Privatize the Airports

By Dominic Pino

Sunday, May 12, 2024

 

When you say something like “privatize the airports,” you’re bound to be painted as a radical libertarian. What’s next, privatizing nuclear weapons? Everyone knows airports are a function of government. They need to be for national-security and safety reasons, and everyone wants their taxes to fund hard infrastructure.

 

But it just isn’t true, as Marc Scribner writes in the Reason Foundation’s annual report on aviation privatization. The U.S. is actually an outlier for having nearly all passenger traffic go through government-run airports, and privatization has worked around the world.

 

The rest of the world used to look like the U.S., with nearly every airport government-run. Then, in 1987, under Prime Minister Margaret Thatcher, the U.K. privatized the British Airports Authority. This started a wave of airport privatization in Europe and Asia.

 

Privatization can take many forms. Scribner writes that selling total ownership or partial stakes in airports is common in Europe, while public–private partnerships are more common in Australia, Asia, and Latin America. Airports can mix and match these privatization structures, with partnerships just for certain terminals or other components of airport operations.

 

With all these privatized airports around the world, airport companies have sprouted up to run them. Investor-owned airport companies are worth almost $40 billion worldwide, Scribner writes. Airports open to international firms can expect multiple bids on a privatization effort.

 

Privatized airports frequently rank highly on surveys of the best airports in the world. Some of the world’s largest airports are privatized, such as Paris Charles de Gaulle, London Heathrow, and Frankfurt. If you’ve flown to Cancún any time since 1998, you used a privatized airport.

 

Rather than having to battle against all the other funding demands in a government budget, privatized airports control their own revenues and can invest them in making the airport better. One of the main rationales governments use to argue for privatization is to allow airports to catch up on overdue investment that the government didn’t properly fund while removing the airport from the tax burden going forward.

 

Airports, when well-managed, should be profitable enterprises. They are not public goods in the economic sense of the term. A public good is non-rivalrous and non-excludable, meaning that one person’s use of the good doesn’t leave less of it for others and there is no feasible way to prevent free-riding. Neither of these conditions holds for airports. One plane landing or using a gate means another plane cannot, and even publicly owned airports charge various fees to planes to prevent free-riding.

 

The U.S. has almost entirely excluded itself from privatization and the benefits it can provide. Rather than make any moves toward privatization, the federal government in 2021 doubled down on the government-run nature of airports in its campaign for the bipartisan infrastructure law. The only significant airports in the U.S. under public–private partnerships are in New Haven, Conn., and San Juan, Puerto Rico.

 

European-style sale of government-owned airports is illegal in the U.S. Publicly owned airports can also issue tax-exempt revenue bonds, which privately owned airports cannot. And Federal Aviation Administration funding for airport improvements is determined by political factors more than it is by profitability. According to a 2021 report from the Congressional Research Service, the limitations on funding for privatized airports “are largely the consequence of federal laws.”

 

In Europe, 75 percent of passenger traffic goes through privatized airports. In Latin America and the Caribbean, it’s 66 percent. In Asia, it’s 47 percent. In the U.S., it’s less than 1 percent. This is a bad form of American exceptionalism.

 

American politicians say the way to fix poorly performing infrastructure is to spend more taxpayer money on it. For airports, it’s clear that privatization can provide the improvements they are looking for. A 2022 analysis of hundreds of airports around the world found that after privatizing, airports saw higher passenger volumes, a greater number of routes, fewer flight cancelations, and greater net income, with no effect on safety. It also found that the sale of ownership as private equity led to better results than public–private partnerships did.

 

U.S. airports are some of the most valuable in the world and would present attractive opportunities to investors if they were available. Reason Foundation estimates that the potential market value of 31 major airports in the U.S. is $131 billion. Getting airports off the plates of local governments and into the capable hands of any of the dozens of airport companies currently running airports around the world would be good for local governments and passengers alike.

 

It’s not radical to privatize airports, and the U.S. is unusual for keeping them government-run. Removing the tax exemption for revenue bonds for public airports and allowing the style of ownership sale the Thatcher government used would start to level the playing field for private competition. Airports are enterprises that can and should be run profitably, not government projects that require taxpayer money.