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Book part
Publication date: 12 September 2017

Terje A. Mathisen, Finn Jørgensen, Pål A. Pedersen and Georgina Santos

A substantial part of airports’ revenues relates to charges covering the costs of services supplied by the airport. Charges are imposed on carriers, which in turn pass them or a…

Abstract

A substantial part of airports’ revenues relates to charges covering the costs of services supplied by the airport. Charges are imposed on carriers, which in turn pass them or a percentage of them, on to passengers. In the present chapter, special attention is given to regional airports characterized by low traffic volumes, enabling only one or a few carriers to serve each destination. A classic economic model is presented to analyze how the pass-on rate depends on supply and demand characteristics and market structure. Some illustrative examples assuming combinations of common specifications for market characteristics are also presented, showing pass-on rates ranging from 50% to more than 100%. Consequently, market structure and characteristics of carriers and passengers are decisive for how passengers experience changes in airport charges. The differences between the optimal charge from the perspectives of the airport and the welfare of society are specifically addressed. It is demonstrated that knowledge of the pass-on rate in the monopoly cases may be sufficient to infer how the mark-up will be affected by a change in marginal costs. Consequently, the understanding of the pass-on rate is relevant for airport owners and for decision-makers when considering the welfare of passengers and other politically stated goals.

Details

The Economics of Airport Operations
Type: Book
ISBN: 978-1-78714-497-2

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Book part
Publication date: 12 September 2017

Gisle Solvoll and Terje A. Mathisen

It is demonstrated how an analysis of airports’ cost structures and the calculation of long-run marginal costs (MCs) of serving passengers and airplanes can be used as a basis for…

Abstract

It is demonstrated how an analysis of airports’ cost structures and the calculation of long-run marginal costs (MCs) of serving passengers and airplanes can be used as a basis for setting airport charges according to the principles of welfare economics. Based on Norwegian data, the MC for an extra passenger (PAX) and extra air traffic movement (ATM) are used to set airport charges under the assumption that the charges should be equal for all airports in the country. When adjusting the estimates to meet revenue restrictions and comparing the estimates to current charges, we observe that PAX should be charged more and ATM less. This finding is in line with recommendations from the International Air Transport Association (IATA). When allowing charges to vary between airports, we demonstrate how a Ramsey pricing approach can be applied to set differentiated PAX and ATM charges, considering both the supply side (the competitive conditions between the airlines operating at the airports) and the demand side (the passengers’ price elasticity of demand).

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The Economics of Airport Operations
Type: Book
ISBN: 978-1-78714-497-2

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Book part
Publication date: 6 August 2014

Janina D. Scheelhaase

This chapter provides an overview of the current political regulations on aviation’s climate relevant emissions in Europe, Australia, and New Zealand and of the planned…

Abstract

This chapter provides an overview of the current political regulations on aviation’s climate relevant emissions in Europe, Australia, and New Zealand and of the planned regulations in other parts of the world. In a next step, the cost impacts of most of these regulations on air freight will be quantified. This way, the economic impacts of environmental regulations on air freight can be estimated.

The main results indicate that cost impacts on air freight services induced by political measures for the reduction of aviation’s climate relevant emissions turn out to be small. This is true for both local emission charges on nitrous oxide (NO X ) and hydrocarbon (HC) emissions which are in force at a number of European airports and the European emissions trading scheme for the limitation of CO2 emissions.

Details

The Economics of International Airline Transport
Type: Book
ISBN: 978-1-78350-639-2

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Article
Publication date: 1 April 2005

Peter Mackenzie‐Williams

This paper aims to describe the processes used to ensure that the comparisons made between airport and airline performance are as meaningful as possible, and to highlight a number…

9780

Abstract

Purpose

This paper aims to describe the processes used to ensure that the comparisons made between airport and airline performance are as meaningful as possible, and to highlight a number of issues which need to be considered when making performance comparisons in aviation.

Design/methodology/approach

Evidence was gathered from an international data sample of airports and airlines. Operational and financial data was derived from published reports.

Findings

The research illustrates the scale of differences in airport performance levels, and it also highlights the considerable difference in performance levels between airports and airlines. It is clear that many factors can impact on an airport's ability to optimise its performance, and on its relative level of performance when compared to its peers.

Practical implications

The research highlights and demonstrates the need for a degree of understanding of contextual factors when comparing airport performance measures with each other and when comparing airline performance.

Originality/value

Insight into the process by which airport and airline performance measurements can be compared with each other.

Details

Benchmarking: An International Journal, vol. 12 no. 2
Type: Research Article
ISSN: 1463-5771

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Book part
Publication date: 21 October 2019

Chikage Miyoshi and Patricia Prieto Torrell

This chapter assesses the economic impact of geared turbofan (GTF) engines on the London Heathrow Airport (LHR)–Frankfurt Airport (FRA) route using cost–benefit analysis (CBA). An…

Abstract

This chapter assesses the economic impact of geared turbofan (GTF) engines on the London Heathrow Airport (LHR)–Frankfurt Airport (FRA) route using cost–benefit analysis (CBA). An aircraft appraisal model is created to answer the two key questions of whether the A320neos aircraft with GTF engines could replace the conventional A320 aircraft through an operating lease (acquisition) or whether it would be better for society if the LHR–FRA sector is operated with a leased 737-800 aircraft. The scope of the CBA analysis is from 2015 until 2027.

The outcomes of the aircraft appraisal model indicate that switching to A320neos on lease (Option 2) might be beneficial. The fuel consumption of the A320neo aircraft is lower than that of the current A320-200 aircraft (2,234 kg vs 2,988 kg per sector). As a result, this option could offer a large benefit (NPV of USD 31 million) through lower fuel consumption and thus lower fuel costs. At the same time, a fuel reduction means a lower emissions impact (about USD 2 million benefit). It can be concluded that keeping the current A320-200 (NPV of USD 8.9 million) is less profitable than replacing it with a leased A320neo (NPV of USD 31 million) for Airline A, but better than a B737-800 (NPV USD 4.3 million). The option to lease the A320neos appears to be preferred in most cases, considering the impact of noise and NOx cost, due to the large benefit of NPV USD 25 million compared to the A320 and an approximately 29 million difference compared with the B737-800.

Book part
Publication date: 12 September 2017

Margaret Arblaster

The concept of light-handed regulation, including light-handed approaches to the regulation of airport services, is discussed. The rationale for the economic regulation of airport

Abstract

The concept of light-handed regulation, including light-handed approaches to the regulation of airport services, is discussed. The rationale for the economic regulation of airport services and the traditional approaches used for economic regulation of airport charges are summarized. The evolution of international practice of light-handed regulation is outlined, including the experience with minimal regulation across monopoly industries in New Zealand and the acceptance of “negotiated settlements” in utility industries in North America. General reasons for moving to light-handed regulation of airports include the disadvantages of the price cap approach in practice and the benefits of facilitating greater negotiation between airports and users. Comparisons are made between alternative approaches to light-handed regulation of airport services, including price and quality of service monitoring, information disclosure regulation and negotiate-arbitrate regulation, approaches that have been applied to airport services in Australia and New Zealand. The role and nature of the incentives under each approach are discussed. The chapter concludes that whether light-handed regulation provides a suitable alternative approach to direct regulation depends on the market circumstances and the design characteristics of the light-handed approach.

Details

The Economics of Airport Operations
Type: Book
ISBN: 978-1-78714-497-2

Keywords

Case study
Publication date: 16 August 2021

Akhil Damodaran, Tarun Dhingra and Prasoom Dwivedi

The case study helps students to understand how public-private partnership (PPP) airports runs their business, how regulatory policies impact their business. The case also…

Abstract

Learning outcomes

The case study helps students to understand how public-private partnership (PPP) airports runs their business, how regulatory policies impact their business. The case also explains why the Cochin International Airport business model is so unique compared to any airport in India.

Case overview/synopsis

In 2016, Airport Economic Regulatory Authority released a new tariff regime for Cochin International Airport Limited (CIAL).CIAL has undergone challenges because of the tariff changes (changes every five years), which were implemented in 2017. This has impacted their business model. The CFO of CIAL was under pressure to share the impacts with the shareholders and to provide a way forward for the business. Cochin International was known to be one of the cheapest aeronautical tariff charging airports. The case discusses the issues of a public utility when it is under a regulatory price regime. The case explains different regulatory mechanisms (single till: the whole commercial revenue is cross-subsidized). The case discusses issues regarding Cochin International Airport, which is a public utility under PPP mode. Since 2016, regulator has changed the price regulatory regime from light touch (no price regulation only monitoring) to hybrid till regulation (a percentage of commercial revenue is cross-subsidized). The case explains what made Cochin International Airport so unique. It explores the challenges because of the regulatory regime, how it affects Cochin airport’s strategy for business. How should the management of CIAL to act on the above issue? What will be the impact? Will they need to change their business models?

Complexity academic level

The case is basically focused on MBA level students who are in their final year. There are various MBA courses in which this can be taught, which can be infrastructure management, infrastructure regulation, domain courses such as airport management. The student should have basic knowledge of economics, public utility and business strategy. The case helps them understand the impact of regulation, the role of the regulator and its impact on business strategy.

Supplementary materials

Teaching notes are available for educators only.

Subject code

CSS: 10 Public Sector Management.

Details

Emerald Emerging Markets Case Studies, vol. 11 no. 3
Type: Case Study
ISSN: 2045-0621

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Book part
Publication date: 12 September 2017

Xiaowen Fu and Hangjun Yang

With significant changes in the aviation industry, various airport–airline arrangements have been formed to achieve alternative objectives. However, no consensus has been reached…

Abstract

With significant changes in the aviation industry, various airport–airline arrangements have been formed to achieve alternative objectives. However, no consensus has been reached on such arrangements’ economic effects and the associated optimal public policy. This chapter aims to provide an interpretive review of the common types of airport–airline arrangements, the different modeling approaches used and key conclusions reached by recent studies. Our review suggests that airport–airline arrangements can take diverse forms and have been widely used in the industry. They may allow the airport and its airlines to internalize demand externality, increase traffic volume, reduce airport investment risks and costs, promote capacity investment, enhance service quality, or simply are a response to the competition from other airport–airline chains. On the other hand, such vertical arrangements, especially for those exclusively between airports and selected airlines, could lead to collusive outcomes at the expenses of non-participating organizations. The effects of such arrangements are also significantly influenced by the contract type, market structure and bargaining power between the airport and airline sectors. While case by case investigations are often needed for important economic decisions, we recommend policy-makers to promote competition in the airline and airport segments whenever possible, and demand more transparency or regulatory reporting of such arrangements. Policy debates and economic studies should be carried out first, before intrusive regulations are introduced.

Details

The Economics of Airport Operations
Type: Book
ISBN: 978-1-78714-497-2

Keywords

Book part
Publication date: 21 October 2019

Andreas Wittmer and Claudio Noto

This chapter considers time-differentiated airport noise surcharges that occur in addition to general noise fees at an airport. In practice, an essential problem of such…

Abstract

This chapter considers time-differentiated airport noise surcharges that occur in addition to general noise fees at an airport. In practice, an essential problem of such surcharges may consist of setting the price for a social policy goal, such as airport noise reduction, by shifting a number of critical flights away from sensitive times-of-day in the presence of an additional, competing economic policy goal in terms of fostering the network hub function and connectivity of that airport. In such a case, additional noise surcharges aim at balancing the socioeconomic noise costs against economic prosperity, to achieve a net benefit for society by inducing a particular airline scheduling behavior, such as shifting non-hub-relevant flights only. As a result, they differ from the well-known economic concepts for the internalization of externalities. We address this problem by offering a shift from an economic welfare view to a business administration perspective with the airlines as stakeholders, in order to describe the different rationales that need to be accounted for when searching for a pricing scheme that achieves one of the distinct steering effects in terms of airline scheduling behavior. In addition, we offer a tentative, generic guideline to determine the appropriate dimension of time-differentiated noise surcharges depending on the steering effect.

Content available
Book part
Publication date: 12 September 2017

Abstract

Details

The Economics of Airport Operations
Type: Book
ISBN: 978-1-78714-497-2

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