Ramsey Pricing pt. II- An Application to German Airports

1. Research Workshop Ramsey Pricing pt. II-An Application to German Airports Varvara Simakova Annika Reinhold Cristian Steffan Markus Dinse Supervised by: Prof. Dr Jürgen Müller (FHW Berlin)

2. Outline • Definition • Airports • Example • Example: Parametres • Example: Calculation • Example: Comparison • Example: Review • Next Steps and Points for Discussion

3. 1. Definition • As in the previous presentation, we used the Ramsey formula according to Martin-Cejas 1997/ Morrison 1982 • The Ramsey formula is denoted: • i- denotes an aircraft type • ηi- price elasticity of demand for passenger trips (demand for landings) • Tci– Total cost of a flight: Depending on aircraftsize & flight distance • δ(TC)/δQi- marginal cost; they result from differentiation of total operating costs, which are functions of distance • K- λ / 1+λ, where λ – extent to which the revenue constraint is binding.

4. 2. Airports Hannover Frankfurt Hahn Dortmund Weeze (Niederrhein) Dresden Leipzig  Different airports have different mixture of business and low cost passengers (different elasticities). Interesting to investigate the effects.

5. 3.1 Example: Parametres Hypothetical value for k: 0,5 Elasticity: • Airport: HAJ • Year: 2006 • ATC were computed in this way: • Personnel cost + material cost = Airport's cost • Airport's cost / number of flights= average costs per flight (=ATC) • Average total costs: 958,20 €/flight • Marginal costs: 0 €

6. 3.1 Example: Parametres • We calculated four Ramsey prices*: • Two for flight distance (short and long haul) • Depending on the definition of traffic (national and pan-national level)** * We used average values to draw the comparison between current and Ramsey pricing. **We used elasticity data based on the calculations of Intervistas. Intervista seperates between different levels of air traffic. In the lowest level they e. g. seperate between economy and first class showing that there is the highest elasticity. On the next level they focous on the elasticity between different airlines. Going on and on, they finally focus on air traffic between country a and b, showing that there is the lowest level of elasticity. This is why we have four Ramsey prices.

7. 3.2 Example: Calculation • Based on an elasticity for intra-Europe short haul flight, on pan-national level and a hypothetical value of 0,5 for k. • This calculation shows only one part of the total calculation

8. 3.2 Example: Calculation Current charging*: MTOW x 7,15 €/ complete tons Noise surcharge: 40 € during 22:00 – 6:00** PAX-Charge Domestic: 9,51€ / Per Passenger European: 9,93 € / P. P. Non-EU (Intercontinental): 10,61 € / P. P. Fleet-Mix: B 737/-300/-400/-500 B 757/-200 Airbus A 320/-200 * In the final comparison we used average values **we used an weighted average of 1/3 for night-time noise surcharge

9. 3.2 Example: Calculation Leading to following prices for B 737/-300 Domestic: 1483,26/ European: 1528,28/ Non-EU: 1601,18 B 737/-400 Domestic: 1640,73/ European: 1691,13/ Non-EU: 1772,73 B 737/-500 Domestic: 1237,23/ European: 1274,86/ Non-EU: 1335,79 B 757/-200 Domestic: 2341,51/ European: 2407,70/ Non-EU: 2514,87 A 320/-200 Domestic: 1743,12/ European: 1795,20/ Non-EU: 1879,52 The average price were computed in this way: All prices for domestic flights / Number of aircrafts

10. 3.3 Example: Comparison 1: Domestic flight/Intra Europe 2: Intra Europe flight 3: Intercontinental (North America – Europe) 4: Intercontinental (Europe – Asia)

11. 3.4 Example: Review • As in the previous presentation, Ramsey prices are still below current charging if flight distance is short (domestic and intra-Europe flights). • But if elasticity is very low, price increases dramatically.

12. 4. Next Steps and Points for Discussion • Find an accurate value for K • Find better elasticities • Alternative to block-hour costs

13. Thank you very much, for your attention