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Impacts of Airports on Airline Competition: Focus on Airport Performance and Airport-Airline Vertical Relations

Author

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  • Tae H. Oum

    (Hong Kong Polytechnic University)

  • Xiaowen Fu

    (Hong Kong Polytechnic University)

Abstract

This paper examines revenue structure, regulation, and market power of airports, and how they affect airport’s services to airlines and influence the form of vertical relationship between airport and airlines, and thus, eventually on competition in airline markets. In addition, we also examine the competitive consequences of common ownership, coordination or alliance among multiple airports in a region. The key findings are: Concession revenues are of increasing importance to airports. The positive externality of air traffic on the demand for non-aeronautical services, along with competition among both airlines and airports, induces a vertical cooperation between airports and the dominant carrier at the airport. Airports have substantial market power due to the low price elasticity of their aeronautical services. However, such airports’ market power is moderated by competition in both the airline and airport markets. There are benefits for both airports and airlines from entering into long term relationships.

Suggested Citation

  • Tae H. Oum & Xiaowen Fu, 2008. "Impacts of Airports on Airline Competition: Focus on Airport Performance and Airport-Airline Vertical Relations," OECD/ITF Joint Transport Research Centre Discussion Papers 2008/17, OECD Publishing.
    • Handle: RePEc:oec:itfaaa:2008/17-en
    DOI: 10.1787/235140743836
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    Cited by:

    1. Haskel, Jonathan & Iozzi, Alberto & Valletti, Tommaso, 2013. "Market structure, countervailing power and price discrimination: The case of airports," Journal of Urban Economics, Elsevier, vol. 74(C), pages 12-26.
    2. Camelia Monica Gheorghe & Dorin Ivascu & Mihai Sebea & Cristina Stoenescu, 2017. "Exploring The Role Of Alliances, Agreements And Partnerships In The Airline Industry; The Case Of Apg Network Within The Romanian Market," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 161-168, August.
    3. Lohmann, Gui & Trischler, Jakob, 2017. "Licence to build, licence to charge? Market power, pricing and the financing of airport infrastructure development in Australia," Transport Policy, Elsevier, vol. 59(C), pages 28-37.
    4. D’Alfonso, Tiziana & Nastasi, Alberto, 2012. "Vertical relations in the air transport industry: A facility-rivalry game," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(5), pages 993-1008.
    5. Tiziana DíAlfonso & Cinzia Daraio & Alberto Nastasi, 2013. "Assesing the Impact of Competition on the Efficiency of Italian Airports," DIAG Technical Reports 2013-01, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    6. Gong, Zhenwei & Zhang, Fangni & Liu, Wei & Graham, Daniel J., 2023. "On the effects of airport capacity expansion under responsive airlines and elastic passenger demand," Transportation Research Part B: Methodological, Elsevier, vol. 170(C), pages 48-76.
    7. Sismanidou, Athina & Tarradellas, Joan & Bel, Germà & Fageda, Xavier, 2013. "Estimating potential long-haul air passenger traffic in national networks containing two or more dominant cities," Journal of Transport Geography, Elsevier, vol. 26(C), pages 108-116.
    8. Nerja, Adrián, 2022. "Exclusivity in concession revenue sharing contracts," Journal of Air Transport Management, Elsevier, vol. 99(C).
    9. Barbot, Cristina & D'Alfonso, Tiziana, 2014. "Why do contracts between airlines and airports fail?," Research in Transportation Economics, Elsevier, vol. 45(C), pages 34-41.
    10. Anna Bottasso & Maurizio Conti, 2010. "An Assessment on the Cost Structure of the UK Airport Industry: Ownership Outcomes and Long Run Cost Economies," Working papers 13, Former Department of Economics and Public Finance "G. Prato", University of Torino.
    11. Saraswati, Batari & Hanaoka, Shinya, 2014. "Airport–airline cooperation under commercial revenue sharing agreements: A network approach," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 70(C), pages 17-33.
    12. Conti, Maurizio & Ferrara, Antonella Rita & Ferraresi, Massimiliano, 2019. "Did the EU Airport Charges Directive lead to lower aeronautical charges? Empirical evidence from a diff-in-diff research design," Economics of Transportation, Elsevier, vol. 17(C), pages 24-39.
    13. Tiziana D'alfonso & Alberto Nastasi, 2014. "Airport-Airline interaction: some food for thought," Transport Reviews, Taylor & Francis Journals, vol. 34(6), pages 730-748, November.
    14. Jae Hee Park & Ji Hee Kim, 2021. "The Impact of Airport Managerial Type and Airline Market Share on Airport Efficiency," Sustainability, MDPI, vol. 13(2), pages 1-16, January.
    15. Anna Bottasso & Martina Bruno & Maurizio Conti & Claudio Piga, 2017. "Competition, vertical relationship and countervailing power in the UK airport industry," Journal of Regulatory Economics, Springer, vol. 52(1), pages 37-62, August.
    16. Tiziana D'Alfonso & Alberto Nastasi, 2010. "Vertical Agreements Between Airports And Carriers," DIS Technical Reports 2010-19, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    17. Cristina Barbot, 2009. "Vertical Contracts between Airports and Airlines: is there a Trade-off between Welfare and Competitiveness?," CEF.UP Working Papers 0901, Universidade do Porto, Faculdade de Economia do Porto.

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