Passengers and cargo? Cost economies at airport level

Date: 19 December 2016

Venue: UAntwerpen, Stadscampus - Promotiezaal Grauwzusters, Lange Sint-Annastraat 7 - 2000 Antwerp (route: UAntwerpen, Stadscampus)

Time: 4:00 PM

PhD candidate: Els Struyf

Principal investigator: Prof E. Van de Voorde

Co-principal investigator: Prof H. Meersman

Short description: PhD defence Els Struyf - Faculty of Applied Economics


The air transport sector is a dynamic sector. Market developments show that both passenger and cargo traffic have grown in the last decades and will still grow in the future. The air transport market is thus a market with a lot of opportunities. Literature has shown that for airlines it is interesting to combine both commodities. By using free capacity to take cargo on board, the costs can be spread over a larger output and thus the cost per unit flown is reduced; i.e. economies of scope.

Reality reveals that also a lot of airports combine passengers and cargo, but existing literature is unclear on whether this is due to cost related factors. This dissertation provides an answer to this research gap by analyzing the existence of output related cost economies at airport level, using econometric estimations of a translog cost function and a quadratic model. An extensive analysis of the air transport sector, its main actors and the airport cost structure allows to get a clear view on the airport activities and resources. Based on this, the potential sources for cost economies can be found, but also other influential factors are revealed.

Cross section data (157 airports for 2012) worldwide are used and the results show that all airports in the sample indeed experience economies of scale. Based on the translog model (method of declining marginal costs), it was found that all airports in the sample also operate under product-specific economies of scale, for passengers as well as for cargo. Calculations based on the quadratic model confirm these results. Regarding economies of scope, the opposite is found: based on the translog cost function as well as the quadratic model, it is proven that none of the airports in the sample experience economies of scope. However, the difference in costs between offering passenger and cargo activities separately or jointly is rather small.

For airports, it is thus important to combine both activities. Not because of cost related reasons, but in order to respond to the market created by the cost economies which airlines encounter. Moreover, given the economies of scale (overall and product-specific), it is also for airports interesting to increase the scale of their passenger and cargo activities. This way, airports can enlarge their market share, be more competitive and thus respond to the changing air transport environment, seizing the opportunities of the growing markets and emerging markets.