Strategic perspectives on airport capacity: Insights from competition and non-aeronautical revenues

Airport capacity utilization is a critical factor for ensuring profitability and operational efficiency in the aviation industry . However, airports often grapple with the challenge of lumpy capacity, characterized by periods of excess capacity followed by shortages. This study examines the influence of airport competition and non-aeronautical revenues on excess capacity. Employing a two-stage spatial model, we investigate the interplay between these factors and capacity utilization rates. Our findings reveal a significant positive dependence between neighboring airports in terms of excess capacity, indicating a strategic response to competitive pressures. Additionally, we found that higher non-aeronautical revenues among compensatory airports correlate with excess capacity, facilitated by their ability to leverage additional capital investment through bond issuance. Furthermore, we identify a negative correlation between airline concentration and capacity utilization, highlighting the impact of airline market power on capacity decisions. Population growth shows a positive correlation with capacity utilization while per capita income exhibits a negative correlation.