Lois Larson
While some airports around the world are privately owned, the majority are publicly owned. Building an airport is a very expensive endeavour, and often requires government subsidies or is completely funded by the local government. In the US, airports are generally owned by state and local governments, but they contract out numerous services to private firms. In Europe, many airports have been privatized, and in the UK, the privatization revolution was launched by Margaret Thatcher's government in 1979. While there are benefits to both public and private ownership, the main objectives for considering private sector involvement should be the focus, such as financial, macroeconomic, or management goals.
| Characteristics | Values |
|---|---|
| Building an airport is expensive | Requires government subsidies or local government funding |
| Government oversight | Government has regulatory and economic oversight, including security, airspace, and pax fees growth limits |
| Monopoly | Private ownership may lead to monopolies and reduced competition |
| Public service | Critical transport is a public service |
| Public-private partnerships | P3s allow local governments to transfer financial risk to private partners while incorporating private sector innovations and investment |
| Privatization | May reduce costs and encourage more efficient pricing structures |
| Privatization | May reduce delays and increase competition |
| Privatization | Private airport managers are more willing to take risks of new investments |
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What You'll Learn
- Building airports is expensive, often requiring government subsidies or ownership
- Public-private partnerships can modernise airports without full privatisation
- Private airports may be more efficient, but can also lead to higher prices
- Private ownership can reduce competition, with incumbent airlines having exclusive-use agreements
- Private ownership may not work for smaller, less profitable airports
Building airports is expensive, often requiring government subsidies or ownership
Building airports is a very expensive endeavour, which is why they often require government subsidies or ownership. Airports require a large amount of land, which is often owned by the government. In the United States, for example, the vast majority of airports are at least publicly owned, and many are publicly operated as well.
Even in cases where airports are privately owned, the local government often has a non-majority shareholding, as seen in the case of Auckland and Wellington airports in New Zealand. In Europe, many airports have been privatized, with some governments selling their shares, resulting in completely privately-owned airports. However, even in these cases, the privatization often takes the form of long-term leases, where the government retains ownership of the land.
The high cost of building and operating airports can be a financial burden for private companies. In the case of Branson, Missouri, a privately-owned commercial airport was built but had to be gifted to the local government due to laws prohibiting private ownership. The airport was then leased back to the private company. This model of public-private partnerships (P3s) allows local governments to transfer financial risk to private partners while incorporating private sector innovations and investments.
While privatization can bring benefits such as reduced costs, increased efficiency, and encouragement of competition, there are also potential drawbacks. In the case of New Zealand's privately-owned airports, they exhibit monopoly-like behaviour, squeezing profits out of activities outside the formula that oversees their profit limits. Additionally, the sale of profitable airports can disrupt the entire financial model, and selling unprofitable airports can be destructive to local communities as new for-profit operators may cut important services to maintain profitability.
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Public-private partnerships can modernise airports without full privatisation
Public-private partnerships (PPPs) can be an effective way to modernise airports and enhance infrastructure without full privatisation. PPPs allow local governments to transfer financial risks to private partners, while also incorporating private sector innovations and investments. This model has been successfully implemented in several airports, including John F. Kennedy International, LaGuardia, Los Angeles International, and Newark Liberty International airports.
PPPs offer several benefits, including risk transfer, innovation, and investment. By partnering with private entities, local governments can shift the financial burden associated with transportation projects while leveraging the expertise and resources of the private sector. This can lead to much-needed improvements and expansions in airport infrastructure, such as the construction of new terminals or the enhancement of existing facilities.
Additionally, PPPs can drive competition and improve efficiency. Private airport managers are often more willing to take risks and make new investments, such as creating new gates for additional flights and airlines. This increased competition can lead to reduced costs, improved pricing structures, and enhanced services for airlines, passengers, private plane owners, and taxpayers.
While full privatisation of airports is rare in the United States, PPPs provide a viable alternative that maintains public ownership while attracting private sector involvement. This model has faced some resistance from airport owners due to concerns about relinquishing control. However, with the city, county, or state retaining ownership and regulatory power, PPPs offer a balanced approach that combines public oversight with private sector expertise.
In conclusion, public-private partnerships can play a crucial role in modernising airports and preparing for the future of air travel. By leveraging the strengths of both the public and private sectors, PPPs offer a flexible and innovative approach to airport management, enabling infrastructure enhancements and improved efficiency without the need for full privatisation.
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Private airports may be more efficient, but can also lead to higher prices
While some airports around the world are privately owned, the majority are publicly owned and operated. Building an airport is an expensive endeavour, and often requires government subsidies or is entirely funded by the local government. Airports are critical infrastructure, and in the case of rural communities, they may be the only means of accessing essential services. If an airport is unprofitable, it may be forced to shut down, which could have devastating consequences for the communities it serves.
In the United States, the vast majority of airports are publicly owned. While some airports have attempted to go private, they have ultimately sold back to the government due to financial losses. Additionally, the government retains regulatory and economic oversight of airports, including security, airspace, and passenger fee growth limits.
In Europe, many airports have been privatized, with Britain leading the way in 1987. The privatization movement was driven by a desire to improve the efficiency of failing state-owned enterprises. While some argue that privatization leads to increased competition, improved efficiency, and reduced costs, others point to the potential for higher prices and negative impacts on the local community.
For example, in the case of New Zealand's Auckland and Wellington airports, which are privately owned with minority shares held by the local government, the airports exhibit de-facto monopoly power in the regions they serve. While their profits are technically limited by a formula overseen by the national government, they maximize profits by squeezing every last cent out of activities outside of the formula that they have a monopoly over.
Therefore, while private airports may be more efficient in certain respects, there is also a risk of higher prices and negative consequences for the local community, especially in the case of monopolies. A balanced approach that considers the specific situation and objectives is necessary when deciding between public and private ownership of airports.
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Private ownership can reduce competition, with incumbent airlines having exclusive-use agreements
While some airports are privately owned, the majority of airports are publicly owned. For example, in the United States, the vast majority of airports are publicly owned, and many are also publicly operated. In Europe, however, many airports have been privatized. For instance, in the UK, the top 15 airports are mostly privatized, and in New Zealand, both Auckland and Wellington airports are privately owned.
There are several reasons why major airports cannot be private or have not been privatized. Firstly, building an airport is a very expensive endeavor and usually involves government subsidies or is completely funded by the local government. Secondly, in the case of the United States, it is often the case that the land on which airports are built is government-owned, and while airfield operations can be managed by private companies, the government retains regulatory and economic oversight, including security and airspace.
Private ownership of airports can reduce competition, as incumbent airlines often have exclusive-use agreements for gates. These long-term agreements provide a guaranteed revenue stream for risk-averse airport managers. However, when new airlines want to begin operating at these airports, there may be no gates available, reducing competition. Even if there are unused gates, dominant incumbent airlines can prevent competitors from accessing them.
Public-private partnerships (P3s) have been proposed as a way to modernize and enhance airport infrastructure to accommodate the rising demand for air travel. P3s allow local governments to transfer financial risk to private partners while incorporating private sector innovations and investments without fully privatizing public infrastructure. Examples of P3s include major terminal projects at John F. Kennedy International and LaGuardia airports, and a people-mover being installed at Los Angeles International Airport. However, some airport owners are reluctant to enter into P3 leases, as they would have to give up their current ability to micromanage the airport, even though they would retain ownership and regulatory power.
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Private ownership may not work for smaller, less profitable airports
While some airports around the world are privately owned, the majority are publicly owned. For example, in the United States, the vast majority of airports are publicly owned, and many are publicly operated. This is despite the country's relatively pro-private enterprise stance.
There are several reasons why smaller, less profitable airports may not work as private enterprises. Firstly, airports are extremely expensive to build and operate. While some private companies have tried to run airports, they have often ended up selling them back to the government due to financial strain. Smaller airports with fewer passengers and airlines serving them will have less income from charges to these airlines and passengers. They will also have less revenue from advertising and airport retail and parking concessions.
Secondly, smaller airports may struggle to attract new airlines and passengers, which is a strategy used by private airports to increase revenue. Private airports are more willing to take the risk of investing in new infrastructure to attract new carriers, whereas current US airport agreements often give incumbent airlines veto power over terminal expansions.
Thirdly, smaller airports are often critical infrastructure for the communities they serve. If a private company decided to close an unprofitable airport, it could cut off transport links for the community. This has happened with other transport services in the past, such as Greyhound buses in Western Canada. In this case, the government may have to step in to restore transport links.
Finally, while some countries have privatized their airports, this has not always been successful. For example, the UK has privatized many critical services, and these have often collapsed or resulted in decreasing investment and rising prices.
Therefore, while some larger airports may be able to thrive under private ownership, smaller, less profitable airports may struggle due to financial strain, difficulty attracting new business, the critical role they play in their communities, and the potential for privatization to result in decreased investment and rising prices.
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Frequently asked questions
While some airports are privately owned, such as Auckland and Wellington airports in New Zealand, it is more common for airports to be publicly owned. This is because building an airport is very expensive and often involves government subsidies or is completely funded by local governments. In the US, airports are often owned by state and local governments, but many services are contracted out to private firms.
Private airport managers are more willing to take risks with new investments, such as creating new gates for additional flights and airlines. Private airports also try to attract new carriers to increase revenue and profits.
Publicly owned airports are less likely to form monopolies, which can lead to better pricing for consumers. Public ownership also ensures that critical transport services are maintained, even in rural communities.
A public-private partnership is when local governments transfer the financial risk involved with transportation projects to private partners while incorporating private sector innovations and investments, without fully privatizing public infrastructure. P3s can be used to build and operate entire airports or for smaller projects like water supply and parking.
