An assessment on the cost structure of the UK arport industry: ownership outcomes and long run productivity

In this paper we analyze the cost structure of the UK airport industry by estimating a variable

cost function for the period 1994.2005. Overall results suggest that the long run average costs

curve is U-shaped: it decreases until passenger traffic reaches approximately five millions, it re-

mains flat over the range between five and fourteen million passengers and afterwards it starts to

increase. Moreover, our findings provide evidence consistent with the existence of some degree of

overcapitalization for the largest regulated airports. Finally, we analyze whether different forms

of ownership entail cost differentials across airports and we find that privately owned airports are

characterized by lower costs with respect to public and mixed ones, although cost differentials

shrank over time as public and mixed airports improved their rate of cost reduction. Main results

are robust to unobserved heterogeneity at the airport or market level and to possible endogeneity

biases. Possible regulatory and policy implications of these results are also discussed.