Adjusting route charges to increase profit

Abstract: Route charges are fees that airlines pay in order to utilize the Air Navigation Services (ANS) of a European state. The fee is based on three values; the weight of the aircraft, the length of the flight, and the state’s specific unit rate. The unit rate of each state is in turn based on the forecasted costs of providing ANS for that state and the amount of traffic forecasted for the year to come. This makes for different unit rates for different states, which leads to different costs for flying different routes in the European airspace. A state having costs that are increasing faster than the amount of traffic is increasing will lead to a higher unit rate. A higher unit rate may lead to airlines avoiding the state’s airspace due to higher costs, thus accounting for even less traffic and an increase in unit rate. This thesis examines the relationship between unit rate and amount of traffic, and specifically tries to find out how much the unit rate affects the traffic count. This has been done by reading previous papers on the subject, and creating a model to easily present facts found. The result of the thesis suggests that states actually profits more by increasing the unit rate rather than actively trying to reduce it. This contradicts the idea of lowering prices always being a good thing. There is a limit to how much the unit rate can be increases however, at which all traffic will choose to circumnavigate the airspace. Finding a good balance between traffic lost and unit rate increased is suggested as the best way to go.