Airport pricing versus (grandfathered) slots: A generalization

Many passengers can choose among various destinations for their flight trips (for instance, a leisure trip from Asia to Europe or the US). This study tests the sensitivity of the outcomes of equilibrium congestion policies with respect to changes in airport network and demand structures. A major feature is to incorporate substitute destination choices for origin–destination passengers into the analysis of equilibrium airport congestion policies involving slot or pricing policies. The analysis shows that the presence of substitute destination choices is a necessary condition for equilibrium slot quantities to reach the first-best outcome that maximizes the welfare of all airport regions whereas equilibrium pricing levels will always be too high relative to the first-best prices independent of the presence or absence of substitute destination choices. Examples based on specific functional forms and numerical simulations are used to illustrate the main results. •Substitute destination choices for passengers in an airport network involving multiple connected origin–destination airport pairs are considered.•The presence of substitute destination choices is a necessary condition for slot policies to implement the first-best outcome in equilibrium.•Equilibrium pricing policies cannot implement the first-best outcome independent of the absence or presence of substitute destination choices.•Managerial insights are provided to indicate whether the airport’s incentives to expand the slot quantity is too high or too low from the first-best viewpoint.