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Airport capacity choice under airport-airline vertical arrangements

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  • Xiao, Yibin
  • Fu, Xiaowen
  • Zhang, Anming

Abstract

This study investigates the effects of airport-airline vertical arrangements on airport capacity choices under demand uncertainty. A multi-stage game is analysed, in which competing airlines contribute to capacity investments and share airport revenues. Our analytical results suggest that for a profit-maximising airport, such a vertical arrangement leads to higher capacity but may not increase its profit, whereas for a welfare-maximising airport, such an arrangement has no effect on capacity or welfare. Capital cost savings brought by airport-airline cooperation, if any, always lead to higher capacity, and to higher profit for a profit-maximising airport and higher welfare for a welfare-maximising airport. Numerical simulations reveal that win-win outcomes may be achieved for an airport and its airlines without government intervention.

Suggested Citation

  • Xiao, Yibin & Fu, Xiaowen & Zhang, Anming, 2016. "Airport capacity choice under airport-airline vertical arrangements," Transportation Research Part A: Policy and Practice, Elsevier, vol. 92(C), pages 298-309.
  • Handle: RePEc:eee:transa:v:92:y:2016:i:c:p:298-309
    DOI: 10.1016/j.tra.2016.06.012
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