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

Author

Listed:
  • 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
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    File URL: http://dx.doi.org/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. repec:cbu:jrnlec:y:2017:v:4:p:161-168 is not listed on IDEAS
    3. repec:eee:trapol:v:59:y:2017:i:c:p:28-37 is not listed on IDEAS
    4. repec:kap:regeco:v:52:y:2017:i:1:d:10.1007_s11149-017-9332-z is not listed on IDEAS
    5. 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.
    6. 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.
    7. 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.

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