How to mix per-flight and per-passenger based airport charges

January 12, 2015

This paper investigates the questions of why carriers advocate for higher per-passenger airport charges and lower per-flight charges, and whether and when this proposal is welfare-enhancing. Specifically, the paper compares the optimal mix of per-flight and per-passenger based airport charges from both a monopoly carriers’ and the social viewpoints conditional on airport cost recovery. It focuses on the trade-off between price and frequency (i.e., schedule delays) when time valuations are uniform, or differ, between business and leisure passengers. We identify an easy test for the evaluation of the mix of per-passenger and per-flight based airport charges by policy makers, which is simply to check whether the carrier’s preferred per-flight charge is zero. Our analysis suggests that there is no need for immediate regulatory corrections of the current trend towards the strong use of per-passenger based airport charges.