The Role of Airport Access in Airline Competition

Size: px

Start display at page:

Download "The Role of Airport Access in Airline Competition"

Robert Neal
5 years ago
Views:

1 The Role of Airport Access in Airline Competition Jonathan Williams 1 1 Department of Economics University of Georgia ACI-NA Conference, September / 10

2 Introduction Began research on access to airport facilities as PhD student at University of Virginia, now at Terry College of Business (economics) at University of Georgia Conduct a survey focusing on access to airport facilities using data led to multiple publications in academic journals: 1 Limited Access to Airport Facilities and Market Power in the Airline Industry (Journal of Law & Economics) 2 Barriers to Entry in the Airline Industry: A Multi-Dimensional Regression-Discontinuity Analysis of AIR-21 (Review of Economics & Statistics) 3 Other works in RAND journal of economics (collusion) and Management Science (airport capacity and on-time performance) 2 / 10

3 What is the role of operating barriers to entry in the airline industry? Positive: How do fares, quality, market structure, etc. depend on barriers to entry? Normative: Can further regulation fix some of the problems caused by existing regulation? Is increasing competition (via decreased entry barriers) good for consumers (quality/fare tradeoff)? Diffi cult identification problem Competition and market outcomes simultaneously determined by "unobserved entry barriers" Pursue a quasi-experimental approach based on the implementation of policy (AIR-21) designed to reduce entry barriers at concentrated airports. 3 / 10

4 AIR-21 signed into law April 5, 2000 AIR-21 increase competition at "major" (.25% of US enplanements, FAA designated M&L hubs) US airports makes federal funding for "concentrated aiports" (top-2 carriers enplane > 50%) airports contingent on filing competition plan Competition plan requires approval by DOT and FAA long negotiations to reach "compliance" with the law final plan often on airport s websites two follow-ups required, 18 months apart only re-file if master leasing agreement expires or deny carrier access 4 / 10

5 AIR-21 participation is "voluntary" AIR-21 quasi-public nature of airports gives regulation bite 44% of revenue directly from federal government Two sources of federal funding: 1 Passenger Facility Charges (PFCs) 21.7% of airports revenues in 2009, ACI-NA authorized by Congress for capital projects in 1990 ($50 billion) PFC ceiling increased from $1 to $4.50 from stable revenue stream airports enjoy investment grade ratings on bonds 2 Aviation Improvement Program (AIP) Grants 22.2% of airports revenues in 2009, ACI-NA Binding PFC cap and reduced AIP grants put airports under financial pressure (rising bond yields) and are limiting capital investment. 5 / 10

6 AIR-21 Plans were required to address 8 specific areas: 1 Availability of Gates and Related Facilities 2 Arranging for Leasing/Subleasing 3 Documenting Patterns of Air Service 4 Gate Assignment Policies 5 Financial Constraints 6 Controls over Groundside Capacity 7 Intentions to Build or Acquire Common Facility Gates 8 Self Benchmarking of Airfares 6 / 10

7 AIR-21 Number of concrete steps taken by covered airports: 1 modification of gates leases: "use-it or lose-it" provisions, shorter length, exclusive to preferential/common-use, capping of sublease rates 2 install "CUTE" systems 3 exempt "competition enhancing" capital projects from MII votes 4 reduce landing fees for non-signatory airlines to signatory levels (rising bond yields) 5 appoint liasons to disseminate information to potential entrants (e.g. availability of gates) 6 cap turn-around times for aircraft, increase gate-use effi ciency FAA (2006) summarizes most significant steps taken by individual airports 7 / 10

8 DOT s DB1B quarterly 10% sample of fares by itinerary information on fares, nonstop, roundtrip, carrier, connection details DOT T100 traffi c and On-Time monthly route-level departures and seats on-time performance FAA Enplanement data carrier-specific data on enplanements at US airports used by FAA to determine AIR-21 coverage. includes "in-transit" and "on-demand" traffi c, not in T100 Airport Survey conducted in conjunction with ACI-NA (trade organization) carrier-specific gate leasing agreements, MII, CUTE, etc 8 / 10

9 Fares Summary 10% (20%) reduction in average fares with one (both) endpoints covered increased competition explains 40% to 50% of reduction largest reductions at top end of fare distribution, bottom already heavily discounted low-cost entry drives half fare reduction explanations for remainder: cost pass-throughs to consumers (ex. landing and sublease fees), fear of future regulation Passenger volumes increase by 10% (15%) Probability of low-cost carrier serving market up (0.428) 9 / 10

10 AIR-21 largely successful at reducing fares, increasing competition, and maintaining quality in short-term Long-term concerns over impact on industry airlines have reduced incentive to be signatory on airport debt (reduced MII powers, etc) airports under further financial pressure solutions? increase PFC ceiling and index to inflation to allow airports to expand facilities as needed and lower debt costs. More data need to research airports crucial role in determining airline competition, and impact of regulation on airports. 10 / 10

11 Login Page Home Page

12 Gate Leasing Survey (Sample)

13 Exporting (Sample)

14 Airport Business Terms Survey (Sample)

,~-- JOHN WAYNE AIRPORT, ORANGE COUNTY. Airline Competition Plan UPDATE. Barry A. Rondinella, A.A.E/C.A.E. Airport Director

,~-- JOHN WAYNE AIRPORT, ORANGE COUNTY. Airline Competition Plan UPDATE. Barry A. Rondinella, A.A.E/C.A.E. Airport Director JOHN WAYNE AIRPORT, ORANGE COUNTY Airline Competition Plan UPDATE JOrNVAYN. AIRPOITT O R A N GE COU N TY,~-- Barry A. Rondinella, A.A.E/C.A.E. Airport Director 3160 Airway Avenue Costa Mesa, CA 92626 January