Airline market structure and airport efficiency: Evidence from major Northeast Asian airports

This paper investigates the impact of airline market structure on airport productivity, in which airlines are viewed as downstream users of an airport in a vertical airport–airlines structure. Our estimation is based on a sample of eleven major airports in Northeast Asia. A standard two-stage approach is employed: In the first stage, efficiency of the airports is measured by both the data envelopment analysis and stochastic frontier analysis. The resulting efficiency scores are carried over to a second-stage analysis in which Tobit regression is conducted to quantify the impact of airline concentration on efficiency, controlling for such factors as airport governance structure, airport competition and other characteristics. We find an inverse U-shaped relationship between airport efficiency and downstream airlines' market concentration: i.e., either too much or too little downstream concentration is associated with airport inefficiency. Other interesting and useful results are also obtained and discussed.