Exclusivity in concession revenue sharing contracts

Our paper studies the effects of concession revenue sharing contracts by endogenizing the choice of the signatory airline. It is shown that an airport finds it profitable to share concession revenues with airlines and this increases both consumer surplus and social welfare. The airport prefers an exclusive agreement when the net per passenger revenue generated on non-aeronautical services at the airport is sufficiently low; it extracts higher payments by exploiting the competition between airlines to become the sole signatory. The level of aeronautical charges, that are regulated, influences the airport's decision and, consequently, the intensity of airline competition. Welfare is higher under a non-exclusive arrangement, which may be in conflict with the airport's decision. The incentive to use these contracts remains under airport competition and revenue sharing increases. With an airline alliance, revenue sharing increases traffic for a large enough degree of cooperation between airlines.

Automated summary

Our paper examines the impact of concession revenue sharing contracts on airports and airlines. We find that sharing concession revenues is profitable for airports, leading to increased consumer surplus and social welfare. Airports prefer exclusive agreements when their non-aeronautical revenues are low, allowing them to extract higher payments by taking advantage of competition between airlines. The level of regulated aeronautical charges influences airport decisions and the intensity of airline competition. While welfare is higher under non-exclusive arrangements, this may conflict with airport preferences. The use of these contracts remains incentivized under airport competition, and revenue sharing increases. Revenue sharing also boosts traffic when there is a high degree of cooperation between airlines in an alliance.