Airline-airport agreements in the San Francisco Bay Area: Effects on airline behavior and congestion at airports

- Study of the behavior of airlines and travelers in areas with several airports.
- The airline-airport agreement design affects the level of airport congestion.
- Importance of the flight frequency decision to evaluate the impact of airport charges.
- Different airport charge schemes may induce airlines to behave differently.

This paper provides a methodological framework to analyze the decisions of airlines and travelers taking into account the contractual agreement between airports and airlines. This contract sets the fees that carriers pay for landing, the rental rate for the terminal space that they occupy, as well as the methodology to determine these charges. Using data from San Francisco International Airport (SFO) and Metropolitan Oakland International Airport (OAK), we quantify the effects of changes in the agreement on the behavior of airlines and congestion at airports. In particular, we look at modifications in the design of charges and variations in the operating costs at airports. Counterfactuals suggest that different methodologies to compute charges and changes in airport costs may induce airlines to behave differently, affecting delays at airports.Our structural model captures important characteristics of the airline industry: endogeneity of airport charges with respect to decisions of travelers and carriers, correlation across markets, and two decision variables of airlines (fares and frequency of flights).