Privatizing airports could save billions, reduce delays

New York's LaGuardia Airport (Flickr / Zohar Manor-Abel)

New York’s LaGuardia Airport (Flickr / Zohar Manor-Abel)

“In the early days of commercial flight,” mused The Economist’s Gulliver” columnist recently, “people would dress up to take to the air and marvel at the fact that they, members of a heretofore land-bound species, were flying through the sky.”

“Nowadays,” he added, “we [clamor] for the opposite mindset: one in which we do our best to pretend we are not flying at all.”

With flight delays and long security lines becoming the rule rather than the exception, travelers can often expect to spend more time at the airport waiting around than actually flying. Recent research suggests that we could significantly improve the air travel experience by allowing some privatization of airports.

Sound impossible? Maybe at first — but that’s only because Americans are so used to governments running airports that we assume it must be the best way. It isn’t.

In a 2016 ranking of the world’s top 100 airports by Skytrax, no U.S. airport even cracked the top 25. The rest of the world has found a better way to improve customer satisfaction, and private ownership is a major factor. In Europe, airports with at least some private ownership serve 75 percent of passenger traffic. U.S. airports, by contrast, are usually wholly owned by state and local governments and subsidized by federal dollars.

With a few important reforms, the incoming Republican government could encourage airport privatization, boosting efficiency and customer satisfaction for the almost 1 billion passengers each year that travel through US airports.

A Congressional Research Service (CRS) report recently outlined the government’s track record on allowing the privatization of airports. Even though an Airport Privatization Pilot Program (APPP) was established in 1996 to make it easier for airports to privatize certain aspects of their operations or lease the airport to private investors, only one airport in Puerto Rico is privatized today as a result of the program. Chicago Midway International Airport was the most recent large hub commercial airport to apply for privatization through the APPP, but the application was withdrawn in 2013.

Many restrictions within the pilot program make it an ineffective way to measure the success of privatization. When an airport is approved for privatization through the APPP, airport operators lose significant tax benefits and federal subsidies, a loss that scares away airport owners from the uncharted territory of privatization, even if it were to lead to more efficiency down the road. This is not as much of a factor in Europe, where it has been easier to privatize airports without navigating several layers of government bureaucracy.

Furthermore, the APPP prohibits state and local governments from using the revenue they’d gain from privatizing the airport on any non-airport-related expenses. “Because most sponsors would no longer have any airports to operate and maintain following the sale of its airport, such a provision makes privatization financially pointless for the public entity involved,” argued Michael Sargent, a research associate at the Heritage Foundation. aip-funding-heritage-foundation-graph

However, privatization in the United States will remain difficult without significant changes to the Airport Improvement Program (AIP), which designates federal dollars for specific airport improvements, such as runways. Sargent highlights significant problems with the allocation of AIP funds. For example, he concludes that 88 percent of commercial air traffic is served by just 60 medium and large airport hubs. However, these airports only received 27 percent of the federal dollars from AIP grants. Most of the federal money goes to airports that barely have an impact on passenger congestion.

Because the passenger fees that airports can charge are also regulated, airports are often stuck with no way to raise their own revenue in order to make improvements, yet they still must follow federal regulations that increase the cost of construction, labor, and compliance.

“Airports should be able to derive their own revenue and be self-sufficient just like any other business,” said Sargent. “Relying on the federal government’s continued involvement through grants and regulations for funding has hampered airports with a host of wide-ranging downsides.”

A recent 2014 paper by Brookings Institution Senior Fellow Clifford Winston and Washington State University economist Jia Yan also found that the country could experience tens of billions of dollars in benefits if airports were allowed to privatize and compete as they do in other countries. “Our main finding is that private airport competition could increase commercial travelers’ welfare and airlines’ profits and enable the airports to be profitable,” wrote the authors in the paper, which was published in the Journal of Public Economics.

Even if all of these reforms were too difficult to tackle, Republicans could still take a small step by encouraging other major U.S. airports to follow the lead of the twenty-two U.S. airports that have already privatized their security screening process. Privatizing security screening at San Francisco’s airport removed many of the delays caused by TSA inefficiency. In the first 5 months of 2016 alone, American Airlines estimated that TSA security delays around the country caused 70,000 passengers to miss their American Airlines flights and 40,000 checked bags to be delayed.

Flying doesn’t need to be so unpleasant. If President-elect Trump and the Republican Congress focus on making these changes, we could “make flying great again.”

Published on Opportunity Lives