Vertical relations between airports and airlines: theory and implications

This dissertation provides new contributions on air transport economics with respect to the issue of vertical relations between airports and airlines. Chapter 1 provides an interpretive review of models of airport-airline interaction. While assessing how deregulation of the airline market and privatization of airports create the incentives for airport-airline interaction, and which are the different forms of cooperation observed in practice, particular attention is payed on models used to represent formally vertical relations between airports and carriers. Moreover, if the vertical structure approach has become standard in air transport research, we discuss three elements that still seem to lack of understanding, but we think should be the lines of future research on airports-airlines interaction: (i) incomplete contracts and asymmetric information structure; (ii) upstream horizontal complementarities; (iii) airports as two sided platforms. In Chapter 2 we study airport pricing with aeronautical and concession activities. While assuming that as congestion increases dwell time increases — and so the money spent in concession activities — we incorporate a positive relationship between delay and consumption of concession goods, and the effect of passenger types. We find that: (i) there is a downward correction on the congestion toll due to the positive externality of delay; (ii) the component relevant to the per-passenger benefit from concessions may be a mark-up depending on delay and the passengers’ values of time. Furthermore, a welfare-maximizing airport may have more incentives to induce congestion than a profit-maximizing airport. Chapter 3 investigates contracts between airports and airlines, in the context of two competing facilities and three types of agreements. The downstream market consists in a route operated by one leader and n-1 followers competing à la Stackelberg in each facility. We develop a multistage game where each airport and its dominant airline decide whether to enter into a contract and, if so, which one to engage in. We find that the airport and its dominant airline have incentive to vertical integration in each facility. The merger implies a downstream market foreclosure through a price-squeeze strategy but consumers’ surplus and welfare increase with respect to the case in which no agreement occurs. Thus, the agreement exhibits a trade-off between competitiveness and welfare.