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

Tae H. Oum and Xiaowen Fu
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Tae H. Oum: Hong Kong Polytechnic University
Xiaowen Fu: Hong Kong Polytechnic University

No 2008/17, OECD/ITF Joint Transport Research Centre Discussion Papers from OECD Publishing

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.

Date: 2008-09-01
New Economics Papers: this item is included in nep-com, nep-mic, nep-mkt and nep-ure
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