An auction framework for assessing the tendering of subsidised routes in air transportation

Alan Kinene, Tobias Andersson Granberg, Sebastian Birolini, Nicole Adler, Valentin Polishchuk and Jean-Marie Skoglund

Transportation Research Part A: Policy and Practice, 2022, vol. 159, issue C, 320-337

Abstract: Governments offer subsidies along routes that are deemed commercially non-viable but economically and socially essential. Subsidised routes are often criticised for inefficiencies and excessive subsidies, which partly result from restrictions defined by transportation authorities during the tendering process, such as a maximum airfare and minimum number of daily flights. We develop an integrated auction framework—referred to as Single-round Combinatorial Auction for Subsidised routes (SCAS)—to provide decision support to transportation authorities when designing tendering processes for subsidised routes. The framework includes two main models as ingredients. First, the Airline Bid Preparation Model (ABPM), which replicates the airline’s behaviour when preparing bids for subsidised routes. Second, the Winner Determination Problem (WDP), which is used to select the bids based on a given evaluation criterion. We capture the responsive relationship between passenger demand and supply of air services by including passenger utility as an endogenous variable in the ABPM. Additionally, as input to the ABPM, we estimate the route operating cost for small aircraft that typically operate subsidised routes. The usefulness of the approach is demonstrated with an application to the network of subsidised routes in Sweden, for which we provide policy guidelines. Our analysis suggests that having a restriction on the airfare but not the number of flights is an effective way to design the tendering process, which strikes a good balance between passengers, government and airlines goals. Additionally, we demonstrate that the transportation authorities can compensate not having a requirement on the number of daily flights through ensuring a higher number of passengers, i.e., by including maximisation of the number of passengers in the bid evaluation criterion or using passenger discounts.

Keywords: Air transportation; Public Service Obligations; Auctions; Route operating cost (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0965856422000490
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:transa:v:159:y:2022:i:c:p:320-337

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

DOI: 10.1016/j.tra.2022.03.002

Access Statistics for this article

Transportation Research Part A: Policy and Practice is currently edited by John (J.M.) Rose

More articles in Transportation Research Part A: Policy and Practice from Elsevier
Bibliographic data for series maintained by Catherine Liu ().