Demand uncertainty and airport capacity choice

This study analyzes the effects of demand uncertainty on airport capacity choices. It shows that demand uncertainty will not change optimal capacity choice if demand variation is low and capacity cost is high; otherwise the optimal airport capacity under demand uncertainty will be larger than the case when a deterministic mean demand is considered. These conclusions are robust with respect to the different market structures considered in this study and hold for both profit-maximizing and welfare-maximizing airports. The moderating effects of commercial revenue, capital cost, and airport operation cost on airport capacity choice are qualitatively the same in the cases of uncertain demand and deterministic demand.

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