Price competition of airports and its effect on the airline network

- This paper is the first attempt to combine the airport competition and carrier׳s network choice.
- The optimal network configuration is characterized by point-to-point or hub-spoke.
- Hubbing at the airport in small city is optimal if they have locational advantage.
- The airport competition disturbs the carrier to alter its network into hub-spoke.
- The competition allows the carrier to choose the airport in small city as its hub.

This paper deals with the price competition between airports and its effect on airline (carrier) networks. We construct a model that includes the following two features: (i) the carrier can choose its network configuration (point-to-point or hub-spoke) and (ii) airport operators can compete for airport charges by considering the carrier׳s choice. By utilizing this model, we address the question of how airport competition affects the carrier׳s network choice. The results show that the price competition of airports forces the carrier to choose an airport at a relatively small city as the network hub. Furthermore, the private operation of airports disturbs the formation of a hub-spoke network.