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The dilemma between capacity expansions and multi-airport systems: Empirical evidence from the industry's cost function

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  • Martín, Juan Carlos
  • Voltes-Dorta, Augusto

Abstract

This paper explores the problematic of airport capacity expansions from the perspective of the airport financial management, using the operating costs as the variable of interest. The objective is to provide empirical evidence on the financial advantages of expanding capacity against the operation of multi-airport systems (MAS) under the presence of significant returns to scale in airport operations. This is done by comparing the actual operating costs of the MAS with the predicted costs that correspond to the aggregated level of output and input prices. Predictions are obtained from a multi-output specification of the industry's cost function, estimated with a broad database of international airports. The results indicate the presence of non-exhausted scale economies at the current levels of production. Hence, the atomization of air traffic always increases operating costs at a system level. In the last section, the degree of economic inefficiency of five European MAS is calculated. These results also provide revealing conclusions about the size of the industry's minimum efficient scale. Furthermore, the use of data on American MAS allows us to separate the inefficiency costs derived from the atomization of air traffic from those related to the individual airports' inefficient behavior.

Suggested Citation

  • Martín, Juan Carlos & Voltes-Dorta, Augusto, 2011. "The dilemma between capacity expansions and multi-airport systems: Empirical evidence from the industry's cost function," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(3), pages 382-389, May.
  • Handle: RePEc:eee:transe:v:47:y:2011:i:3:p:382-389
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    Cited by:

    1. Voltes-Dorta, Augusto & Lei, Zheng, 2013. "The impact of airline differentiation on marginal cost pricing at UK airports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 55(C), pages 72-88.
    2. Sheard, Nicholas, 2017. "Airport consolidation and the provision of air services," Journal of Air Transport Management, Elsevier, vol. 60(C), pages 31-44.
    3. Germà Bel, 2013. "Local government size and efficiency in capital-intensive services: what evidence is there of economies of scale, density and scope?," Chapters,in: The Challenge of Local Government Size, chapter 6, pages 148-170 Edward Elgar Publishing.
    4. De Nicola, Arianna & Gitto, Simone & Mancuso, Paolo, 2013. "Airport quality and productivity changes: A Malmquist index decomposition assessment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 58(C), pages 67-75.
    5. Tolga Ülkü & Vahidin Jeleskovic & Jürgen Müller, 2014. "How scale and institutional setting explain the costs of small airports? -An application of spatial regression analysis," MAGKS Papers on Economics 201435, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. Voltes-Dorta, Augusto & Pagliari, Romano, 2012. "The impact of recession on airports' cost efficiency," Transport Policy, Elsevier, vol. 24(C), pages 211-222.
    7. repec:eee:transa:v:101:y:2017:i:c:p:61-72 is not listed on IDEAS
    8. repec:eee:jaitra:v:69:y:2018:i:c:p:1-14 is not listed on IDEAS

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