Use Agreements and Economic Performance of U.S. Airports
Abstract
In the U.S., airport use agreements are developed based on three common rate-setting approaches: the residual, compensatory, and hybrid methods. Under a residual agreement, the financial risk of the host airport is borne by the signatory airlines, and in return, the signatory airlines pay reduced user fees. Under a compensatory agreement, however, the airport bears its own financial risks and offers no reduced user fees to airlines. A hybrid agreement combines the features of residual and compensatory agreements. Under a hybrid agreement, the airport usually bears its own financial risks in terminal operations while the signatory airlines take over the financial risks in airfield operations. This dissertation aims to contribute to air transportation literature concerning the implication of use agreements on airport economic performance and rate differentials. Using the data of 59 U.S. hub airports from years 2009 to 2016, I studied the effects of use agreements on airport operational efficiency (in Chapter 2) and on cost efficiency (in Chapter 3), as well as the sources of aeronautical charge differentials between use agreements (in Chapter 4). The major findings of this dissertation are (1) airports with residual-type agreements tend to have lower operational efficiency compared to their peers adopting either the compensatory or hybrid agreement; (2) airports adopting the residual rate-setting method is less cost-efficient than the airports adopting either the hybrid or compensatory method; (3) compensatory airports have the highest average aeronautical and non-aeronautical charges; (4) non-aeronautical charges are a significant determinant of compensatory airports’ aeronautical charges; (5) airports adopting the hybrid method have lower aeronautical charges than the airports adopting the other two methods due to differences in the average cost level. The first two results imply that under a residual agreement, increased airport inefficiency may undercut any potential benefits of signatory airlines, and this result may indicate the presence of a moral hazard problem in the contractual relationship between the airlines and airports as a result of unequal risk-sharing and information symmetry.