Airport congestion impacting airfares.

Decoding Airfare Secrets: How Airlines Really Handle Airport Congestion

Nico Varela in Business & Economy August 2025 • 4 min read.

"Uncover the hidden strategies airlines use to manage airport congestion and their impact on your travel costs."

Airport congestion, the bane of many travelers, isn't just a matter of inconvenience; it's a complex economic puzzle. When airports face excessive traffic or operational bottlenecks, delays cascade through the system, affecting passengers, causing environmental concerns due to increased emissions, and impacting airline operations. This has led to extensive research on potential solutions, notably congestion pricing—a strategy that, despite its theoretical appeal, remains surprisingly rare in practice.

One of the main hurdles to implementing congestion pricing is the ongoing debate over whether airlines already factor in, or "internalize," the costs of congestion when setting airfares. Unlike individual road users, airlines operate multiple flights and, therefore, have a vested interest in mitigating delays that affect their entire schedule. If airlines do account for these costs, then the need for additional congestion charges might be less pressing.

Recent research offers a new way to look at this problem, moving beyond the traditional focus on market concentration and delays. Instead, it proposes analyzing airfares directly to see if they reflect an airline's efforts to manage congestion. By examining how airlines price their tickets in relation to passenger numbers and airport delay levels, we can gain valuable insights into whether, and how, they are internalizing congestion costs.

Do Airlines Really Pay for Airport Congestion? The Pricing Puzzle

The core question is whether airlines consider the congestion they cause when determining ticket prices. Think of it this way: an airline scheduling an extra flight at a busy airport not only impacts other airlines but also creates delays for its own flights. This creates an incentive for airlines to limit the number of flights they operate, effectively internalizing the congestion externality.

However, figuring out if this actually happens in practice is tricky. Earlier studies have looked at the relationship between airport market concentration and delays, assuming that lower delays in concentrated markets indicate airlines are managing congestion themselves. But this approach might be too simplistic, as market power can also influence prices and flight schedules.

Market Concentration vs. Self-Internalization: Studies often examine the correlation between market concentration and flight delays, assuming that significantly negative correlations suggest airlines self-internalize airport congestion.
Market Power Complicates Things: High market concentration might lead a dominant carrier to exercise market power, charging higher prices or offering fewer flights, regardless of congestion internalization strategies.
The Need for Nuance: Even after adjusting for quality-competition effects, a negative correlation between airport market concentration and delay does not automatically confirm congestion internalization. The dominant carrier’s actions significantly influence outcomes.

To get a clearer picture, the latest research suggests looking directly at airfares. The idea is that both congestion internalization and market power can influence how airlines price their tickets. By including measures of market concentration and an interaction term that combines an airline's passenger numbers at an airport with congestion delay levels, researchers can tease apart these effects. If airfares are positively correlated with this interaction term, it suggests airlines are indeed internalizing the costs of congestion.

What It Means for Your Next Flight

This new research offers valuable insights for policymakers and travelers alike. By understanding how airlines internalize congestion costs, airports can design more effective pricing schemes that encourage efficient operations. For travelers, it highlights the complex factors that influence airfares, reminding us that the price of a ticket reflects not just distance and demand, but also the hidden costs of congestion and the strategic decisions of airlines.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: 10.1016/j.tra.2018.10.012, Alternate LINK

Title: Can Airfares Tell? An Alternative Empirical Strategy For Airport Congestion Internalization

Subject: Management Science and Operations Research

Journal: Transportation Research Part A: Policy and Practice

Publisher: Elsevier BV

Authors: Huanxiu Guo, Changmin Jiang, Yulai Wan

Published: 2018-12-01

Everything You Need To Know

What is congestion pricing and why isn't it more common at airports?

Congestion pricing is a strategy to alleviate airport congestion by charging airlines fees that reflect the level of traffic and delays they contribute to. Despite its theoretical appeal for managing demand and encouraging efficiency, it's not widely implemented due to debates over whether airlines already account for congestion costs in their airfares. The complexity of airline operations, where a single airline operates multiple flights, creates a situation where airlines have an incentive to mitigate delays, potentially negating the need for additional congestion charges. Furthermore, accurately assessing and implementing such a system faces practical and political hurdles.

How do airlines factor airport congestion into their airfares?

Airlines may factor airport congestion into airfares by internalizing the costs of delays when determining ticket prices. The incentive for airlines to limit the number of flights they operate at busy airports helps manage the congestion externality. Recent research suggests that by examining how airlines price their tickets in relation to passenger numbers and airport delay levels, insights into whether, and how, they are internalizing congestion costs can be found. Market concentration and its effect on pricing further complicates these dynamics.

How does market concentration at an airport affect airfares and congestion?

Market concentration, where a few airlines control a large share of flights at an airport, complicates the relationship between congestion and airfares. Studies have examined the correlation between market concentration and flight delays, assuming that significantly negative correlations suggest airlines self-internalize airport congestion. However, high market concentration might lead a dominant carrier to exercise market power, charging higher prices or offering fewer flights, regardless of congestion internalization strategies. This means that even after adjusting for quality-competition effects, a negative correlation between airport market concentration and delay does not automatically confirm congestion internalization, as the dominant carrier’s actions significantly influence outcomes.

What does the interaction term combining passenger numbers and congestion delay levels tell us about airline pricing strategies?

The interaction term that combines an airline's passenger numbers at an airport with congestion delay levels is used by researchers to determine if airlines are internalizing the costs of congestion. If airfares are positively correlated with this interaction term, it suggests airlines are indeed internalizing the costs of congestion, as it indicates they are pricing tickets higher when they contribute more to delays due to higher passenger numbers. This approach helps differentiate between congestion internalization and the influence of market power on airfares.

How can understanding airline internalization of congestion costs help policymakers and travelers?

Understanding how airlines internalize congestion costs allows airports to design more effective pricing schemes that encourage efficient operations. If airlines are already accounting for congestion costs, policymakers can fine-tune existing charges or explore alternative strategies. For travelers, this understanding highlights the complex factors that influence airfares. The price of a ticket reflects not just distance and demand, but also the hidden costs of congestion and the strategic decisions of airlines. Recognizing these factors can help travelers make more informed choices, though the actual impact on individual ticket prices is subtle and intertwined with many market variables.