Privatisation of airports needs cautious approach

Airports are an essential part of the global air transport network and a key enabler of economies all over the world. The success of the global aviation industry hinges much on airports and airlines — sans airports, airlines have no business and without airlines, airports cannot survive.Since the 1950s, there has been a global trend towards greater private sector role in managing airports, moving away from their direct government ownership and financing and management.Currently, about 15% of airports globally have some level of privatisation, but this is set to go up, thanks to the incentive of generous private funding and reduced reliance on government money, which in many cases is hard to come by.A range of trends are making privatisation “more attractive”, with the most potent being a rise in passenger traffic. Global trade body of airlines IATA forecasts that in excess of 7.8bn passengers will pass through airports globally in 2036, a near doubling of the 4bn that travelled in 2017.Airports are therefore under increasing pressure to expand infrastructure and services to meet this unprecedented demand, but a rise in operating costs and national budget cuts have made this increasingly unattainable for the public sector, an analysis shows.In theory, privatisation reduces the need for public sector investment, provides access to commercial sectors, and allows airports to diversify services without the fear of government control and interference. And proponents of this theory argue that this may lead to increased operational efficiency, as well as create new paid incentives for management and employees. Cash-strapped governments could therefore privatise airports to increase investment without impacting their national coffers.But privatisation in certain countries is receiving increased pushback from airline organisations and industry commentators. Sceptics say many privatised airports around the world have significantly bumped up prices for consumers, which do not match service level or quality.Airport privatisation is something not new, but its success so far has not been encouraging, experts say. At this year’s IATA annual general meeting in Seoul last month, association CEO and director general Alexandre de Juniac urged governments to take a cautious approach on airport privatisation. He said there has not yet been an example of privatisation that has delivered the promised benefits of greater efficiency for airlines, as well as a better experience for customers.But those favouring airport privatisation insist that a significant number of the world’s best and highest revenue earning airports are either fully or partially privatised.Airport Council International (ACI) estimates that over the past few years, privatised airports invested more in capital expenditure for projects compared to government-operated airports.The fact, however, remains that some of the world’s best airports are state-owned. A case in point is Hamad International Airport in Doha, which consistently bags awards for service, efficiency, quality and good connectivity.  While there are strong points on both sides of the fence on airport privatisation, for millions of travellers around the world the ownership structure of an airport — whether it is publicly owned or private — is not a real concern. Apparently, what concerns them is whether an airport can justify the costs it levies by matching service and quality.  Airport Public-Private Partnership (PPP) and privatisation programmes may stem from a range of government objectives, which typically include financial sustainability and maximising financial benefit, new sources of private finance and enhanced management capability, says a report prepared by Deloitte for the International Air Transport Association. They have led to a range of both advantages and disadvantages.Countries that have already implemented airport privatisation include Australia, Brazil, Chile, Colombia and Portugal, a report by IATA has shown.Countries implementing privatisation include France, India and Nigeria. And countries considering airport privatisation include Canada, Lebanon and the US.Advantages have included the efficiency gains associated with greater specialisation in the airport industry, access to new sources of private sector investment, and stimulation of aviation-driven economies. However, the private ownership and operation of airports with high degrees of market power and the monopolistic tendencies of the industry can increase the risk that these benefits are not passed on to airlines and consumers.What is often overlooked is that there are a range of ownership, operating and private sector participation (PSP) models that can meet government objectives, without a transfer of control or ownership to the private sector, the Deloitte-IATA report says. Also, there is no ‘one size fits all’ solution that should be pre-assumed as the optimal model for airport ownership. As industry experts say an airport in public or private ownership is not the central question here. The key issue is whether an airport can deliver the cost and service levels that airlines require, regardless of the airport’s ownership structure. Where a decision is taken to privatise an airport, it is suggested that the framework put in place must benefit both the industry and customers alike. Therefore, privatising airports should not be viewed simply as a short-term revenue raising option for certain governments. It must be seen as part of a long-term vision for economic development. Investments in new airport capacity — along with more efficient usage of existing capacity — are essential if the air transport industry is to meet future growth in demand in a sustainable way. * Pratap John is Business Editor at Gulf Times.