Airport's optimal decisions considering non-aeronautical business, terminal capacity and alternative regulatory regimes

Abstract

This study explores the optimal decisions of airports on charge, capacity, and suggested passengers’ arrival time at the airport under various regulatory regimes (e.g., single- or dual-till regulation). By considering both aeronautical- and non-aeronautical businesses and further incorporating the non-linear relationship between queuing time in the check-in zone and shopping time in the retail zone, we find that unlike runway capacity expansion, where single-till regulation leads to underinvestment (as compared to the unregulated case), terminal capacity expansion is contingent upon traffic volumes. Under higher traffic volumes, terminal capacity expansion becomes less efficient in reducing the terminal congestion delay, thereby reducing the effect on expanding passengers’ shopping time and concession revenue. As the revenue loss is disregarded under single-till regulation, airports would overinvest in terminal capacity under higher traffic volumes, which reverses the underinvestment tendency under lower traffic volumes. Also, single-till regulation results in a later airport arrival time suggested to passengers, for which the excess concession revenue from an earlier arrival time is overlooked. By contrast, dual-till regulation tends to attract more passengers to the airport by reducing terminal and runway delays, therefore leading to lower airport charge, shorter terminal time and higher capacity. The increased ridership and enhanced utility thus improve the overall social welfare.