Airport Charges – Interactions between Airlines and Airports

Abstract

A substantial part of airports' revenues relate to charges covering the costs of services supplied by the airport. Charges are imposed on carriers, which in turn pass them or a percentage of them, on to passengers. In the present chapter special attention is given to regional airports characterized by low traffic volumes, enabling only one or a few carriers to serve each destination. A classic economic model is presented to analyse how the pass-on rate depends on supply and demand characteristics and market structure. Some illustrative examples assuming combinations of common specifications for market characteristics are also presented, showing pass-on rates ranging from 50% to more than 100%. Consequently, market structure and characteristics of carriers and passengers are decisive for how passengers experience changes in airport charges. The differences between the optimal charge from the perspectives of the airport and the welfare of society are specifically addressed. It is demonstrated that knowledge of the pass-on rate in the monopoly cases may be sufficient to infer how the mark-up will be affected by a change in marginal costs. Consequently, the understanding of the pass-on rate is relevant for airport owners and for decision-makers when considering the welfare of passengers and other politically stated goals.