Highlights Privatization of a congested hub linking two uncongested local airports is examined. Privatizing only hub or local airports leads to first-best if no budget constraint. Each privatizing scenario causes welfare losses if a budget constraint exists. Losses depend on the strategic substitutes or complements of private local airports. Strategic relations depend on passengers’ valuations of frequency externalities.
Abstract This paper investigates the airport privatization issue. One congested hub and two linked local airports serve symmetric hub carriers. Passengers valuate the congestion delay cost and benefit from greater frequencies. The government considers privatizing either the hub or local airports. We find that in each privatizing scenario, welfare-maximizing public airport(s) set a charge below their operating costs in order to fully coordinate the high charge of privatized airport(s). If this fiscal deficit is not allowed, each scenario causes distortion. Interestingly, the distortion—and hence welfare losses—in privatizing a hub are smaller (larger) than those in privatizing both local airports when both passengers’ valuations are small (large); this is exactly the case when privatized local airports are strategic substitutes (complements). We also surprisingly find that retaining the hub airport as public and privatizing one or both local airports achieves the same market outcomes. We further find that if all airports are privatized, welfare becomes worse than the other scenarios; the hub airport charges lower (higher) prices than local airports when both local airports are strategic substitutes (complements).
Airport privatization in congested hub–spoke networks
Transportation Research Part B: Methodological ; 54 ; 51-67
2013-03-25
17 pages
Article (Journal)
Electronic Resource
English
Airport privatization in congested hub–spoke networks
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