Rate-setting methods and U.S. airport aeronautical charge differential: An oaxaca decomposition

U.S. airports adopt three rate-setting methods to formulate their charges. Under the residual method, the signatory airlines pay reduced use fees in return for providing a financial guarantee to the airport. Under the compensatory method, aeronautical charges are determined according to the airline's use of airport facilities, and the airline is under no obligation to bear the airport's financial risk. The third hybrid method combines the features of the residual and compensatory methods. In this study, we examined the sources of the aeronautical charge differential using an Oaxaca decomposition. We found that airports adopting the hybrid method have lower aeronautical charges than the others primarily due to the difference in airport average cost. The difference in aeronautical charges between residual and compensatory airports is not statistically significant.