Airport regulation, terminal congestion, and capacity expansion

This paper investigates the issues of airport regulation and terminal capacity expansion in the presence of terminal congestion. An analytical bottleneck model is first proposed for simulating the passenger arrival behavior at the terminal, which captures the dynamic formation and dissipation of passenger queues there. Using the proposed model, the interactions among passenger arrival distribution, terminal congestion, non-aeronautical services, and terminal capacity are revealed. A vertical-structure game-theoretical model is then developed to determine the optimal airport charge and the optimal terminal capacity under different scenarios, including profit maximization without regulation, single-till regulation, dual-till regulation, and welfare maximization. Our findings show that the single-till regulation leads to a higher social welfare compared to the dual-till regulation. When the marginal benefit from non-aeronautical services is relatively high, both welfare-maximizing and profit-maximizing airports under-invest in the terminal capacity, aiming to prolong passenger dwell time and thus increase non-aeronautical profit. Particularly, the welfare-maximizing airport suffers a longer total queuing time than the profit-maximizing airport, reflecting heavier underinvestment in its terminal capacity. The airport regulation would distort the terminal capacity investment, and the profit-maximizing airport under the dual-till regulation always under-invests in the terminal capacity, causing terminal congestion delay.