Airport Privatization

Airports in the United States need investment and improvements in operations efficiency and are thus ripe for privatization. Privatization is not a radical concept, around the world today many airports are run by private corporations or in public-private partnerships. In their latest report, The Ownership of Europe’s Airports, the Airports Council International writes:

Today, over 40% of European airports have at least some private shareholders – and these airports handle the lion’s share of air traffic. This year, about 3 out of every 4 passenger journeys will be through one of these airports…it is only a matter of time before fully publically-owned airports become a minority in the EU.

Moreover, even the public airports are typically structured as corporations that must pay their own way:

[Europe’s] airports – be they public or private – are to be run as businesses in their own right, strongly incentivised to continuously improve and underpinned by the principle that users pay a reasonable price to cover the cost of providing the facilities and services that they benefit from. There is no denying the tangible benefits that this approach has brought the EU – significant volumes of investment in necessary infrastructure, higher service quality levels, and a commercial acumen which allows airport operators to diversify revenue streams and minimise the costs that users have to pay – all of which are fundamental requirements to boost air connectivity.

The biggest restriction on airport privatization is that if a state or local government sells an airport it must use all of the proceeds to fund airport infrastructure–which makes the procedure pointless from their point of view. As I mentioned earlier, there is an Airport Privatization Pilot Program (APPP) which lifts this restriction but only if 65% of the air carriers serving the airport agree to the privatization. The APP is also slow and includes other restrictions. The Congressional Research Service has a good run down.

[Restrictions] include the need for 65% of air carriers serving the airport to approve a lease or sale of the airport; restrictions on increases in airport rates and charges that exceed the rate of increase of the Consumer Price Index (CPI), and a requirement that a private operator comply with grant assurances made by the previous public sector operator to obtain AIP [Federal] grants. In addition, after privatization the airport will be eligible for AIP formula grants to cover only 70% of the cost of improvements, versus the normal 75%- 90% federal share for AIP projects at publicly owned airports. This serves as a disincentive to privatize an airport, because it will receive less federal money after privatization.

The airlines are lukewarm on privatization. Although they would benefit from better operational efficiency, they are big recipients of the explicit and implicit subsidies and they use their effective control over airports to limit competition.

The main danger of privatization is that of monopoly power–it wouldn’t be a good idea to sell all of a city’s airports to the same corporation, for example. Thus, privatization should be accompanied by steps to increase competition. There are over 5000 non-commercial airports in the United States and some of the “National” General Aviation Airports already serve international flights (mainly corporate jets) and could be expanded to allow more commercial traffic.

Privatization should not be thought of as just a transfer of ownership but rather as a changing of the rules of the game to allow for many more private airports.

Addendum: Michael Sargent at Heritage has a useful and detailed plan. Robert Poole and Chris Edwards from Cato offer a good overview.


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