Airport-Airline Coordination with Economic, Environmental and Social Considerations

Abstract: In this paper, we examine the effect of various contracts between a socially concerned airport and an environmentally conscious airline regarding their profitability and channel coordination under two distinct settings. First, we consider no government interventions, while in the second, we explore government-imposed taxations to curb emissions. Furthermore, we investigate the impact of passenger greening sensitivity, greening cost, and consumer surplus coefficient on conveyance fees, ticket fare, greening level and the channel welfare. Our analysis shows that the revenue sharing and linear two part tariff contracts coordinate the decentralised airport-airline channel. Our findings also reveal that players greening and social efforts can improve both the welfare and efficiency of the channel simultaneously. Importantly, under government interventions, taxation does help improve the greening level of the channel in both coordinating and non coordinating contracts. However, the greening level in the non-coordinating contracts with taxation is still less than the coordinating contracts even without tax. Finally, we also extended the model to include a duopoly airline market with pricing and greening competition. We analyze the effect of competetiton between airlines on airport utility, airline profit, ticket fare and greening level.