Airport use agreements and cost efficiency of U.S. airports

In this study, we examined the impact of airport use agreements on the cost efficiency of large and medium U.S. hub airports in the years between 2009 and 2019 using a stochastic cost frontier model. We found that residual airports were less cost-efficient than compensatory and hybrid airports. The...

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Bibliographic Details
Published in:Transport policy 2021-12, Vol.114, p.68-77
Main Authors: Karanki, Fecri, Lim, Siew Hoon
Format: Article
Language:English
Subjects:
Airport use agreements
Cost efficiency
Stochastic frontier analysis
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Summary:In this study, we examined the impact of airport use agreements on the cost efficiency of large and medium U.S. hub airports in the years between 2009 and 2019 using a stochastic cost frontier model. We found that residual airports were less cost-efficient than compensatory and hybrid airports. The cost inefficiency in turn may translate into higher user fees for the signatory airlines. The result suggests that the residual rate-setting method may exert a moral hazard problem of airport management, because under such method, any cost deficit incurred by the airport will be covered by the signatory airlines, and this arrangement effectively shifts the risk of airport budget shortfall away from airport management. 1.Residual airports were less cost-efficient than compensatory and hybrid airports.2.The cost inefficiency of residual airports may lead to higher airport fees for the signatory airlines.3.Lower cost efficiency could undercut signatory airline's benefits under a residual contract.
ISSN:0967-070X
1879-310X
DOI:10.1016/j.tranpol.2021.09.006