Airport Capacity Extension, Fleet Investment, and Optimal Aircraft Scheduling in a Four-Level Market Model: On the Effects of Market Regulations

In this paper we present a four-level market model that accounts for airport capacity extension, fleet investment, aircraft scheduling, and ticket trade. In particular, budget-constrained airports decide on the first level on their optimal runway capacity extension and on a corresponding airport charge. Airports anticipate optimal long-term fleet investment of airlines on the second level, optimal medium-term aircraft scheduling on the third level, and short-term outcomes of a competitive ticket market on the fourth level. We compare this market model with an integrated single-level benchmark model that simultaneousely accounts for all investment, scheduling, and market clearing constraints. As we show, our four-level market model may result in inefficient long-run investments in both runway capacity and new aircraft. In addition, we identify policy regulations that may have the potential to reduce inefficiencies of the market model relative to the integrated benchmark model.