Airport Business Practices and Excess Capacity

Excess capacity poses a persistent challenge for airports as they often encounter lumpy capacity in the short run. The excess capacity is primarily influenced by the factors such as uncertain demand, airline competition, and the market structure of the airport industry. However, airport business practices also account for this issue. This study investigates the impact of airport use agreements and governance forms on excess capacity, using a two-stage semiparametric model. Our analysis incorporates data from 59 U.S. airports between 2009 and 2019. The results suggest that residual airports have less unused capacity than compensatory airports. This can be explained by the control of signatory airlines over the residual airports’ investment decisions and the lack of retained earnings under the residual agreement. We did not detect a significant difference in excess capacity between hybrid and residual methods. Besides, state-governed airports have higher unused capacity than the airports governed by port/airport authority