Airline Frequency Competition in Airport Congestion Pricing

Abstract

Airport congestion pricing has often been advocated as a way to control demand for airport operations and achieve efficient resource allocation. Competition between airlines affects the extent to which an airline is willing to pay for airport slots. Accurate modeling of competition is critical to determining the effectiveness of a congestion pricing mechanism. This paper develops an equilibrium model of airline frequency competition in the presence of delay costs and congestion prices. A small hypothetical network is used to evaluate the impacts of congestion prices on the various stakeholders and to investigate the dependence of effectiveness of congestion pricing on the characteristics of frequency competition in individual markets. The effectiveness of congestion pricing depends on three parameters of frequency competition. The results show that variation in the number of passengers per flight plays a vital role in determining the degree of attractiveness of congestion pricing to the airlines. A significant part of the impact of congestion pricing cannot be accounted for by using models in the literature, which are based on the assumptions of constant load factors and constant aircraft sizes. It was found that, compared with flat pricing, marginal cost pricing is more effective in reducing congestion without penalizing the airlines with exceedingly high congestion prices.

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