Download this Paper Open PDF in Browser

Airline Pricing and Airport Charges in Hub-Spoke Networks with Congestion

25 Pages Posted: 6 Oct 2011  

Ming Hsin Lin

Osaka University of Economics - Faculty of Economics

Yimin Zhang

affiliation not provided to SSRN

Date Written: October 6, 2011

Abstract

This article investigates airline pricing and airport congestion charges in hub-spoke networks. When a public hub airport and two public spoke (local) airports independently levy their charges, airlines will eventually set a ticket price that overcharges the passengers for congestion delay cost and overcompensates for airline markups. Privatizing only local airports will always lead to more overcharge, whereas privatizing only the hub airport or all airports could result in lesser overcharge if the network markets are competitive. The degree of overcharge under a private hub and public local airports is always lesser than that under a public hub and private local airports, implying that privatizing a hub airport could yield higher social welfare than privatizing a local airport. Furthermore, investigation on compensation for airline markups also finds that privatizing a hub airport is preferable to privatizing a local airport. These findings have policy implications for airport privatization.

Keywords: hub-spoke network, airline pricing, congestion charges, airport privatization

JEL Classification: L93, L30, H20

Suggested Citation

Lin, Ming Hsin and Zhang, Yimin, Airline Pricing and Airport Charges in Hub-Spoke Networks with Congestion (October 6, 2011). Available at SSRN: https://ssrn.com/abstract=1939745 or http://dx.doi.org/10.2139/ssrn.1939745

Ming Hsin Lin (Contact Author)

Osaka University of Economics - Faculty of Economics ( email )

2-2-8 Osumi
Higashiyokogawa-ku
Osaka
Japan

Yimin Zhang

affiliation not provided to SSRN ( email )

Paper statistics

Downloads
106
Rank
215,673
Abstract Views
728