Airport Competition the european experience potx

AIRPORT COMPETITION
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Airport Competition
The European Experience
EDITED BY
PETER FORSYTH
Monash University, Australia
DAVID GILLEN
University of British Columbia, Canada
JÜRGEN
MÜLLER
Berlin School of Economics
HANS-MA
RTIN NIEMEIER
University of Applied Sciences, Germany
© Peter Forsyth, David Gillen, Jürgen Müller and Hans-Martin Niemeier 2010
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted
in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior
permission of the publisher.
Peter Forsyth, David Gillen, Jürgen Müller and Hans-Martin Niemeier have asserted their moral rights under
the Copyright, Designs and Patents Act, 1988, to be identied as the editors of this work.
Published by
Ashgate Publishing Limited Ashgate Publishing Company
Wey Court East Suite 420
Union Road 101 Cherry Street
Farnham Burlington
Surrey, GU9 7PT VT 05401-4405
England USA
www.ashgate.com
British Library Cataloguing in Publication Data

Airport competition : the European experience.
1. Airports Economic aspects Europe. 2. Airports
Economic aspects Europe Case studies. 3. Aeronautics,
Commercial Government policy Europe.
I. Forsyth, P. (Peter)
387.7'36'094-dc22
ISBN: 978-0-7546-7746-8 (hbk)
ISBN: 978-0-7546-9484-7 (ebk)
Library of Congress Cataloging-in-Publication Data
Airport competition : the European experience / edited by Peter Forsyth [et al.].
p. cm.
Includes bibliographical references and index.
ISBN 978-0-7546-7746-8 (hardback) ISBN 978-0-7546-9484-7
(e-book) 1. Airports Europe Case studies. 2. Airports Management Europe Case studies. 3. Competition-
-Europe Case studies. I. Forsyth, P. (Peter)
HE9842.A4A37 2009
387.7'36 dc22
2009030234
V
Contents
List of Figures ix
List of Tables xi
Acknowledgements xiii
Editors and Contributors xv
1 Introduction and Overview 1
Peter Forsyth, David Gillen, Jürgen Müller and Hans-Martin Niemeier
PART A: HOW DO AIRPORTS COMPETE AND HOW STRONG IS COMPETITION?
2 Airport Competition and Network Access: A European Perspective 11
Dr Peter Morrell
3 Airport Entry and Exit: A European Analysis 27

Christiane Müller-Rostin, Hansjochen Ehmer, Ignaz Hannak, Plamena Ivanova,
Hans-Martin Niemeier and Jürgen Müller
4 Airport Pricing 47
Eric Pels and Erik T. Verhoef
5 Countervailing Power to Airport Monopolies 59
Kenneth Button
6 Competition Between Major and Secondary Airports: Implications for Pricing,
Regulation and Welfare 77
Peter Forsyth
7 Airport Strategies to Gain Competitive Advantage 89
Dr Anne Graham
8 An Empirical Analysis of Airport Operational Costs 103
Eric Pels, Daniel van Vuuren, Charles Ng and Piet Rietveld
9 Competition Between Airports: Occurrence and Strategy 119
Dr Michael Tretheway and Ian Kincaid
10 Airport Competition for Freight 137
Dr Michael W. Tretheway and Robert J. Andriulaitis
Airport Competition
vi
PART B: TRAVELLER CHOICE AND AIRPORT COMPETITION
11 Modelling Air Travel Choice Behaviour 151
Stephane Hess
12 Airport Choice Behaviour: Findings from Three Separate Studies 177
Stephane Hess and John W. Polak
13 Improved Modelling of Competition among Airports through Flexible Form and
Non-Diagonal Demand Structures Explaining Flows Registered within a New
Trafc Accounting Matrix 197
Marc Gaudry
PART C: CASE STUDIES OF AIRPORT COMPETITION
14 Competition in the German Airport Market: An Empirical Investigation 239

Robert Malina
15 Competition among Airports and Overlapping Catchment Areas: An Application to
the State of Baden-Württemberg 261
Daniel Strobach
16 Airport Competition in Greece: Concentration and Structural Asymmetry 277
Andreas Papatheodorou
17 The Airport Industry in a Competitive Environment: A United Kingdom
Perspective 291
David Starkie
18 The Effect of Low-Cost Carriers on Regional Airports’ Revenue: Evidence from
the UK 311
Zheng Lei, Andreas Papatheodorou and Edith Szivas
PART D: POLICY ISSUES
19 Competition and the London Airports: How Effective Will It Be? 321
Peter Forsyth and Hans-Martin Niemeier
20 Airport Alliances and Multi-Airport Companies: Implications for Airport
Competition 339
Peter Forsyth, Hans-Martin Niemeier and Hartmut Wolf
21 Airport Competing Terminals: Recent Developments at Dublin Airport 353
Aisling Reynolds-Feighan
22 Competition, State Aids and Low-Cost Carriers: A Legal Perspective 365
Hans Kristoferitsch
Contents
vii
23 Subsidies and Competition: An Economic Perspective 379
Dan Elliott
24 Competition for Airport Services – Ground Handling Services in Europe: Case
Studies on Six Major European Hubs 393
Cornelia Templin
25 Airport Competition: Market Dominance and Abuse 413

Peter Lewisch
26 Airport Competition: A Perspective and Synthesis 427
Peter Forsyth
Airport Competition: Some Key References 437
Airport Index 439
Index 441
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List of Figures
2.1 City-pairs served by LCCs at Stansted accessible at similar prices 12
3.1 Airport entries and exits 36
3.2 Entry and exit of German airports 37
5.1 Price and output under a pure bilateral monopoly 62
5.2 Third-degree price discrimination between low-cost and legacy carriers 71
8.1 Long and short run cost curves 105
8.2 Cost as a function of the number of passengers 109
8.3 Cost as a function of the fraction of international passengers 110
8.4 Distribution of scale elasticities (PAX) over different airports 115
8.5 Distribution of scale elasticities (ATM) over different airports 115
8.6 Distribution of xed effects over different airports 116
9.1 Percentage change in marketing staff per passenger at selected UK airports
1991–1997 120
9.2 Growth in world GDP, passenger trafc and cargo trafc 129
11.1 Main choice processes of an outbound air journey 155
11.2 Interactions between air travel choice dimensions 157
11.3 Downwards interactions between upper level choices and air travel choice
dimensions 158
11.4 Upwards interactions between air travel choice dimensions and upper level
choices 160
11.5 Structure of two-level NL model, using nesting along airport dimension 169
11.6 Structure of three-level NL model, using nesting along airport dimension

and airline dimension 171
11.7 Structure of CNL model for the joint analysis of correlation along the
airport, airline and access mode dimensions 172
13.1 Response asymmetry and non-linearity: Classical Linear-Logit vs Standard
Box-Cox-Logit 217
13.2 Fare elasticities in intercity Box-Cox Logit model 218
13.3 Travel time elasticities in intercity Box-Cox Logit model 219
13.4 Comparing Linear and Box-Cox Logit forecasts of an ICE train scenario in
Germany 222
13.5 Comparing Linear and Box-Cox Logit forecasts of intermodal train gains 222
13.6 Comparing Generalized Box-Cox and Linear Logit forecasts of intermodal
train gains 227
14.1 Spatial distribution, size and ownership structure of the German airport market 242
14.2 Spatial distribution of German and neighbouring foreign airports open to
public trafc with a runway of at least 1,000 metres length and ILS 248
15.1 Catchment area and competitive zones of Stuttgart Airport 273
15.2 Leadership position of airports in Baden-Württemberg 274
16.1 Evolution of the HHI, 1986–2005 282
Airport Competition
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16.2 GDP and passenger trafc in NUTS3 regions, 2000 284
16.3 GDP and passenger trafc in NUTS3 regions, 2000 285
16.4 Population and passenger trafc in NUTS3 regions, 2000 286
16.5 Population and passenger trafc in NUTS3 regions, 2000 286
17.1 Competition and catchment areas 300
17.2 Operating prot as a percentage of xed assets v turnover (£000) 306
19.1 Price and quality 333
21.2 Passenger trafc and trafc growth rates at Cork, Shannon and Dublin
airports, 1995–2006 356
21.1 Regional breakdown of trafc at the three Irish state airports, 2000 and 2006 356

24.1 Major players in the ground handling industry 395
24.2 Overview of the six major European airports in the analysis 397
24.3 Ground handling companies at six major hubs in Europe 397
24.4 Shifts in market share after deregulation (1999–2004) 400
24.5 Market split at London Heathrow 2004 (turnarounds) 402
24.6 Market split at Paris Charles de Gaulle 2004 (turnarounds) 404
24.7 Market split at Frankfurt 2004 (turnarounds) 405
24.8 Market growth of Acciona at Frankfurt 405
24.9 Market split at Amsterdam Schiphol 2004 (turnarounds) 406
24.10 Market split at Madrid Barajas 2004 (turnarounds) 407
24.11 Market split at Rome Fiumicino 2004 (turnarounds) 408
25.1 Competition between airports for fuelling stops 417
25.2 Threefold structure in aviation 420
25.3 Threefold structure and vertical disintegration in ground handling 421
List of Tables
5.1 Operating margins at European airports 65
5.2 Market share of passengers by airline at Europe’s 10 largest airports (2002) 67
5.3 Market capitalizations of leading airlines ($ billions) in November 2005 67
5.4 Low-cost carriers and airports in metropolitan regions (2006) 69
8. 1 Average values of four key variables 107–108
8.2 Estimation results for a number of specications of cost functions 112–113
8.3 Average scale elasticities in different model specications 114
9.1 Feature presented by typical primary and secondary airports 125
10.1 Snapshot of the making of a logistics giant: Deutsche Post AG 141
10.2 Top European cargo airports 142
12.1 Summary of choice data for SF-bay area case study 179
12.2 Model performance on SF-bay area data in terms of adjusted ρ
2
(0) measure 181
12.3 Trade-offs between ight frequency and access time (min/ight) in models

for combined choice of airport, airline and access mode 183
12.4 Prediction performance on SF-bay area validation data 185
12.5 Model performance on London data 187
12.6 Model results for London data 188
12.7 Prediction performance on London validation data 189
12.8 MNL trade-offs, part 1: willingness to pay ($) 193
12.9 MNL trade-offs, part 2: willingness to accept increases in access time (min) 194
13.1 Trafc accounting matrix (TAM) representation of the physical transport
network ows 200
13.2 Flow matrix for the four-city system without direct connections from
Airport J to Airport B 202
13.3 Relationship between input-output (I-O) and trafc accounting matrices (TAM) 203
13.4 Market and network analysis: a three-level approach 205
13.5 Example of full price matrix used in three-mode representative utility
function set 207
13.6 Flexible form, heteroskedasticity and spatial correlation in freight trade models 209
13.7 Flexible form, heteroskedasticity and spatial correlation in passenger
transport models 211
13.8 Selected own share elasticities of Box-Cox Logit models used in the
simulations 221
13.9 Comparing Linear with Standard and Generalized Box-Cox elasticities and
values of time 224
13.10 Linear, Standard and Generalized Logit mode choice model of freight
across the Pyrenees 225
14.1 Ownership structure of privatized German airports in spring 2008 240–240
14.2 Take-off distance required (TODR) for various aircraft with maximum take-
off weight (MTOW) and 3/4 load capacity 246
Airport Competition
xii
14.3 Best substitutes and substitution coefcients for 35 German airports 252

15.1 Worldwide arrivals at selected European airports, 2004 266
15.2 Share of individual factors 268
15.3 Airports included in the study 269
15.4 Resulting scores 270
15.5 Leader and competitors 272
16.1 Results of correlation analysis 284
17.1 Selected nancial and operating data for UK airports, 2005–06 293
17.2 Ownership patterns at main airports in the United Kingdom, 2007 294
17.3 UK operating bases for four non-legacy airlines, summer 2008 299
17.4 Driving times between adjacent airports (hours.minutes) 303
17.5 Financial data for the smaller UK airports, 2005–06 305
17.6 Net return (%), airports and UK private non-nancial sector, 2005–06 307
18.1 Descriptive statistics 313
18.2 Impact on regional airport’s non-aeronautical revenue 314
18.3 Impact on regional airport’s aeronautical revenue 316
18.4 Impact on regional airports’ aggregate revenue 317
19.1 Overview of regulatory milestones of BAA 323
19.2 Passenger numbers at London airports (millions) 323
19.3 Regulation X-factor 324
20.1 Horizontal integration of airlines and of airports 341
20.2 Airport companies: Stakeholdings and competition 345
21.1 Key legislative and regulatory instruments governing operation of Dublin
Airport 354
21.3 Top six carriers and market shares at Dublin airport in 1996, 2000 and 2006 357
21.4 The road to Terminal 2 at Dublin Airport – key milestones 359
24.1 Third party competition per terminal 409
25.1 Threefold structure of transport markets 414
25.2 Market power in threefold structure of transport market 415
Acknowledgements
We would like to thank Achim Czerny, Karsten Fröhlich, Anne Graham, Cathal Guiomard,

Stephane Hess, Kai Hüschelrath, Jörg Last, Zheng Lei, Andreas Papatheodorou, Eric Pels, David
Starkie and Michael Tretheway for carefully reviewing chapters and providing valuable insights.
We would like to also thank Lorra Ward for providing suggestions to improve English expressions.
Furthermore, we would like to thank Harald Wiese and Fenja Fahle for preparing the index.
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Editors and Contributors
Robert Andriulaitis is the Vice President, Transportation and Logistics Studies with InterVISTAS
Consulting Inc. He has 18 years’ experience in transportation policy, cargo economics and
marketing, foreign trade zone development and business logistics, in both the private and public
sectors. With an MSc in Transportation and Logistics from the University of British Columbia,
and experience in air, rail, trucking and intercity bus transportation issues, he brings a multi-modal
perspective to transportation and logistics challenges. Prior to joining InterVISTAS, he worked for
the transportation policy departments of the governments of Alberta and Manitoba in Canada.
Kenneth Button is a professor at George Mason University, Virginia, where he is the Director
of the Center for Aerospace Policy Research and the Center for Transportation Policy, Operations,
and Logistics. He holds degrees in Economics from the universities of East Anglia, Leeds and
Loughborough. He is editor of the Journal of Air Transport Management and of Transportation
Research Series D: Transport and Environment. He is currently a visiting professor at the University
of Bergamo and Porto University. He has written or edited over 100 books and authored over 400
articles and book chapters.
Hansjochen Ehmer, after his business administration studies at the University of Cologne,
worked as a university assistant at the Institute of Transport Science of the University of Münster
from 1984 to 1988. Since then he has been a member of the German Aerospace Center in Cologne.
In 1996 he received his PhD in Economics with a dissertation on competition policy in regional air
transport. Since 2002, he has been a Professor of Aviation Management, Economics and Business
Ethics at the International University of Applied Sciences (IUAS) Bad Honnef, Bonn. He is one of
the project leaders on the German Airport Performance (GAP) project.
Dan Elliott is a Director of Frontier Economics. He is a specialist in the economics of network
industries, focusing particularly on transport, telecommunications and water. His work covers
the full range of competition, regulatory and pricing issues arising in these sectors, and since

privatization began in the UK in the 1980s he has advised many companies in proceedings with
regulatory bodies and the Competition Commission.
Peter Forsyth has been Professor of Economics at Monash University, Australia since 1997.
Prior to this he held posts at Australian National University and the University of New England. He
holds degrees from the University of Sydney and the University of Oxford. He has specialized in
the economics of transport, especially aviation, privatization and regulation, and the economics of
tourism. Most recently, he has been paying particular attention to the privatization and regulation
of airports, and to the use of computable general equilibrium models in evaluating the economic
impacts of tourism.
Marc Gaudry, a specialist of transport demand, road safety and network accounting, is Director
of Agora Jules Dupuit, a research network and website based at the Université de Montréal. He
is also an associate researcher at INRETS, the French National Institute of Transport Research.
His work has been recognized by over 1,700 citations in scientic documents, as well as by the
Alexander von Humboldt and Ernst-Blickle research awards. He has implemented large-scale
models for national ministries of transport, notably those of Canada, France, Germany and
Airport Competition
xvi
Quebec. As a former Commissioner of the Canadian Royal Commission on National Passenger
Transportation, he also acts as a scientic mediator in large-scale research or planning projects.
David Gillen graduated in 1975 from the University of Toronto with a PhD in Economics.
He joined the University of British Columbia in 2005 and currently holds the positions of YVR
Professor of Transportation Policy in the Sauder School of Business and is Director, Centre for
Transportation Studies, University of British Columbia. He is also research economist at the
Institute of Transportation Studies at the University of California, Berkeley. His current research
includes pricing and auction mechanisms for roadways and runways, measuring performance of
transportation infrastructure, vertical contracts in aviation and evolving network strategies and
business models in airlines, airports, ports and gateways.
Anne Graham has been involved in the teaching, research and consultancy of air transport for
over 20 years and has developed two key research interests. Her rst area of research is airport
management, economics and regulation. The third edition of her book Managing Airports was

published in 2008. Her other research interest is the analysis of tourism and aviation demand and
the relationship between the tourism and aviation industries. She has co-edited a book entitled
Aviation and Tourism: Implications for Leisure Travel. She has written many conference papers
and articles about these two research areas and is on the editorial board of the Journal of Airport
Management.
Ignaz Hannak is enrolled at the International University of Applied Sciences Bad Honnef for
Aviation Management Studies and was due to graduate in the summer of 2009. He gained aviation
experience through internships at Katowice International Airport, Air Berlin and Lufthansa. He is
a research assistant on the German Airport Performance Project at the IUAS Bad Honnef.
Stephane Hess is a principal research fellow in the Institute for Transport Studies at the University
of Leeds, working in the area of choice modelling. Here, he has made several recent contributions
to the state-of-the art in the specication, estimation and interpretation of such models, while also
publishing a number of papers on the benets of advanced structures in actual large-scale transport
analyses, for example in the context of air travel behaviour research. His contributions have been
recognized by the 2005 Eric Pas prize for the best PhD thesis in the area of travel behaviour
modelling, as well as various other awards. He is also the editor-in-chief of the Journal of Choice
Modelling and the organizer of the International Choice Modelling Conference.
Plamena Ivanova is a masters student in Economics and Management Science at Humboldt
University, Berlin. She is a research assistant on the German Airport Performance (GAP) Project
at FHW Berlin. Plamena is a co-author of several papers within the GAP project, working mainly
in the eld of airport charges and the development of the airport market.
Vanessa Kamp is a research assistant on the German Airport Performance project at the
University of Applied Sciences, Bremen. She holds a Diploma degree in Economics, with the
emphasis on regional policy and logistics in Bremen, and also received a Bachelor of Arts in
Business Economics from the University of Hertfordshire in England. Research interests include
the privatization and regulation of airports and the productivity and efciency measurement of
public utilities.
Ian Kincaid is Director, Economic Analysis with InterVISTAS-EU Consulting Inc. Mr Kincaid
has 14 years’ experience in transport economics, demand forecasting, cost benet analysis and
economic impact analysis. Prior to joining InterVISTAS, he was employed as a senior consultant

at a London-based transport consultancy. Over his consulting career he has worked on projects
for clients in Europe, North and South America, Africa and Australia. Mr Kincaid has a degree
in Economics from the University of Leicester and a masters in Operational Research from the
London School of Economics.
Editors and Contributors
xvii
Hans Kristoferitsch studied at the University of Vienna (masters in Law, 2002, and History,
2004; doctorate in Law, 2004). His thesis ‘Vom Staatenbund zum Bundesstaat’, was a comparison
between developments from confederacies of states to federal states, published in 2007. He also
studied at Harvard University (LLM, 2005). From 2005 to 2007 he was an assistant at the European
Institute of the University of Economics and Business Administration, Vienna with Professor
Stefan Griller. Currently Hans is an associate with CHSH Attorneys at Law, Vienna.
Peter Lewisch gained doctorates in Law in 1985 and Economics (1987), both at the University
of Vienna. He also achieved ‘Habilitation’ in Criminal Law (1992) and Constitutional Law (1993).
In 1990 and 1992–93 he was a visiting scholar at the Center for Public Choice, Virginia. He has
been an attorney at law since 1996, including academic assignment to the University of Vienna
Law School. Since 2002 he has served as Professor of Law at Imadec University, Vienna, and
visiting professor of EU Law at George Mason University, Virginia. He has also made several visits
to Harvard and Cornell Law Schools. His main elds of interest are competition law, regulation,
criminal and constitutional law, EU law, law and economics, and public choice.
Robert Malina is a lecturer in transport economics, competition policy and regulation at
Münster University in Germany and works as a researcher for the Münster Institute of Transport
Economics. He is also part of the faculty of Bonn University and Warsaw School of Economics,
teaching Aviation Economics at both institutions. In 2005 Robert obtained his PhD from Münster
University on issues of airport competition. His current research projects in aviation are concerned
with the economic evaluation of catalytic effects of airport infrastructure.
Peter Morrell graduated in Economics from Cambridge University and has a masters in
Air Transportation from the Massachusetts Institute of Technology. He also has a doctorate in
airline capital productivity from Craneld University. He is a former head of the Department of
Air Transport at the College of Aeronautics at Craneld University, where he has a Chair in Air

Transport Economics and Finance. He is the department’s Director of Research, is the European
editor for the Journal of Air Transport Management, is on the editorial board of Tourism Economics
and is a fellow of the Chartered Institute of Transport.
Jürgen Müller received his PhD at Stanford University. He worked as a research fellow at the
Science Center Berlin and was Research Director at the German Institute for Economic Research
in Berlin. Currently he holds a Chair in Economics at the Berlin School of Economics. He was
the lead economist for both the Association of European Airlines study on the Cost of Air Trafc
Control Delay and for the studies of the German airspace users’ group on ATC delay and airport
capacity constraints. He is one of the project leaders of the German Airport Performance Project
and is the vice chair of the German Aviation Research Society (GARS).
Christiane Müller-Rostin is a sales account manager for Lufthansa Cargo AG. She holds a
degree in Latin American Regional Studies with a major in Economics from the University of
Cologne. Her masters thesis focused on market entry and deterrence strategies in the Brazilian
aviation industry. After graduating in 2006, Christiane worked for a year as a research associate
on the German Airport Performance project, preparing and delivering papers and presentations
on airport entry and exit in Europe, coordinating project research and database compilation, and
handling other project-related details. She also assisted in teaching Economics at the University of
Applied Sciences Bremen.
Charles Ng works at the Economic Regulation Group, UK Civil Aviation Authority. He
received his PhD in Applied Economics from the University of Minnesota, USA. His major
research interests include econometric modelling of air travel demand and issues related to airline
and airport competition.
Airport Competition
xviii
Hans-Martin Niemeier is a professor of Transportation Economics and Logistics at the
University of Applied Sciences Bremen. He received his PhD in Economics at the University
of Hamburg and worked in the aviation section of the State Ministry of Economic Affairs of
Hamburg. He is president of the German Aviation Research Society. His research focuses on airport
regulation and management.
Dr Andreas Papatheodorou is Assistant Professor in Industrial Economics with emphasis on

Tourism at the University of the Aegean, Greece. He is also an Honorary Research Fellow at the
Nottingham University Business School, UK. Andreas holds an MPhil in Economics and a DPhil
in Geography from the University of Oxford. He is also a Partner at the Air Consulting Group.
Eric Pels graduated in Economics at the Vrije Universiteit in Amsterdam in 1994. In 2000 he
successfully defended his doctoral dissertation, entitled ‘Airport economics and policy: efciency,
competition, and interaction with airlines’. He is an assistant professor at the Vrije Universiteit and
teaches courses at undergraduate and graduate level. His research focuses on the development of
transport networks, pricing transport networks and the pricing of infrastructure.
John Polak is Professor of Transport Demand and Director of the Centre for Transport Studies
at Imperial College, London. Professor Polak is a mathematician by background, with over 25
years’ experience in transport research and teaching, specializing in the areas of mathematical and
statistical transport modelling and analysis. He is a past president of the International Association
for Travel Behaviour Research. Professor Polak has been in the forefront of innovative transport
model development in the UK for a number of years, and has published extensively on a number
of aspects of travel behaviour and demand.
Dr Aisling Reynolds-Feighan is Associate Professor of Transport Economics in the School
of Economics at University College, Dublin (UCD), and Director of the UCD Transport Policy
Research Institute. She holds BA and MA degrees in Economics from UCD. Prior to joining
the School of Economics at UCD, she attended the University of Illinois at Urbana-Champaign,
graduating with a PhD in 1989. Her main research interests are air and road transport economics
and logistics. Aisling has published widely on comparative US and European air transportation
systems, networks and policies.
Piet Rietveld studied econometrics at Erasmus University, Rotterdam (cum laude degree) and
received his PhD in Economics at Vrije Universiteit, Amsterdam. He worked at the International
Institute of Applied Systems Analysis (Austria) and was research coordinator at Universitas Kristen
Satya Wacana in Salatiga, Indonesia. Since 1990 he has been professor of Transport Economics
in the Faculty of Economics, Vrije Universiteit, Amsterdam. He is also a fellow at the Tinbergen
Institute. His research interests are transport and regional development, valuing quality of transport
services, economics of public transport, pricing in transport, modelling land use and methods for
policy analysis.

David Starkie has held positions at universities in the UK, Australia, Canada and Germany;
directorships with US and UK consultancies and has advised parliamentary and government
committees in the UK and Australia. A former associate member of the American Bar Association,
he has been editor of the Journal of Transport Economics and Policy since 1997 and is the author
of Aviation Markets: Studies in Competition and Regulatory Reform (Ashgate 2008).
Daniel Strobach has a degree in Business Administration and Economics and a PhD from the
University of Hohenheim. He also studied Transportation at the Vienna University of Economics
and Business Administration. Since 2009, he is working with the German Federal Competition
Authority.
Dr Edith Szivas is a senior lecturer in Tourism at the University of Surrey, UK. She gained
her BSc in International Trade in Budapest, Hungary, and her early career was in banking and
Editors and Contributors
xix
international trade. She has an MSc in Tourism Planning and Development and a PhD from the
University of Surrey. Dr Szivas has worked on tourism related projects for the United Nations
World Tourism Organization, Travel and Tourism Intelligence (MINTEL), the Department of Trade
and Industry, and USAID.
Cornelia Templin has been working in the Strategic Development of the Ground Services
division at Fraport since 2002. She obtained her PhD on the deregulation of ground handling
services in Europe from the University of Giessen in 2006. She started her career as a trainee in
Aviation Management at Frankfurt Airport and studied Business Administration in Giessen and
Los Angeles. In 2006, she was a visiting scholar at the University of British Columbia, Vancouver,
in the Centre for Transportation Studies of the Sauder School of Business.
Dr Michael Tretheway is Executive Vice President and Chief Economist with InterVISTAS
Consulting Inc. in Vancouver, Canada. He is also Adjunct Professor with the Sauder School of
Business at the University of British Columbia. Prior to co-founding InterVISTAS, Dr Tretheway
was an executive with the Vancouver International Airport Authority. He has served as an expert
witness and advisor to governments, airlines, airports, ports and railways in Asia, Africa, North
America and Europe. He has a PhD in Economics from the University of Wisconsin and was
Associate Professor of Transportation and Logistics at the University of British Columbia for 14

years.
Erik Verhoef is a professor at Vrije Universiteit, Amsterdam. His research focuses on the
efciency and equity aspects of spatial externalities and their economic regulation, in particular
in transport, urban and spatial systems. Important research themes include second-best regulation,
network and spatial analysis, efciency aspects versus equity and social acceptability, and policy
evaluation. He has published various books and numerous articles.
Daniel van Vuuren obtained both his masters (Econometrics, 1997) and PhD (Economics, 2002)
from the Vrije Universiteit, Amsterdam. He conducts empirical research in microeconomics. His
work has been published in Applied Economics, the Journal of Transport Economics and Policy,
Labour, and Transportation Research A.
Dr Zheng Lei is a lecturer in the Department of Air Transport at Craneld University, where he
teaches Quantitative and Research Methods. Previously, he was a senior lecturer at Anglia Ruskin
University. Zheng has a PhD in Management from the University of Surrey, UK. His research
interests include air transport and tourism management, regional economic development and
research methodology.
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Chapter 1
Introduction and Overview
Peter Forsyth, David Gillen, Jürgen Müller and Hans-Martin Niemeier
One of the themes in an earlier German Aviation Research Society (GARS) book, The Economic
Regulation of Airports (Forsyth et al., 2004), was that ‘strong competition between airports is not
feasible’ (xxviii); we argued this might change in the future. That book raised, under the heading
of future challenges, the ‘bigger question of whether, in more competitive circumstances, there is
a continued need for formal price regulation’ (xxix). In this current book we take up the issue of
airport competition, with particular reference to Europe. We explore whether and where it exists,
how strong it is and what policy implications it has.
Since the publication of the earlier book, developments have amplied the challenges and have
put them on top of the agenda of airport policy in some jurisdictions. Three events stand out: the
proposed break-up of BAA, the blocked takeover of Bratislava Airport by Vienna Airport and the
prohibition of subsidies to Ryanair by Brussels South Charleroi Airport.

In 2008, the UK Competition Commission recommended that BAA be forced to divest itself
of two of its three London airports, and to sell either Glasgow or Edinburgh Airport. The stated
objective is to promote competition between the airports.
On 18 October 2006 the Slovak government made a nal decision to stop the sale of
Bratislava Airport to neighbouring Vienna Airport because it had not been approved by the
Slovenian anti-monopoly ofce. This case is similar to the BAA case, but it raises some
additional issues. There was a concern that Bratislava Airport had the potential to compete
with Vienna Airport, at least in some markets.
On 3 February 2004 the European Commission prohibited direct aid granted by the Walloon
Region and Brussels South Charleroi Airport to Ryanair. Ryanair appealed this decision
and were successful in having the case overturned; a decision by the European Court of
First Instance (2008) in December 2008. Nonetheless, the issue of state subsidies to low-
cost carrier (LCC) airports, as well as to major airports served by full-service airlines,
has remained a contentious issue. For example, Ryanair has complained to the European
Commission about state aid of over €400 million per annum to Schiphol Airport and to
KLM/Air France. The Charleroi decision involves a horizontal aspect of competition
among airports, along with a vertical aspect of how distortions of airport competition affect
competition between airlines in the downstream market.
The case for regulation of airports comes about because of a lack of competition between airports,
and their consequent possession and use of market power. This lack of competition may come
about for two types of reason: locational reasons and natural monopoly reasons.
The locational explanation argues that for most airports there are no close substitutes as
attractive locations are limited (Forsyth, 1997). It is very difcult to obtain permission to build
airports in cities with existing airports, for example, to build a competing airport next to hubs
like Frankfurt or Paris airports. Such airports have a de facto monopoly reecting planning and
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Airport Competition
2
environmental restrictions and they have market power in the provision of aviation services which

suggests a case for regulation.
The other explanation relies on economies of scale in airport provision. Thus, a monopoly
is efcient as two or more airports would lead to higher average costs. If there is more than one
airport, and competition is present between the airports, this competition will break down, since the
airport which is able to gain more trafc will be able to enjoy lower costs and may be able to force
the other out of the market. The existence and extent of scale economies at airports is disputed,
though the presence of large indivisibilities, especially in the provision of runways, means that only
large cities are likely to be able to have several runways and several airports. If natural monopoly
is present, a prot-oriented airport will have an incentive to use its market power and increase
prices. Alternatively, a non-prot-oriented airport might charge high prices and allow costs to rise.
Governments might regulate airports to prevent this from occurring.
These explanations are not mutually exclusive. Whatever the explanation, few cities other than
very large ones have more than one airport. This said, there may be secondary airports on a city’s
fringes that can compete, at least for some trafc, with the main airport. In addition, in the densely
populated regions of countries such as the UK and Germany, there may be several airports that
residents regard as equally accessible. Thus competition can exist, though often does not.
In this study, we nd that competition between airports does exist in several regions. Thus,
there is competition between the airports in the UK outside London, and this competition appears
sufciently strong to discipline their pricing. There are also many examples of monopoly airports
where there is only one airport in a city and the nearest other airport is too far away to provide
effective competition. In between, there are many situations where there is competition between
airports for some trafc, for example between a fringe secondary airport and a major city airport for
(LCC) trafc. Airports, though distant from one another, can compete in some markets, for example,
for duty-free goods or as bases for LCCs. Major airports may be able to compete for hub trafc.
Competition can also take place within airports, for example, between separately owned terminals.
The issue of competition between airports is of interest for several reasons:
If it is strong, it may be feasible to dispense with direct regulation of airports. Granted that
regulation can be costly in efciency terms, even imperfect competition may be preferable
to imperfect regulation.
Even if competition is not strong enough to dispense with regulation, it may still provide a

spur to improved performance.
When several airports are being privatized, governments must assess whether the benets
from selling them as a group to one owner outweigh any gains that might be achieved
through selling them separately to facilitate competition.
With many airports now being privately owned, the issue arises of whether mergers or
alliances between potentially competing airports should be permitted – the case of Schiphol
and Paris Charles de Gaulle, which can compete as hubs, being a case in point.
We have organized the chapters under the following headings:
How do airports compete and how robust is competition between them? This section
provides an overview of the state of competition and explores whether the current form
of competition can increase efciency and economic welfare. Airports seem to compete
in various ways, but is there evidence of strong competition? In our view the evidence
is not clear and it varies from country to country and region to region. Furthermore, the
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Introduction and Overview
3
development of competition does not mean that the outcome is necessarily benecial; more
competition does not guarantee an improvement in economic welfare.
How do travellers choose an airport and how does this affect the competitive process? This
is an essential aspect of competition. In some less densely populated countries, travellers
have little choice as to which airport to use. In Europe, with a well-developed land transport
infrastructure, this can be different; but time and travel costs play an important role.
Similarly, long-haul connecting passengers have a choice of a number of airports they can
use, which can result in airports which are a long distance apart being in the same market.
Imagine a world in which travel and time to access airports were reduced to minimal levels
– in such a world, all airports would become close substitutes. However, even with high-

speed trains, time and travel costs remain important, and congested motorways add to the
complexity of the traveller choice problem.
What is the evidence for competition in the airport industry? As the intensity of competition
varies from country to country we have selected case studies from Greece, Germany and
the UK.
What issues for airport and competition policy emerge? Here we deal with the issues identied
earlier of market power, through joint ownership of potentially competing airports.
How Do Airports Compete and How Strong is Competition?
In Part A of the book empirical evidence on the nature of competition is presented. Morrell provides
an overview of how airports compete in Europe. He notes that airports are intermodal hubs through
which passengers are transferred from work or home to their nal destinations, combining different
transport modes. Airports compete with one another to attract airlines and he gives many examples
for the different ways how, and against whom, they compete. Morrell emphasizes that airports offer
airlines incentives and even subsidies to attract new routes or to base aircraft at their airport. The
EU Commission views state aid as discriminatory if it is not open to all airlines. Morrell analyses
several cases and highlights their importance (see chapters by Kristoferitsch and Elliott).
Müller-Rostin et al. analyse a particular, though important, aspect of competition. In other
industries, entry and exit are drivers of the competitive process and lead to welfare maximizing
results in the long run. Compared to other industries, only a few airports have entered or exited the
European airport sector. This suggests that the intensity of competition depends more on how the
incumbents behave than on new entry.
There are two chapters that look at the issue of competition in relation to airlines. Pels and
Verhoef argue that, without congestion, the ability by airports to abuse market power is limited
if airlines are forced, through competition, to set fares equal to marginal cost. With congestion
and with monopolistic behaviour of the airlines the airport can use its dominant position to raise
charges above the competitive level.
Even large hubs are small rms compared to many airlines, which typically are part of an
even larger airline alliance. Airports blamed for excessive market power claim that this fact has
been overlooked. Instead of exploiting their users, they are facing substantial countervailing power
from airlines. Button reviews this concept rst developed by Kenneth Galbraith in 1952. While

it was criticized by mainstream economists, he sees some relevance as it highlights outcomes
which are either monopolistic or competitive. Applying it to the airport industry Button nds that
countervailing power is hard to test. He analyses possible outcomes for traditional airlines and
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Airport Competition
4
LCCs and for collective action of airlines, and discusses forms of price discrimination by airports
as an indication of the strength of countervailing power.
Forsyth takes up the topic of Morrell’s chapter, namely increased competition between the
major and the secondary airport combined with subsidies for secondary airports served by LCCs.
He points out that the popular belief that ‘more competition leads to improved efciency’ might
not be true for airports where subsidies are present. While not denying that competition can have
positive effects, he doubts that this is necessarily the case in the airport industry with indivisibilities,
signicant sunk costs, imperfect regulation of major airports and subsidies available to some
secondary airports.
Cost conditions are recognized as an important driver of the feasibility of competition. Pels
et al. analyse how airport costs vary with size across a sample of airports from around the world,
using a translog cost function. They conclude that short run average operational costs decrease
with output, with passenger numbers being more closely associated with falling costs than air
transport movements. However, when a quality variable is introduced, the elasticity of cost with
respect to output is decreased in some specications.
The chapters by Graham and by Kincaid and Tretheway analyse strategies of airports facing
competition. Graham uses Porter’s ‘ve forces’ analysis to determine the threats and opportunities
airports face. Regarding new entrants and substitutes, the threats are low compared with other
industries. The forces of supply and consumer power, as well as internal rivalry, differ and cannot
be generalized. Airports so far have been reluctant to adopt generic competitive strategies such
as cost leadership and product differentiation, except for some niche markets such as LCCs and
freight. Graham observes no head-to-head competition, but a growing demand for applying

competitive strategies. Kincaid and Tretheway, on the other hand, tend to be more optimistic about
the competitive nature of the industry than Graham. They emphasize the change of airports from
passive service providers to active promoters of their business and region. Airports have developed
marketing strategies and search on their own for new service opportunities, which they actively
present to airlines to develop. They show how airports can dene their product and price, and
promote and distribute them. They provide examples of best practice, such as differentiating their
product by developing specic features. These include passenger facilitation and baggage handling;
pricing airlines differently at different stages of their business relationship; creating awareness of
specic services and promoting their airport through websites; and good placement in computer
reservation systems.
Tretheway and Andriulaitis describe the general evolution of the air cargo market and the trend
towards a more competitive environment. Air cargo has been capturing an increasing proportion of
trade, partly because of a growing proportion of high-value and often low-volume goods that are
being transported The addition of new passenger gateways in major areas of economic activity has
helped enormously in pushing up air cargo volumes. The development of secondary airports has
provided additional, more cargo-friendly options.
By analysing the whole value chain the authors show how the bargaining power of the individual
players have shifted and what the likely effect is on airports. They emphasize the growing inuence
of freight forwarders, the emergence of specialized air cargo freighters and the combination of air
freight with trucking that led to the expansion of the geographic scope of an airport’s catchment
area. This development has opened up new, and more competitive, options for shippers as numerous
combinations of gateways/air service providers are now available to a wider range of shippers.