Why Privatize Airports?

Abstract

AbstractThis paper examines the arguments for the privatisation of airports in Australia. The general arguments for privatisation are evaluated and found not to be universally applicable. There is no a priori argument in that all activities operate optimally in the private sector. Rather, the costs and benefits of each particular case need to be examined. This is then done with respect to airports. Firstly, the question of whether airports should be operated as networks or as individual optimizing entities is considered. It is shown that with respect to both pricing and investment decisions, efficiency requires retention of the network. Due to the nature of the product, the market will not deliver an efficient, competitive outcome. In this light the specifics of the Australian privatization proposals are examined, and found wanting. The case for privatization of airports is extremely weak.