Dear ESD Faculty, Staff, and Students:

Terence Fan is happy to announce his thesis defense, which will be this Friday, September 19th, from 9:30 to 11:30 am, in Room: E52-244. We apologize for the late notice, but we hope that you will attend Terence's doctoral defense, if you are interested in airport demand management.

Market-based Airport Demand Management - Theory, Model and Applications

Abstract
The ever-increasing demand for access to the world’s major commercial airports combined with capacity constraints at many of these airports have led to increasing air traffic congestion. In particular, the scarcity of airside (take-off and landing) capacity at these airports has not been appropriately priced, leading to excessive demand as in the Tragedy of the Commons. Congestion pricing, as a classical economic approach to the efficient allocation of constrained transportation infrastructure capacity, has a long history of theoretical development. However, its application in the airport setting must deal with a set of important differences from the classical urban roadway setting. These differences have eluded the attention of researchers until very recently. They stem from the following set of complications: i) the peak and off-peak periods at congested airports are often less distinguishable than in the urban transport context; ii) airlines are a dominant intermediary between the airport capacity and passengers as the end-user of that capacity; and iii) airlines operate groups of flights, as distinct from the atomistic behavior of individual commuters.

To address these complications, an analytical model is developed to explore the impact of congestion pricing at airports and understand potential airline responses under a range of assumptions about the market’s structure. Through a set of numerical simulations, carried out with the help of a probabilistic queuing model, we compare the economic benefits resulting from adopting fine versus coarse congestion tolls for the cases of markets with symmetric and asymmetric carriers. Given sustained demand for access to an airport and reasonably elastic responses in terms of frequency adjustments, the benefits to carriers of instituting congestion pricing generally exceed the amount of tolls collected. While a system of fine or graduated tolls is suited for all airports, systems of coarse or uniform tolls, which can be implemented more easily, are applicable only at airports with fairly symmetric carriers that hold approximately equal frequency shares.

In addition to congestion pricing, slot lease auctions can also be an effective means to encourage an economically efficient use of scarce airport capacity. In practice, the impact of slot lease auctions is similar to that of coarse tolling. Slot auctions are therefore applicable, in pure form, at airports with symmetric carriers. At these airports, a market-based demand management policy can comprise both congestion pricing and slot lease auctions. With respect to implementation, simultaneously ascending auctions recently used in the context of allocating electromagnetic spectra can be appropriately adopted to airports. A lump-sum subsidy can be used to promote specific socially desirable goals in the allocation of scarce airport capacity.

Several airport authorities around the world, currently using purely administrative or hybrid forms of demand management, have developed sophisticated techniques for defining and managing their constrained airport capacity. Some of these techniques can be useful in developing market-based demand management policies. As an interesting case study, the experience of New York’s LaGuardia Airport (LGA) in coping with a sudden increase in demand subsequent to the passage of the Wendell-Ford Aviation Act of the Twenty-first Century in 2000 is examined. The simulated impact of the temporary “slot lottery” at LGA demonstrates how even small reductions in the number of flights operated at a busy airport can bring about dramatic reductions in congestion delay. It also provides clear evidence of the extent of under-pricing access to many congested airports in the United States. The experience at LGA is contrasted with two other representative airports in the US to demonstrate the different policy needs depending on the specific airport characteristics.