Airport congestion pricing and terminal investment: Effects of terminal congestion, passenger types, and concessions

• We model the difference of runway and terminal congestion.
• We adopt a bottleneck model for the terminal and a static model for the runway.
• Uniform airfare does not yield the first-best outcome.
• Passengers are under- or over-charged with respect to the terminal charge.
• The airport may raise the airport charge to induce more business passengers.

None of the airport-pricing studies have differentiated the congestion incurred in the terminals from the congestion incurred on the runways. This paper models and connects the two kinds of congestion in one joint model. This is done by adopting a deterministic bottleneck model for the terminal to describe passengers’ behavior, and a simpler static congestion model for the runway. We find that different from the results obtained in the literature, uniform airfare does not yield the first-best outcome when terminal congestion is explicitly taken into account. In particular, business passengers are at first-best charged a higher fare than leisure passengers if and only if their relative schedule-delay cost is higher. We further identify circumstances under which passengers are, given a uniform airport charge scheme, under- or over-charged with respect to the terminal charge. Furthermore, when concession surplus is added to the analysis, the airport may raise (rather than reduce) the airport charge in order to induce more business passengers who in turn will lengthen leisure passengers’ dwell time and hence increase their chance of purchasing concession goods. Finally, the impacts of terminal capacity expansion and time-varying terminal fine toll are discussed.