Economic Regulation of Urban and Regional Airports: Incentives, Efficiency and Benchmarking

Contents
Chapter 1: Introduction
1.1 Background
1.2 Part I: The Need for Economic Regulation
1.3 Part I: Systems of Regulation
1.4 Part II: Benchmarking
1.5 Part III: Regulation in Practice: Facts and Systems of Regulation
References
Part I: Theoretical Background: Market Power and Regulation
Chapter 2: How Strong Is Airport Competition: Is There a Case for Regulation?
2.1 Introduction
2.2 Competition and the Case for Regulation
2.2.1 Market Power and the Classic Case for Regulation
2.2.2 The Allocative Efficiency Argument
2.2.3 Regulation, Competition and Public Airports
2.2.4 Alternative Arguments for Regulation: Transaction Costs and Opportunistic Behaviour
2.2.5 Distribution, Regulation and Competition
2.3 Airport Competition: A Brief Overview
2.3.1 Privatization and Incentives for Profit
2.3.2 Types of Airports and Sources of Competition
2.4 Substitutability of Airports
2.4.1 Demand Side and Supply Side Substitution
2.4.2 Provision of Infrastructure for O&D and Transfer Passengers and for Cargo: The Definition of Catchment Areas
2.4.3 High-Speed Rail Competition
2.4.4 Bundling: Aviation-Related Services and Market Power
2.5 Countervailing Power
2.5.1 Are There Alternative Airports Available?
2.5.2 Are Airline Markets Competitive, Contestable or Concentrated?
2.5.3 Countervailing Power and Subsidies
2.5.4 Countervailing Power and Passenger Interests
2.5.5 Competition and Countervailing Power: A Summary
2.6 Some Evidence of the Use of Market Power
2.6.1 Airport Charging Behaviour
2.6.2 The Presence of Price Discrimination
2.7 Studies of Competition and Market Power: A Brief Review
2.7.1 Airport Competition in the UK Market
2.7.2 The Productivity Commission Inquiries
2.7.3 Assessing Market Power at Amsterdam Airport
2.7.4 The Two ACI Studies by Copenhagen Economics Studies and OXERA
2.8 Conclusions
References
Chapter 3: European Hub Airport Competition: An Assessment of Market Concentration in the Local Catchment and in the Transfer ...
3.1 Introduction
3.2 European Hub Airport Market Development
3.3 Review of Hub Airport Competition
3.4 Competition in the Local Catchment
3.5 Competition in the Transfer Market
3.6 Discussion and Implications for Economic Regulation
Appendix
References
Chapter 4: The Transactions Costs Foundation for Public Utility Regulation and Its Application to the Regulation of Airports
4.1 Introduction
4.2 Transaction Cost Economics and Competition Policy
4.2.1 Relationship-Specific Investment and Hold-Up
4.2.2 Transaction Cost Economics and Competition Policy
4.2.2.1 Ownership Solutions to the Monopoly Problem
4.2.2.2 Contractual Solutions to the Monopoly Problem
4.2.3 Public Policies Towards Natural Monopoly
4.3 Transaction Cost Economics and Airport Regulation
4.3.1 Protecting Sunk-Specific Investment in the Air Transport Sector
4.3.1.1 Ownership Solutions to the Airport Monopoly Problem
4.3.1.2 Contractual Solutions to the Airport Monopoly Problem
4.3.2 Implications of the Transaction Cost Approach to Airport Regulation
4.4 Comments and Discussion
4.4.1 The Public Interest Is Broader than the Interests of Airports and Airlines
4.4.2 Airports and Airlines May Exercise Market Power in Other Ways
4.4.3 Why Do We Observe Arms-Length Regulation of a Government-Owned Facility?
4.4.4 Why Do We Not See Independent Dispute Resolution in Practice?
4.4.5 Potential Reform of Airport Regulation
4.5 Conclusions
References
Chapter 5: Cost-Based Versus Incentive Regulation for Airports
5.1 Introduction
5.2 ROR-Regulation
5.2.1 Technical Illustration of the Averch-Johnson Effect
5.2.2 Rate-of-Return Regulation Gives Improper Incentive
5.3 Incentive Regulation
5.3.1 Price Cap Regulation
5.3.1.1 Cost-Minimizing Behavior and Rents
5.3.2 Other Forms of Regulation
5.4 Airport Regulation
5.4.1 Double Marginalization
5.4.2 Policy Competition
5.4.3 Slot-Controlled Airports
5.5 Conclusion
References
Chapter 6: Airport Privatization and Regulation: Effects on Airport Charge, Capacity, and Social Welfare
6.1 Introduction
6.2 Basic Model
6.2.1 Consumers
6.2.2 Airlines
6.2.3 Non-Aeronautical Service Market
6.2.4 Airport´s Profit and Social Welfare
6.3 Welfare Maximization vs. Public Airport
6.4 Privatization of Aeronautical and Non-Aeronautical Services
6.4.1 No Regulation on Aeronautical Service
6.4.2 Price-Cap Regulation on Aeronautical Service
6.4.3 Cost-Based Regulation on Aeronautical Service
6.5 Numerical Results
6.5.1 Welfare Maximization vs. Public Airport
6.5.2 Privatization
6.5.3 Price-Cap vs. Cost-Based Regulation
6.5.4 Sensitivity Analysis with Respect to the Base Case
6.5.4.1 Smaller Cost Differences Between Public and Private Operations
6.5.4.2 Higher Time Cost
6.5.4.3 Higher Regulatory Waste
6.5.4.4 Higher Degrees of Airline Competition and Competition Among Non-Aeronautical Shops
6.5.4.5 Higher Internalization Rate of Profit from Non-Aeronautical Service
6.6 Concluding Remarks
Appendix 1
Appendix 2
Appendix 3
Appendix 4
Appendix 5
Appendix 6
Appendix 7
Appendix 8
Appendix 9
References
Chapter 7: Light-Handed Regulation of Airports: The Way to Go?
7.1 Introduction
7.2 The History of and Rationale for Light-Handed Regulation
7.3 What Is Light-Handed Regulation?
7.3.1 The Ex Post Nature
7.3.2 Upward Price Flexibility
7.3.3 The Ability of Parties to Negotiate
7.3.4 The Probability of Sanction
7.3.5 Other Characteristics
7.3.5.1 Formal or Informal
7.3.5.2 Independent and Dependent Regulators
7.3.5.3 Monitoring/Benchmarking
7.3.5.4 Review Criteria
7.3.6 LHR: Content or Process?
7.4 Models of Light-Handed Regulation
7.4.1 The Review/Sanction Model
7.4.2 The Negotiate/Arbitrate Model
7.5 The Working of Light-Handed Regulation
7.6 LHR and Performance
7.6.1 Expectations
7.6.1.1 Use of Market Power
7.6.1.2 Productive Efficiency
7.6.1.3 Service Quality
7.6.1.4 Non-Aeronautical Revenue
7.6.1.5 Investment
7.6.2 LHR in Practice
7.6.2.1 Use of Market Power
7.6.2.2 Productive Efficiency
7.6.2.3 Non-Aeronautical Revenues
7.6.2.4 Investment
7.7 Light-Handed Regulation: A Model to Follow?
7.8 Summary and Conclusions
References
Chapter 8: Optimising Investment in Regulated Airports
8.1 Introduction
8.2 Regulating Airport Investment
8.2.1 Privatisation and Investments
8.2.2 Investment Dynamics
8.2.3 Conflicting Goals and Complexities
8.3 Efficiency and Distributional Objectives in Regulating Airports
8.3.1 Short-Run Optimisation: Use of Fixed Capacity
8.3.2 Regulating Quality
8.3.3 Achieving Productive Efficiency in the Short Run
8.3.4 Long-Run Optimisation: Achieving Efficient Investment in Capacity
8.3.5 Productive Efficiency in the Long Run
8.3.6 Distributional Objectives
8.4 Instruments of Regulation
8.4.1 Price Regulation
8.4.2 Cost-Based Regulation
8.4.3 Incentive Regulation
8.4.4 Light-Handed Regulation
8.4.5 Airport Slots
8.4.6 Conditional Triggers
8.5 Regulating Airport Investments: Assessing the Options
8.6 Improving Regulation Via More Sophisticated Approaches
8.6.1 Introducing Quality Incentives
8.6.2 Introducing Slots
8.6.3 Introducing Conditional Triggers
8.6.4 Systems of Regulation: A Revised Comparison
8.6.5 Summary
8.7 Conclusions
References
Chapter 9: European Airport Reform: Slots and the Implicit Contract Between Airlines and Airports
9.1 Introduction
9.2 Outline of the European Airport System
9.2.1 Some Facts about the System
9.2.2 Aspects of Performance
9.2.2.1 Allocative Efficiency in the Short Run
9.2.2.2 Cost Efficiency
9.2.2.3 Provision of Capacity
9.2.2.4 Options for Commercial Activities
9.2.2.5 Connectivity and Regional Aspects
9.2.2.6 Quality
9.2.2.7 Environmental Externalities
9.2.3 Institutions
9.2.3.1 Ownership
9.2.3.2 Competition
9.2.3.3 Regulation
9.2.3.4 The Slot System
9.2.3.5 The Planning Environment
9.2.4 Interest Groups
9.2.4.1 Passengers and Shippers
9.2.4.2 Airlines
9.2.4.3 Airports
9.2.4.4 Governments and Regulators
9.2.4.5 Local Communities
9.3 How Well Are European Airports Performing?
9.3.1 Allocative Efficiency
9.3.2 Cost Efficiency
9.3.3 Provision of Capacity
9.3.4 Other Aspects
9.4 Implicit Airline-Airport Contracts
9.4.1 Airports with Adequate Capacity
9.4.2 Busy Airports
9.4.3 Options for Reform
9.5 Conclusions
References
Part II: Benchmarking
Chapter 10: Efficiency Assessment of Airports and the Impact of Regulation on Performance
10.1 Introduction
10.2 Airport Efficiency Estimation
10.2.1 Total Factor Productivity
10.2.2 Stochastic Frontier Analysis
10.2.3 Data Envelopment Analysis
10.2.4 Comparing Index Number TFP, SFA and DEA
10.3 Impact of Regulation on Airport Performance
10.4 Conclusions and Future Directions
References
Chapter 11: Methodology Choices for Benchmarking Airports
11.1 Introduction
11.2 The Link Between the Use and Format of Benchmarking
11.2.1 Assess Managerial or Firm Performance
11.2.2 Collaborative Benchmarking
11.2.3 Price Regulation
11.2.4 National Policy
11.2.5 Supply Chain or Value Chain Efficiency
11.2.6 Summary of the Uses of Benchmarking
11.3 Issues in Benchmarking Airports
11.3.1 Availability and Quality of Data
11.3.2 Adjusting the Data to Provide Meaningful Comparisons
11.3.3 Use of Residual Benchmarking, with Reference to the ATRS Study
11.4 Conclusions
11.4.1 Is Benchmarking with Limitations Better than No Benchmarking?
Annex. The General Equivalence of Real Unit Cost and TFP
References
Chapter 12: Practical Difficulties in Airport Benchmarking: The Case of Dublin Airport
12.1 Introduction
12.2 The Practical Challenge of Benchmarking
12.3 Price Regulation: Textbook and Practice
12.4 Types of Airport Regulatory Benchmarking Applied at Dublin Airport
12.5 Challenges Getting Benchmarking Started (Dublin, 2001)
12.6 Is `Core´ Airport Opex a Better Basis for Benchmarking?
12.7 A Later Benchmarking Investigation (2014) of Dublin Airport Opex to Apply Over the Period 2015-2019
12.7.1 The CAR´s Process for Airport Benchmarking
12.7.2 Step 1: Bottom-Up Opex Benchmarking
12.7.3 Step 2: Top-Down Opex Benchmarking
12.7.4 Step 3: Stakeholder Responses
12.7.5 Step 4: Final Regulatory Allowance
12.8 Implications of Benchmarking for the Scale of Regulatory Documentation
12.9 Conclusions
References
Part III: Country Studies
Chapter 13: Economic Regulation of Airports in the United Kingdom
13.1 Introduction
13.2 Economic Regulation Between 1987 and 2014
13.3 The New 2014 Regulatory Framework
13.4 Looking Forward
References
Chapter 14: French Airports Case Study
14.1 Introduction
14.2 Some Basic Facts of French Airports
14.3 Institutional and Legal Features of the French Airports
14.4 Regulation of the Airports
14.5 The Regulation of Small Regional Airports
14.6 Summary
References
Chapter 15: Airport Regulation and Benchmarking: Case Study Germany
15.1 Large Airports in Germany: Ownership, Market Power, and Financial Results
15.2 Legal Framework for Airport Regulation
15.3 Theoretical and Empirical Evidence
15.4 Conclusions
References
Chapter 16: Airport Market Power: Schiphol 10 Years After the Assessment
16.1 Introduction
16.2 Schiphol Market Power Study, 2009
16.3 Key Developments Since 2009
16.4 Schiphol Regulatory Environment
16.5 Concluding Comments
References
Chapter 17: Changing Governance and Regulation of Airports: A Comparison of Austria, Denmark, Italy, Hungary, Portugal, and Sp...
17.1 Introduction
17.2 Privatization of Airports
17.3 Airport Competition
17.4 Regulation of European Airports
17.4.1 Regulatory Institutions
17.4.2 Structural Regulation
17.4.2.1 Efficiency Incentives
17.4.2.2 Regulating Commercial Revenues
17.5 Conclusion
References
Chapter 18: Private Participation and Economic Regulation of Airports in Latin America
18.1 Introduction
18.2 Private Participation in the LA Airport Sector
18.3 PPPs, Private Companies, Airport Systems, and Revenue-Sharing Clauses
18.4 Laws, Contracts, Regulatory Agencies and Economic Regulation
18.5 Conclusions
References
Chapter 19: Conclusion