System dynamics based simulation modelling for airport revenue analysis

308 Pages·2017·4.72 MB·English

SYSTEM DYNAMICS BASED SIMULATION MODELLING
FOR AIRPORT REVENUE ANALYSIS

JING (FAYE) QIN (ME)

This thesis is presented for the degree of Doctor of Philosophy of
The University of Western Australia
UWA Business School

Management & Organisations
2016

THESIS DECLARATION
I, Jing Qin, certify that:
This thesis has been substantially accomplished during enrolment in the degree.
This thesis does not contain material that has been accepted for the award of any other
degree or diploma in my name, in any university or other tertiary institution.
No part of this work will, in the future, be used in a submission in my name, for
any other degree or diploma in any university or other tertiary institution without the prior
approval of The University of Western Australia and where applicable, any partner
institution responsible for the joint-award of this degree.
This thesis does not contain any material previously published or written by
another person, except where due reference has been made in the text.
The work(s) are not in any way a violation or infringement of any copyright, trademark,
patent, or other rights whatsoever of any person.
This thesis contains published work and/or work prepared for publication, some
of which has been co-authored.

Signature:

Date: 20/11/2016

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ABSTRACT
Using a System Dynamics (SD) approach, this PhD research examines the relationships
between airports and airlines, with the objective of optimising airport revenue. In the
context of airport privatisation, airline deregulation and internationalisation; airport
managers need to make a wide range of policies changes and explore new business
strategies to increase their revenues.
Airports are multi-sided enterprises where numerous agents interact, and the
revenues are affected by the interrelationships between the parts: airport, airlines,
passengers, and government. The SD model captures the system of relationships among
the multiple aspects of the airport into five modules: Demand (and Competition), Traffic
Volume, Airport Aeronautical Revenue, Non-Aeronautical Revenue, and Capacity. This
structure is based on the two types of activities undertaken by an airport: i) the traditional,
aeronautical operations; and ii) the non-aeronautical (commercial/concession) operations.
The SD model compares the airport revenue systems between two middle size airports
with different market power, under different regulation and competition conditions: Perth,
Australia and Nanjing, China.
The model is built at two levels: at the high-level, various regulation regimes and policies
can be explored; at the low-level, the model can simulate what-if scenarios to explore the
impact of different policies like price-making or agreements with airlines, on airport
revenue and market responses (e.g. high-speed rail competition). The model makes
possible the investigation of the actions taken by airlines or other related agents, including
government, as a permanent feedback to the airport’s decisions.
Based on the final model simulations, it is concluded that government regulation
is essential for an airport without competition from other modes because the airport
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revenues are positively related to the airport charge rate. When a government decides the
price-cap for an airport (e.g. Nanjing Airport), this type of regulation can hinder rather
than provide an incentive to the airport to increase its capacity, through limited cost
recovery mechanisms. On the other hand, under light-hand regulation (e.g. Perth Airport),
the airport has the flexibility to adjust airport charges upon new developments; therefore,
it is crucial for the government to assess whether new investments are necessary to
facilitate an airport capacity increase. Negotiation between airports and airlines is also
essential for “optimising” airport and airline revenues.
For airports, it is practical to apply different charge rates on different routes to
optimise revenue. Generally, airports choose to apply higher charge rates when there is
no competition. However, under competition with other modes, the airport could adopt
the different strategy of lowering charges, to enable airlines in turn to reduce airfares. If
there are low-cost carriers in the market, the airport will differentiate between full-service
airlines and low-cost carriers by offering lower airport charges to the latter, to encourage
them to offer lower airfares and higher frequencies.
The model shows that high-speed rail (HSR) competition is likely to substantially
erode the revenues of airports and airlines due to its lower prices and higher frequency,
especially on shorter distance routes. To compensate, airports and airlines are encouraged
to work together to offer similar competitive services or distinct benefits for travellers
(e.g., better connections, flexibility, and reduced time on ground). Multimodal bundles
could also be considered on some routes as potential strategies to secure demand.
Similarly, anticipating the changes triggered by low-cost carriers (LCC); airport
and airlines could better adapt by discriminating across market segments and targeting
them with appropriate measures.
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Still, as shown by the two cases, the responses depend on the local conditions (market
power, airport charge value.). This highlights the importance of the model that can easily
be applied as a decision support system (DSS) to explore potential impacts of various
regulation policies and competition. This is what this research aims to deliver: an
expanded platform that can be further used to investigate various conditions – by
incorporating costs and examining profits; and accounting for passenger benefits,
disadvantage and preference.

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TABLE OF CONTENTS
Thesis Declaration ....................................................................................................................... i
Abstract ..................................................................................................................................... iii
Table of Contents ..................................................................................................................... vii
List of Tables ............................................................................................................................. xi
List of Figures .......................................................................................................................... xiii
Glossary of Terms/Abbreviation .............................................................................................. xv
Acknowledgements ............................................................................................................... xvii
Statement of Candidate Contribution .................................................................................... xix
Chapter 1 Introduction............................................................................................................ 1
1.1 Motivation ...................................................................................................................... 1
1.2 Background and Key Issues in the Airport Revenue System .......................................... 2
1.2.1 Ownership of Airports.............................................................................................. 5
1.2.2 Airport Regulation and Pricing ................................................................................. 6
1.2.3 Airport-Airline Relationships .................................................................................... 8
1.2.4 Competition with Other Transport Modes ............................................................ 10
1.2.5 Summary ................................................................................................................ 11
1.3 Research Objectives and Contribution ......................................................................... 11
1.4 Main Findings ................................................................................................................ 12
1.5 Structure of the Thesis .................................................................................................. 13
Chapter 2 Literature Review .............................................................................................. 15
2.1 The Airport Revenue and Airport Pricing ...................................................................... 16
2.1.1 Types of Revenues ................................................................................................. 16
2.2 The Impact of Government Structures on the Airport Revenue .................................. 19
2.2.1 Impact of Ownership ............................................................................................. 19
2.2.2 Impact of Regulation .............................................................................................. 21
2.3 The Impact of the Market Structure of an Airport ....................................................... 26
2.3.1 Impact of Competition with High Speed Rail (HSR) on Airport ............................. 29
2.3.2 Impact of Low Cost Carrier (LCC) on the Airport ................................................... 37
2.4 Impact of Airport-Airline Relationships on Airport Revenue ........................................ 41
2.4.1 Agreements between an Airport and Airlines ....................................................... 41
2.4.2 Airport – Low Cost Carrier (LCC) Relationship ....................................................... 43
2.5 Integrated Analysis of Airport Revenue Factors ........................................................... 45
2.6 Current Research Gap ................................................................................................... 46
Chapter 3 Methodology and Data Collection ...................................................................... 49
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3.1 Methodology ................................................................................................................. 49
3.2 System Dynamics ........................................................................................................... 51
3.2.1 A Brief History of SD ............................................................................................... 53
3.2.2 Basic Elements of System Dynamics Modelling and Simulation ............................ 54
3.2.3 System Dynamics Applied to the Aviation System ................................................. 60
3.2.4 Summary ................................................................................................................. 62
3.3 Data Collection .............................................................................................................. 63
3.3.1 Airport Operation and Revenue Data ..................................................................... 63
3.3.2 Airline Industry Data ............................................................................................... 64
3.3.3 Aircraft Manufacturing Information ....................................................................... 64
3.3.4 Other Exogenous Inputs ......................................................................................... 65
3.4 Summary ........................................................................................................................ 65
Chapter 4 Base High Level System Dynamics Model for an Airport Revenue System .......... 67
4.1 Causal Structure for the SD Model of an Airport .......................................................... 67
4.1.1 Causal Loop Diagram (CLD) for an Airport Revenue Model ................................... 68
4.2 Model Boundary ............................................................................................................ 72
4.3 Model Structure ............................................................................................................ 73
4.3.1 Demand Module ..................................................................................................... 75
4.3.2 Airport Traffic Volume Module .............................................................................. 77
4.3.3 Airport Aeronautical Revenue Module .................................................................. 79
4.3.4 Airport Non-aeronautical Revenue Module ........................................................... 81
4.3.5 Capacity Module ..................................................................................................... 82
4.3.6 Summary ................................................................................................................. 83
4.4 Introduction of Case Studies ......................................................................................... 83
4.4.1 Introduction of Nanjing Airport .............................................................................. 83
4.4.2 Introduction of Perth Airport ................................................................................. 85
4.5 Simulation Model .......................................................................................................... 88
4.5.1 Parameter Setting ................................................................................................... 88
4.5.2 Model Verification .................................................................................................. 90
4.5.3 Scenario Settings .................................................................................................... 93
Chapter 5 Expanded Model ................................................................................................. 103
5.1 Purpose of the Expanded Low-Level Model ................................................................ 103
5.2 Low-Level Model Structure ......................................................................................... 103
5.2.1 Demand Module ................................................................................................... 104
5.2.2 Airport Traffic Volume Module ............................................................................ 107
5.2.3 Airport Aeronautical Revenue Module ................................................................ 108
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