restrictions must be carefully planned and designed to achieve their goals.     

The impacts of emerging aviation trends on airport infrastructure

The demands on airport infrastructure around the world are both growing and changing. This paper explores what problems these changing demands imply for airports, and how they are coping with them. Growth in demand imposes a problem of allocation of scarce capacity in the short run—how well mechanisms such as the slot system are coping with them is explored. In the long term, increases in capacity are warranted, and how the emerging ownership and regulatory environments for airports will handle these is examined. Changes in patterns of demand will come from new business models, such as low-cost carriers and from new aircraft types, such as the Airbus A380—the implications of these for airports of these are considered. Finally, the issue of airport cost efficiency, and how ownership and regulatory environment impact on it, is examined.     

Estimating the impact of airport privatization on airline demand: A regression-based event study

This paper develops an empirical model of passenger demand for routes of airports subject to either imminent or recent privatization. We investigate whether the privatization process produces a sequential impact over traffic. By employing a regression-based event methodology and controlling for fixed effects, price endogeneity and sample selection, we perform an econometric analysis of pre-privatization and post-privatization dynamic patterns of demand to infer the demand consequences of the major change in airport governance. We examine recent Brazilian airport privatization experience as a case. The main results suggest that privatization produced an overall increase in airline demand and that the airport notably recognized with the greatest demand potential and with the largest market penetration of a fast-growing low cost newcomer had the highest estimated ceteris paribus effect of privatization on demand.     

Relevance of airport accessibility and airport competition

Airport accessibility is an important criterion for airport competition. The relevance of airport accessibility and airport competition was studied in this paper based on the panel data collected from nine large airports in Jiangsu province, China from 2005 to 2014. The results showed that the cost of expense, time and fatigue for the arrival at the airport are proposed to quantify levels of fastness, economy and amenity for the passengers to arrive at airport. The airport accessibility is significantly affected by airport passenger traffic and airline frequency. The passenger traffic can be increased by 2% with 1% increase of airport accessibility based on the analysis results of the nine large airports in Jiangsu province.     

Germany’s changing airport infrastructure: the prospects for ‘newcomer’ airports attempting market entry

Despite fluctuations for economic or political reasons, the number of passengers and volume of cargo carried by air is growing quickly, leading to a shortage of airport capacity in some European regions with few slots available at some hubs. This problem has accelerated the trend towards an increase in airport capacity for larger aircraft everywhere, a process which started in the UK and is now continuing throughout Europe, especially in Germany. Apart from development at the hubs, however, many small airports have also been enlarged, former military airbases have been converted to civilian use, and new runways are to be built in areas away from centres of population. These changes have occurred within a short period of time. In Germany, the number of available airports with runways over 1800 m will have doubled in a period of 10–15 years.     

US airport financial reform and its implications for airport efficiency: An exploratory investigation

This study investigates the effect on airport productive efficiency of two major funding sources used by US airports, namely the Airport Improvement Program (AIP) grants and the Passenger Facility Charges (PFC). A two-stage Data Envelopment Analysis (DEA) modeling approach is employed for this purpose. In the first stage, we estimate airport productive efficiency using a variable returns-to-scale DEA model with both desirable and undesirable outputs. In the second stage, random effects regression models are estimated with airport efficiency scores from the first stage as the dependent variable and PFC and a proxy for AIP grants as two of the explanatory variables. By applying the two-stage DEA model to 42 primary US airports, it is found that PFC use has a positive impact on airport productive efficiency, whereas the impact of AIP grants is negative. Multiple counterfactual scenarios are examined by altering the mix of the two types of funding sources. The results show that simultaneously raising the PFC ceiling and decreasing AIP grants could lead to greater airport productive efficiency. The US federal aviation authority would also benefit from realizing these scenarios, especially given the budgetary constraints it faces.     

Australia's approach to airport charges: The Sydney Airport experience

Australia has been progressive by world standards in its programme of airport privatisation and the adoption of a ‘light-handed’ regime of airport regulation. This paper discusses Sydney Airport's experience in negotiating commercial pricing agreements with airlines in the context of the light-handed regime and the Australian infrastructure access arrangements. It concludes that contractual relationships in an environment of informal regulation are able to provide sound, and arguably superior, outcomes to formal price regulation.     

The geographical efficiency of Spain's regional airports: A quantitative analysis

Previous studies of the role of regional airports in the Spanish economy have focused on calculating efficiency using air traffic as the output and airport infrastructure data as the input. We present an alternative quantitative analysis based upon the geographical structure within the airport's market basin. We formulate a ‘geographical efficiency’ model that considers territorial variables within the airport hinterland. Input data for our model include the socio-economic structure of the population, intermodal transport links, industrial and tourism potential and existing leisure-related services. The output is the annual number of passengers associated with such constraints. The result is a relative efficiency estimate that shows uneven patterns of geographical efficiency amongst Spain's regional airports and also provides insights into opportunities for expanding some of these critical items of infrastructure. They suggest that some of Spain's regional airports may be better placed than others to compete in a liberalized market that exhibits a clear tendency in favor of coastal, tourism-based airports.     

European railway infrastructure: towards a convergence of infrastructure charging?

Thirteen years ago, the European Directive 91/440 was implemented with the aim of increasing the efficiency of railway organisations throughout Europe. The main requirement of the Directive was to split transport operating from infrastructure management (at least in accounting terms). It also started the process of opening access for new operators; this is steadily being extended. Consequently, the issue of infrastructure charges is becoming more and more important. The paper underlines the fact that despite national differences, there are some signs of ways of convergence of infrastructure charges, due to the fact that the same key issue remains about infrastructure management: how to finance the renewal and development of infrastructure? So, among a wide range of objectives, some of them are becoming more and more crucial leading the principles of infrastructure charging to converge.     

Expanding airport capacity of cities under uncertainty: Strategies to mitigate congestion

Airport capacity constraints are increasingly challenging the growth of air traffic. At the same time, decision-making about airport capacity investments is extremely complex, involving trade-offs. This paper’s objective is to optimise a privately owned airport system’s capacity investment decision in a city under demand uncertainty. Next to the investment size, our real options model incorporates the timing of the investment, as well as the cost of congestion. The results reveal that the larger a city’s initial airport capacity, the smaller its investment will relatively be and the lower the occupancy rate threshold at which investment will take place. We also show that, in case of a higher demand growth combined with more demand uncertainty, the city will benefit from a significantly larger investment, but made later at a higher occupancy rate. In this case, cities with a small initial capacity will sometimes even more than double current capacity. Higher airport charges and an increase in non-aeronautical revenues both lead to a later investment in more capacity, due to the increased project attractiveness. An increase in congestion costs results in a larger investment made earlier, in order to eliminate delays. Airport operational cost and capacity holding cost increases both lead to smaller investments.     

The costs of peak-load demand: An application to Gran Canaria airport

Many airports suffer from peak-load demand problems. To meet unconstrained demand at peak periods, they often invest in extra capacity that may be under used at other times. We use data from the airport in Gran Canaria to illustrate that costs associated with the peak-load problem are not only those related to the new investment. This paper provides a methodology for analyzing the costs arisen due to the peak-load demand, to explore alternative airport policies and to illustrate the problem of congestion at airport terminals. The results suggest that a situation in which airports differentiate charges by peak and off-peak days would be much desirable.     

Changes in airport operating procedures and implications for airport strategies post-COVID-19

Covid-19 is demanding a lot of changes in the realm of our daily lives. The aviation industry is also facing unprecedented changes in the management environment. Financial tensions across the sector are rising. This study suggests that the airport strategy's direction focusing on commercial revenue management. After Covid-19, safety and hygiene will be the top priority. As a result, changes in airport operating procedures are inevitable. The most noticeable difference will be the strengthening of the verification process for passengers' health conditions. Dwell time increase can be the by-products. This study identifies a dwell time increase has a more significant impact on increasing the existing purchasers' spending than creating new buyers. Airport operators can introduce a service differentiation perspective, such as a dedicated service, to utilize the current buyers' dwell time more faithfully. Also, the rise of online channels requires airport operators to change sales strategies, reinforcing emotional promotion to stimulate impulse buyers' willingness-to-buy. Before Covid-19, there was little effort to reconcile operation policies and commercial revenue despite the growing importance of revenue management. However, now it is time to change. Pre-Covid-19, passengers were advised of using off-airport processes, such as online check-in and mobile boarding passes. Now, getting passengers to the airport quickly and securing their dwell time can be financially more beneficial. It is necessary to incorporate the commercial revenue perspective into operation policies post-Covid-19 actively. Our finding indicates that even a passenger with solid purchasing power may lose the purchasing intention when assigned to an unfavorable gate or terminal. Airport operators need a better understanding of passenger and flight characteristics when determining operation policy, such as gate allocation or membership services.     

Unintended trajectories: liberalization and the geographies of private business flight

The global commercial aviation industry has undergone significant regulatory reform during the last 30 years. This paper explores something of the relationship between air transport liberalization and the growth of private business aviation and suggests that the sector’s development is largely an unintended consequence of the increasingly deregulated operating environment in that it has developed to overcome some of liberalization’s negative impacts, including delays, congestion, and perceptions of poor customer service. We argue that liberalization has created innovative market opportunities for private business aviation and illustrate how the sector’s operating models are facilitating new, as yet largely undocumented, forms of aerial mobility. The paper examines: the advantages of private business aviation over scheduled services; business strategies in the sector, especially the idea of fractional jets; the impact of new technologies, particularly the Very Light Jet (VLJ); and, finally, employs Europe as an example of the spatialities of private business aviation.     

Regional airport choice: Consumer behaviour and policy implications

The analysis of origin airports in multi-airport regions has a well established tradition in transportation and regional economics. The main goal of the paper is to estimate the importance of the different attributes that determine origin airport choice. In our case we adopt a stated preference approach to study this problem and evaluate the effects of possible policy interventions. We also perform a detailed segmentation of the sample studied according to the socio-economic variables that prove statistically relevant when interacted with the attributes used to characterise airport choice. Moreover, in order to test for the presence of heterogeneity in agents’ preferences we estimate several mixed logit models with different specifications, including heteroscedasticity and error component. With respect to previous studies we develop and extend the traditional SP approach by also analysing the role and relevance of attribute cut-offs in this research field. The policy simulations produced are based on the estimation of airport-specific attributes. The study concentrates on a multi-airport region in central Italy where four competing airports are located.     

Long-term evolution of airport networks: Optimization model and its application to the United States

In this article, we introduce an optimization model aimed to assist aviation authorities in their strategic decisions regarding the long-term expansion of a network of airports. The objective is to maximize total system throughput for a given budget taking into account the capacity of the airports and the impact of travel costs upon demand. The results that can be obtained through the application of the model are first illustrated for a hypothetical small-size network and then in a study regarding the evolution of the network of the principal airports of the United States.     

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.     

UK regional airport commercialisation and privatisation: 25 years on

It has been 25 years since the UK was the first country to begin the process of commercialising and privatising its airports. The purpose of this paper is to revisit the UK Government’s stated aims with respect to commercialisation and privatisation, namely to “encourage enterprise and efficiency in the operation of major airports … [and that] … air transport facilities should not in general be subsidised by the taxpayer … [and they] should normally operate as commercial undertakings.” The authors of this paper consider the success of commercialisation and privatisation against these aims with respect to the 16 UK regional airports commercialised by the 1986 Airports Act part II. In addition, this paper considers the policy ramifications that have eventuated. The authors argue that many of the benefits may have been achievable by commercialisation alone.