Alexandre de Juniac's blog
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  • Infrastructure
19 March 2018

Airport Privatization and Escalating Costs

Recently we have stepped up our efforts to amplify the growing frustration that our members feel with respect to escalating costs at airports that have been privatized. A blog posting by Airports Council International-Europe indicates that our airport partners are taking note. And in the blog there is one revealing admission that must be addressed.

The airport community seems to accept as "normal" that privatization will lead to increased costs for users. Really? Not that long ago, airlines in most parts of the world were themselves publicly owned. As they were privatized, however, prices went down, not up. Indeed, in real terms, it is 64% cheaper to fly today than in 1996.

Why the difference? Competition. Airlines face real competition to survive in a cutthroat business environment. And, over the years, there have been many casualties. Has anyone ever heard of an airport succumbing to stiff competition?

Yes, airports may compete for hub traffic—serving as transit points for connecting passengers. And they campaign to develop services to their local market—the mainstay of their business. But in that market they are monopolies. Travelers choose their destination and the airline to take them there. Only in rare circumstances do they have a real choice of airports.

Airlines' requirements of airports are not complex. They must provide sufficient capacity to meet demand, and to deliver quality services at affordable prices.

The airline-airport relationship has always been challenging. Even in the pre-privatization days there were cases of airports abusing their market positions and over-charging airlines. So the issue is not privatization itself.

Airlines actually had high hopes that private sector management of airports would do better. And we were wrong. The result of airport privatization, as ACI-Europe admits, has indeed been higher costs for users—travelers and airlines alike.

It is not because price increases are inevitable in a privatized environment. It is because the privatization of these essential monopoly services has not been accompanied by appropriate regulatory oversight. Not surprisingly, the economic return from efficiencies generated by private management has typically gone straight into the pockets of shareholders—not travelers.

Any competitive business knows that the key to growth is focusing on the customers while continuously reducing costs and improving quality. But airports are monopolies and it is difficult to think that meaningful competition will ever discipline their costs or the quality of their services. The answer to avoiding spiraling costs that will harm the very communities that airports are supposed to serve is appropriate and effective governance and regulatory oversight. And it is rarely, if ever, seen.

This is a shortcoming at the many airports already privatized. And it must be addressed as we know that more are on the way. The record so far should caution governments on future privatizations. And we must work together to turn the trend of rising costs at airports in private hands today.

Why is this so important? Efficient and economical air transport contributes directly to a community's prosperity. Poorly thought-out airport privatizations put this at risk.

We look forward to working with the communities our members serve to maximize aviation's economic and social benefits supported by efficient airports. It's what travelers, local communities and national economies deserve.

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