Airport use agreement types and input and output slacks: The case of U.S. airports

This study evaluates three common airport use agreement types in the U.S. and their implications on managerial slacks. The use agreement types studied are residual, compensatory and hybrid agreements. We find that airports adopting the residual method are more likely to perform poorly than their counterparts. Compensatory airports are observed to be more efficient. On average, the non-labor operating expense of residual airports was $31 million which is more than double the same expense of compensatory airports. Similarly, the slack in labor input at residual airports was more than two times the excess labor at compensatory airports. On the output side, residual airports had an average shortfall of $5.5 million in non-aeronautical output, compared to $0.14 million at compensatory airports. In the regression analysis, we find that compensatory airports also have a lower probability of having positive input slacks. Compared to residual airports, compensatory airports tend to have a lower probability of a non-aeronautical output slack. Lastly, among the airports that had a positive non-aeronautical output slack, the non-aeronautical output slack of compensatory and hybrid airports was significantly lower than that of residual airports. The findings imply a connection between airport slacks and the vertical agreements between airports and airlines.