Sunday, January 11, 2009

Something to think about.


The regulation of airlines is still a hot topic. Supporters claim that deregulation worked: fares fell dramatically as new entrants clamored to serve competitive markets. Critics point to numerous bankruptcies, industry upheaval and the increasingly miserable experience of passengers as evidence of its failings. Indeed, the United States' first large-scale experiment with private airport ownership began just a few months ago, when Chicago's Midway Airport was sold for $2.5 billion to a consortium.

Yet, in "Aviation Infrastructure Performance: A Study in Comparative Political Economy," several authors explore aviation privatization in other countries:

In Australia, where airports are privately owned in order to optimize efficiency; however, airport operators "under pressure from regional interests" have incentives to make "excessive investments."

Canada's major airports are owned by nonprofit corporations designed to boost airport investment; their investment objectives have been largely achieved, but the nonprofit model has led to higher airport fees than might otherwise prevail.

China's 6 largest airports are publicly listed in order to improve airport efficiency.

However, the UK's big experiment in aviation infrastructure privatization was a failure; privatized in 1986, BAA plc owns London's 3 largest airports, Heathrow, Gatwick and Stansted which together comprise 91 percent of passenger traffic in the southeast of England, but this common ownership has had anticompetitive effects. Moreover, BAA is only capable of handling 1 major project at a time, leaving its other airports and London travelers to languish.

These results affirm that competition, choice and proper incentives are the essential components of a safe and efficient aviation infrastructure sector. U.S. policymakers and airline executives ought to pay close attention.

Source: Evan Sparks, "Should We Privatize Airports?" The American, December 5, 2008.

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