Which type of rate setting means that airlines cover additional airport expenses?

The correct choice of residual rate setting refers to a system where airlines are responsible for covering any additional airport expenses after fixed costs have been accounted for. In a residual rate setting model, the airport operator is primarily responsible for determining the necessary expenses and revenues. If the airport incurs expenses that exceed the projected budget or revenue, the airlines are expected to cover those additional costs. This approach helps ensure that the airport remains financially viable and can maintain or improve its services without placing the financial burden solely on the airport operator.

In contrast, compensatory rate setting typically requires airlines to pay only for the services and facilities directly used, without assuming additional financial risks associated with the overall airport expenses. A hybrid model combines elements of both compensatory and residual systems, which may not clearly place the entire burden of excess costs on the airlines alone. Public subsidies refer to government support that may cover certain airport expenses, which would not align with airlines covering additional costs. Therefore, residual rate setting is the model that designates the responsibility of covering excess costs to the airlines.