Multi-product airport competition and optimal airport charges

Abstract

This paper examines the importance of commercial revenue on optimal airport charges in a Hotelling-type duopoly airports competition. Each airport offers multi-products to heterogeneous consumers (airlines and passengers) and sets commercial and landing charges and serves. The airport-airline bundle competes for leisure and business passengers. The setting of landing charges under different regulatory regimes is investigated. We demonstrate that in the leisure travel market, which ignores schedule delay cost, the optimal landing fee is invariant to the regulatory scheme, and concession revenue is determined by an airport’s home market size. In the business travel market, the optimal landing charge is smaller if concession revenue is included in setting the landing fee than if it is not included. In the former case, increasing passenger volume does not guarantee increases in airports’ aeronautical revenue, and a negative impact may exist if the weight of concession profit out of total profit is small.