A Network Pricing Formulation for the revenue maximization of European Air Navigation Service Providers

In Europe, all Air Navigation Service Providers (ANSPs) finance their activities by charging airlines to use their airspace. These 'en route charges' usually account for a significant fraction of the cost of a flight, and they can therefore influence the route choice: airlines may decide to fly longer routes to avoid countries with higher charges. Then ANSPs' traffic and revenue do depend on the charge they impose on their own airspace. It follows that if ANSPs look for the maximization of their revenues, they must choose an optimal charge to impose on their airspace. We show that this optimal charge can be identified through a Network Pricing Problem formulation in the form of Bilevel Programming where the leader (i.e. the ANSP) owns a set of arcs (the airways in its national airspace) and charges the commodities (i.e. the flights) passing through them. As the en route charges are proportional to a Unit Rate value fixed by the ANSP, by exploiting the structure of the problem we propose an exact algorithm to compute the optimal Unit Rate and apply it to a case study. (C) 2012 Elsevier Ltd. All rights reserved.