Airport charges and capacity expansion: effects of concessions and privatization

This paper examines the decisions on airport charges and capacity expansion made by airports with different objectives. We find that allowing an airport to have profitable concession operations may be more welfare improving than the alternative of depriving the airport of all profits from concession operations. Furthermore. the airport charge of a social welfare-maximizing airport would be lower than that of a budget-constrained public airport, which, in turn, would be lower than that of a privatized airport pursuing profit maximization. We also show that a constrained public airport would add capacity later than a social welfare-maximizing airport. whilst a privatized airport would add capacity later still. Given that constrained public airports represent the second-best situation, the capacity decisions of privatized airports would be socially Suboptimal. (C) 2002 Elsevier Science (USA). All rights reserved.