Regional public support to airlines and airports: An unsolved puzzle

• We model the motivation of public authorities to arrange agreements with airlines.
• The determinants of regional public support to airlines and airports were studied.
• An empirical method to determine the market power of airlines has been proposed.

This paper proposes a structural model to explain the motivation of regional public authorities to arrange marketing agreements for route and traffic development. Furthermore, using data from Spanish airports, we empirically test this model obtaining the demand function according to the preferences of public authorities. The results show that the public budget, airport’s attributes or intermodal competition affect to the demand for aircraft operations of regional public agencies. Finally, we propose an empirical method to determine the market power of airlines within these marketing agreements in a particular airport or route.