Should regional airports be allowed to pay long-term operating aid to low-cost carriers?

Frédéric Marty and Estelle Malavolti ()
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Estelle Malavolti: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, ENAC - Ecole Nationale de l'Aviation Civile

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Abstract: The guidelines on state aid, modified in 2014, provide simpler start-up aid rules for new routes and open the way to transitory operating aid schemes. These support measures, such as discounts on landing or terminal charges, can make sense from an economic point of view and can comply with the private market investor principle. For this purpose, we model the airport as a two-sided platform, performing a trade-off between its aeronautical and commercial activities. Furthermore, we highlight the relationship between the intensity of aid and the form of ex ante regulation of airport charges. If these charges are regulated using a price-cap mechanism, the airline may use its negotiating power to extract the majority of the surplus generated by the contract. Conversely, regulation based on a price-floor mechanism may make it possible to limit the airline's ability to extract gains and thus reduce the level of the subsidy needed to balance the airport's budget.

Keywords: regulation; airports; competition law (search for similar items in EconPapers)
Date: 2020-09-21
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Published in Revue Economique, 2020, 70 (2), pp.149-166

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-02944506

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