Airport-airline vertical relationships, their effects and regulatory policy implications

This paper examines the forms and effects of vertical relationships between airports and airlines with a focus on the North American and European aviation markets. We find that such vertical relationships enables those participating to achieve various benefits and may be formed as a competitive response to other competing airport–airline alliances. In some cases, vertical airport–airline relationships strengthen the hub status of major airports, leading to increased employment and service quality in local markets. On the other hand, preferential treatment of a particular airline by an airport may enhance that airline’s market power, allowing it to dominate the airport and charge hub premiums. The competition and welfare implications of airport–airline vertical alliances can be complicated and two-sided, subject to the influences of other factors such as the market structures of the airline and airport markets.

[1]  Mara Lederman,et al.  Are Frequent-Flyer Programs a Cause of the Hub Premium? , 2008 .

[2]  S. Barrett.  How do the demands for airport services differ between full-service carriers and low-cost carriers? , 2004 .

[3]  Sascha Albers,et al.  Strategic Alliances between Airlines and Airports – Theoretical Assessment and Practical Evidence , 2005 .

[4]  J. Tirole.  The Theory of Industrial Organization , 1988 .

[5]  Peter Nijkamp,et al.  Airport and Airline Choice in a Multiple Airport Region: An Empirical Analysis for the San Francisco Bay Area , 2001 .

[6]  S. Borenstein.  Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry , 1989 .

[7]  P. Nijkamp,et al.  HUB PREMIUMS IN EUROPEAN CIVIL AVIATION , 2001 .

[8]  Cristina Barbot,et al.  Airport and airlines competition: Incentives for vertical collusion , 2009 .

[9]  Darin Lee,et al.  The Impact of Passenger Mix on Reported ''Hub Premiums'' in the U.S. Airline Industry , 2005 .

[10]  Anming Zhang,et al.  REVENUE SHARING WITH MULTIPLE AIRLINES AND AIRPORTS , 2010 .

[11]  Michele Piccione,et al.  Entry and Exit in Hub-Spoke Networks , 1997 .

[12]  Tom Reynolds,et al.  Airport systems planning, design, and management , 2003 .

[13]  Jia Yan,et al.  Exploring Network Effects of Point-to-Point Networks: An Investigation of the Spatial Entry Patterns of Southwest Airlines , 2008 .

[14]  Anming Zhang,et al.  AN ANALYSIS OF FORTRESS HUBS IN AIRLINE NETWORKS , 1996 .

[15]  J. Brueckner,et al.  Competition and mergers in airline networks , 1991 .

[16]  Yuliang Yao,et al.  Airport Barriers to Entry in the US , 2000 .

[17]  Peter Nijkamp,et al.  Access to and Competition Between Airports: A Case Study for the San Francisco Bay Area , 2003 .

[18]  Martin Dresner,et al.  COMPETITIVE RESPONSES TO LOW COST CARRIER ENTRY , 1999 .

[19]  Tae Hoon Oum,et al.  An Analysis of Airport Pricing and Regulation in the Presence of Competition Between Full Service Airlines and Low Cost Carriers , 2006 .

[20]  C. Barbot.  Low-cost airlines, secondary airports, and state aid: An economic assessment of the Ryanair–Charleroi Airport agreement , 2006 .

[21]  Gérard P. Cachon,et al.  Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations , 2005, Manag. Sci..

[22]  Cristina Barbot,et al.  Vertical Contracts between Airports and Airlines: is there a Trade-off between Welfare and Competitiveness? , 2011 .

[23]  T. Oum,et al.  AIRPORT PRICING POLICIES: AN APPLICATION TO CANADIAN AIRPORTS , 1988 .

[24]  Kenneth Button,et al.  High-technology employment and hub airports , 1999 .

[25]  Anming Zhang,et al.  Effects of Airport Concession Revenue Sharing on Airline Competition and Social Welfare , 2010 .