Airport capacity choice under airport-airline vertical arrangements |
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| Institution: | 1. Business School, Sun Yat-sen University, Guangzhou 510275, PR China;2. School of Business Administration, South China University of Technology, Guangzhou 510640, PR China;1. School of Economics and Management, Beihang University, China;2. MoE Key Laboratory of Complex System Analysis and Management Decision, China;3. School of International Trade and Economics, University of International Business and Economics, China;4. Sauder School of Business, University of British Columbia, Canada |
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| Abstract: | This study investigates the effects of airport-airline vertical arrangements on airport capacity choices under demand uncertainty. A multi-stage game is analysed, in which competing airlines contribute to capacity investments and share airport revenues. Our analytical results suggest that for a profit-maximising airport, such a vertical arrangement leads to higher capacity but may not increase its profit, whereas for a welfare-maximising airport, such an arrangement has no effect on capacity or welfare. Capital cost savings brought by airport-airline cooperation, if any, always lead to higher capacity, and to higher profit for a profit-maximising airport and higher welfare for a welfare-maximising airport. Numerical simulations reveal that win-win outcomes may be achieved for an airport and its airlines without government intervention. |
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| Keywords: | Airport capacity Airport-airline vertical arrangement Demand uncertainty |
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