Lois Larson
The ownership of regional airports is a multifaceted issue, with a range of ownership models observed globally. While some airports are owned and operated by governments, others are privately owned, and some function through public-private partnerships. In the US, for instance, most airports are government-owned, but privatisation through asset recycling is being considered to fund new infrastructure projects. On the other hand, airports in New Zealand, such as Auckland and Wellington, are privately owned, with the local government holding a non-majority share. Globally, various models are employed, including corporatisation, not-for-profit, and service contract structures. The most suitable model depends on specific circumstances, with regional airports potentially benefiting from a not-for-profit approach to ensure profits are reinvested for the benefit of the local community.
| Characteristics | Values |
|---|---|
| Regional airports that are privately owned | Auckland and Wellington airports in New Zealand, Punta Cana Airport in the Dominican Republic |
| Regional airports that are government-owned | Hartsfield Jackson International Airport in Atlanta, US, Changi Airport in Singapore, Charles de Gaulle Airport in Paris |
| Reasons for private ownership | Increased efficiency, innovation, and competitive spirit |
| Reasons for government ownership | Deterring monopolies, ensuring public safety, and sustainable growth of cities |
| Benefits of private investment | Low-risk, cost-efficient, high-quality projects |
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What You'll Learn
Mixed ownership models
While fully private ownership of airports is rare in the United States, mixed ownership models involving both the government and private companies are observed in some airports around the world. For instance, Frankfurt Airport is owned by Fraport AG, a publicly listed company with mixed ownership by the German State of Hesse, a private company, and Lufthansa. The German state owns over 30% of its shares, a private company owns over 20%, and Lufthansa holds 8% of the shares. Corporatization is another model, where an independent entity is created to manage and operate an airport with more freedom and flexibility. An example of this is Changi Airport in Singapore, which maintains public ownership while adopting a commercial approach.
Public-private partnerships (PPPs) are also common, where private entities assume certain responsibilities for public assets through long-term contracts. PPPs allow local governments to transfer financial risks to private partners while incorporating private sector innovations and investments without fully privatizing public infrastructure. One common concession agreement is the Build, Operate, Transfer (BOT) model, where a private sector company enters an agreement with the government to plan, finance, develop, and operate an airport for a set period. PPP concession agreements enable private sector companies to plan, finance, develop, and operate airports for a set period.
Another example of a PPP is a management contract, where ownership remains public, but contractors are appointed to perform specific functions or operate the entire airport. Dubai International Airport is an example of a PPP where the government maintains control while a private entity operates the airport.
In recent decades, most government-owned airports in Europe have been transformed into companies that both own and operate the airport, usually with the government as the initial owner of the company. Since this privatization, some governments have sold their shares in the company, resulting in completely privately-owned airports.
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Government vs. private sector efficiency
While the public generally perceives the government as an inefficient owner of enterprises due to its lack of a customer-oriented mindset, innovation, and competitive spirit, the debate around airport ownership should not be about which sector is better. Instead, the discussion should focus on the specific objectives for involving the private sector, such as financial, macroeconomic, or management improvements.
The efficiency of government versus the private sector in managing airports varies depending on the context and objectives. For instance, corporatization, where an independent entity operates and plans an airport while maintaining public ownership, can be effective for strategic global hubs like Changi Airport in Singapore. This model allows for a balance between corporate management and public ownership, enabling continued investment and profitability. On the other hand, regional and community airports may benefit more from a not-for-profit approach, where profits are reinvested in the airport to enhance user benefits.
In some cases, public-private partnerships (P3s) or concession agreements can be advantageous. P3s can help local governments reduce the risk of cost overruns and share the burden of airport design, development, and long-term management. Additionally, qualified service companies can operate airports under concession agreements, providing expertise and efficiency while the government retains regulatory and economic oversight.
Fully private ownership of airports is relatively rare in the United States, with most airports being government-owned. However, some airports, like Auckland and Wellington in New Zealand, are privately owned, although the local government may hold a non-majority share. While private ownership can lead to monopolies and higher profits, government ownership ensures public safety, sustainable growth, and competition among airlines.
Ultimately, the decision between government and private sector efficiency in airport management depends on the specific circumstances and goals. Both sectors offer unique advantages, and a mixed approach, such as public-private partnerships, can often provide the best of both worlds by combining financial efficiency with oversight and long-term planning.
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Public-private partnerships
While fully private ownership of airports is rare in the United States, public-private partnerships (PPPs or P3s) are far more common. P3s are long-term contracts where a private entity assumes certain responsibilities for a public asset, such as building, financing, operating, and maintaining it.
PPPs allow local governments to transfer the financial risk involved with transportation projects to private partners while also incorporating private sector innovations and investment, all without fully privatizing public infrastructure. One example of a PPP model is a concession arrangement, where the private operator pays a concession fee to the contracting public authority and recovers its costs (plus a return on investment) through collecting various charges from airport users.
In recent decades, most government-owned airports in Europe have been transformed into companies that both own and operate the airport, usually with the government as the initial owner of this company. Since this privatization, some governments have sold their shares of the company, resulting in completely privately-owned airports.
In New Zealand, both Auckland and Wellington airports are privately owned. In both cases, the local government has a non-majority shareholding, which provides a degree of representation. They are de-facto monopolies for the region they serve and manifest the types of behaviour one would expect from that situation.
One study estimated that if the U.S. were to lease 31 of its medium to large airports, they would generate $1.3 billion in income within 50 years to fund infrastructure projects.
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Private investment and management
Another model is corporatisation, where an independent entity is responsible for planning and operating an airport while maintaining public ownership. Changi Airport in Singapore is a successful example of corporatisation, as it balances private sector management with public sector ownership. This model allows for continued investment, profitability, and the flexibility to hire and contract with private companies.
A third option is the not-for-profit model, often used for regional or community airports. In this approach, all profits are reinvested in the airport, with benefits flowing back to the users. This model prioritises service over profit and is particularly well-suited to smaller airports serving specific communities.
Public-private partnerships (PPPs) or concession agreements are another avenue for private investment and management in airports. Under this model, private companies can partner with government entities to finance, design, develop, and manage airport infrastructure projects. PPPs can be particularly attractive for cash-strapped local governments as they reduce financial risk and provide access to private sector expertise.
Finally, airports can be owned and operated by qualified private service companies through long-term lease agreements with the government, which retains regulatory and economic oversight. This model allows private companies to manage airfield operations while the government maintains ownership of the land and oversees security, airspace, and passenger fee growth.
In conclusion, private investment and management in airports can take various forms, each with its own advantages and considerations. The most suitable model depends on the specific circumstances and objectives, whether financial, macroeconomic, or management-related.
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Government oversight
While it is rare for airports in the US to be fully privately owned, there are examples of regional airports that are privately owned, such as Auckland and Wellington airports in New Zealand. In both cases, the local government has a non-majority shareholding, which provides some oversight. In theory, their profits are limited by a formula overseen by the New Zealand government.
In the US, while airports are typically owned by the government, private companies can operate them under concession agreements. The US government maintains regulatory and economic oversight, including security, airspace, and passenger fee growth limits. It also governs airline competition within airports and disallows private ownership of multiple airports in a single region to prevent monopolies.
In Europe, many government-owned airports have been transformed into companies that are owned and operated by the private sector, with the government sometimes retaining an ownership stake.
One successful example of a corporatized airport is Changi Airport in Singapore, where an independent entity, Changi Airport Group, is responsible for planning and operating the airport. This entity maintains ownership within the public sector while hiring people and signing contracts with private contractors.
Another ownership model is the not-for-profit model, which is often used for regional or community airports. In this model, all profits are reinvested in the airport, and benefits are passed on to the users.
Public-private partnerships (P3s) can be a valuable option for airports, providing a low-risk, cost-efficient, and high-quality approach to infrastructure development. P3s can help local governments reduce their exposure to the risk of projects going over budget and alleviate the burden of design, development, and long-term management.
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Frequently asked questions
Yes, regional airports can be privately owned. However, this is rare in the United States. Airports can also be owned by the government or a combination of both.
Some examples of privately-owned regional airports include Auckland and Wellington airports in New Zealand, and Punta Cana Airport in the Dominican Republic.
Private ownership of regional airports can bring in innovation and a competitive spirit, which may enhance customer experience, time efficiency, and management of multiple agencies.
There are various models of private sector involvement in regional airport ownership, including corporatization, not-for-profit, and service contract. Corporatization involves creating an independent entity responsible for planning and operating the airport, maintaining public ownership. The not-for-profit model reinvests all profits into the airport, benefiting the users. The service contract model allows public airports to "buy" private capabilities, such as baggage handling services.
