Airport Privatization in International Inter-Hub and Spoke Networks

34 Pages Posted: 2 Dec 2013 Last revised: 22 Dec 2013

See all articles by Ming Hsin Lin

Ming Hsin Lin

Osaka University of Economics - Faculty of Economics

Benny Mantin

Luxembourg Centre for Logistics and Supply Chain Management (LCL)

Date Written: December 21, 2013

Abstract

This paper investigates airport privatization by two countries. Each country has a (gateway) hub airport a local airport. In each country, a hub carrier operates hub-local and international hub-hub flights, and a regional carrier also operates hub-local flights and forms and alliance with the hub carrier from the other country. In equilibrium governments symmetrically privatize both their hub and local airports to a single operator when the hub-hub market size is relatively large with respect to the hub-local market size; otherwise they keep all airports under public ownership. In the former case, governments may be trapped in a Prisoners’ Dilemma as both would be better off by privatizing their local airports only or by keeping them all under public ownership. We further examine privatization decisions when governments are committed to pursue privatization. The resulting equilibrium is that both countries privatize their hub and local airports when the hub-hub market size is relatively large; otherwise, they privatize their hub airports. Similarly, a Prisoners’ Dilemma situation emerges as they both could be better off by privatizing their local airports only.

Keywords: airport privatization, international airline-airport network, hub and local airports, complementary airline alliances

JEL Classification: L13, L93

Suggested Citation

Lin, Ming Hsin and Mantin, Benny, Airport Privatization in International Inter-Hub and Spoke Networks (December 21, 2013). Available at SSRN: https://ssrn.com/abstract=2361832 or http://dx.doi.org/10.2139/ssrn.2361832

Ming Hsin Lin

Osaka University of Economics - Faculty of Economics ( email )

2-2-8 Osumi
Higashiyokogawa-ku
Osaka
Japan

Benny Mantin (Contact Author)

Luxembourg Centre for Logistics and Supply Chain Management (LCL) ( email )

6, rue Richard Coudenhove-Kalergi
Luxembourg, L-1359
Luxembourg

HOME PAGE: http://mantin-in-the-air.com/

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