Airport Congestion Pricing and Capacity : Cost Recovery With Per-Flight or Per-Passenger Charges

This study investigates airport congestion pricing and capacity investment with cost recovery consideration. Two countries’ airports are interlinked and served by each country’s home carrier. Our global welfare maximization shows that when per-passenger subsidies are not feasible under “dual pricing (choosing per-flight and per-passenger charges)”, “single pricing per-flight” or “single pricing per-passenger” alternative could be sufficiently cost recovery as long as the chosen level is positive; combined with marginal-operating-cost pricing on the remaining instrument. However, each single pricing causes distortions; and the distortions under single pricing per-flight are always smaller. Our local welfare maximization first shows that when each country adopts dual pricing, an incentive of exploiting foreign carriers may, surprisingly, lead optimal per-passenger charges to become negative. We find that, when per-passenger subsidies are not feasible, each single pricing instrument could be cost recovering; and the distortions caused by single pricing per-flight is generally smaller. When dual pricing does not need per-passenger subsidies, we interestingly find that the distortions under single pricing per-flight can even be smaller than that under dual pricing. We also find that each airport capacity investment can be socially efficient only when single pricing per-passenger is adopted, under which each airport’s operating and investing costs may be recovered