Airport Privatization Research Articles

A price forecasting model for predicting value of commercial airports: a case of three Korean airports

Abstract As the privatization of airports progresses throughout the world, the economic value of these strategic assets must be determined from a commercial perspective, rather than the economic impact perspective, which is typically used by governmental agencies to justify their construction. This paper applies financial theory of asset valuation to commercial airports. The authors have selected three airports for valuation purposes: Gimpo, Kimhae and Jeju. These airports are ranked top three in terms of annual traffic volume, among the 16 airports operated by Korea Airport Corporation (“KAC”). The authors estimate the intrinsic value of three major airports; Gimpo, Kimhae, and Jeju based on the discounted cash flow (DCF) model at $1.8 billion. The ultimate price achieved depends on the individual expectations of potential buyers, their opportunity costs and entrepreneurial abilities, as well as the ensuing negotiations. This paper, therefore, provides a benchmark for determining airport valuation in the event of privatization.

Privatization of airports in Asia

It has been claimed that Asia lags behind the rest of the world in the privatization of airports. At the same time, the air transport sector has been growing quickly and this has placed enormous pressure on airport infrastructure. This paper reviews the situation and finds that the private sector is involved extensively with new airports and the upgrading of existing airports in Asia. Although the models used to accommodate the private sector appear similar to those used elsewhere, governments in Asia have retained majority control in every case. Despite the fact that some governments say that efficiency is important to them, the most common and important motive in “privatization” in Asia is to mobilize a new source of finance. Airports remain high on the agenda of public policy. Governments are concerned about abuse of monopoly powers and they want to cross-subsidize regional airports, but they lack the institutional strengths to regulate effectively. By retaining majority control, however, governments risk losing the efficiency benefits of privatization. The paper explores the reasons why airports are such difficult cases to deal with and concludes that there is a greater need than ever to be able to compare the performances of airports.

Privatisation and regulation of Australian and New Zealand airports

The paper offers a brief background on the Australian and New Zealand airports. A discussion of the approach to price regulation being implemented by Australian regulators in other industries is provided to give an indication of how the as yet new regulation of airports will develop. Some specific regulatory issues which are emerging are also considered; first, the merits of the dual till approach are considered, and then how the regulator is handling investments in new capacity. The New Zealand policy of no formal price regulation is examined. The main problems in privatizing and regulating Sydney are discussed.

Success factors for the privatisation of airports—an airline perspective

This article examines different approaches to airport privatisation. It shows that privatisation can only be a success when government provides a suitable regulatory framework prior to privatisation. This framework must protect the interests of the consumer and ensure the participation of airlines as primary users in the privatisation project, thus establishing a solid basis for a strong partnership between the airlines and the airport. To accomplish this, the monopoly income of an airport should be subject of a price cap mechanism following the single till principle, best being set up in cooperation with the airlines and controlled by an independent regulator.

Lessons from Airport Privatization, Commercialization, and Regulation in the United Kingdom

The possible lessons of airport privatization, commercialization, and regulation in the United Kingdom (U.K.) are discussed. This is both timely and topical because of the huge financial pressures on governments to meet the infrastructure investments required to accommodate the forecasts of growth in air traffic and modernization such as new, larger aircraft. In response to these trends, the U.S. government and governments around the world have looked at the U.K. as a model of privatization. It was the first nation to privatize its airports, and a variety of ownership structures have been adopted. The history of privatization, commercialization, and regulation in the U.K. is traced, and important lessons are highlighted. Regulation may be the only policy lever available to shape a privatized and commercialized airport system and its role within a wider integrated transport strategy. The authors contend that a commercialized model of ownership similar to that at many U.K. municipal airports could be adopted in the United States, potentially relieving the financial pressure on the federal government to fund development. Countries need to have a strategic airports policy to guide development toward national, economic, and environmental goals.

Airport Regulation: Reflecting on the Lessons from BAA plc

This article discusses the implications of airport privatization and regulation with reference to the case of BAA plc. It concludes that regulation should be implemented in a coordinated manner which is consistent with wider policy goals and which respects the outcomes for all stakeholders. The need for countries to have a strategic airports policy to guide development towards national economic and environmental goals is highlighted. The implications of the regulation of BAA to protect public interest is both timely and topical given that the next government airports policy is due to be released in 2002 and current plans for the privatization of air traffic control. Regulation may be the only policy lever to shape a privatized and commercialised airport system and its role within a wider integrated transport strategy.

The Privatization of Commercial Airports in the United States

This article summarizes current discussion regarding the privatization of U.S. airports in general and the Federal Aviation Administration airport privatization pilot program in particular. The lack of success of this program is analyzed in terms of general airline opposition to privatization and the inherent advantages to the airlines of the current airport financial system. Those advantages are primarily (a) the historic cost method of calculating landing fees and (b) the subsidization of the capital improvement program. Reference is made to other airport financial systems that may be more successful, such as the management of Indianapolis Airport by the British Airport Authority U.S., Inc.

Airport Privatizations

As a result of many recently announced privatization, increased activity is expected to finance airport expansions through to the world. The U.S. capital markets will be a natural source for this financing because of increasing fiscal constraints faced by local governments combined with long-termed nature of required debt for these capital-intensive assets. In the view of Duff & Phelps Credit Rating Company, key factors that can determine access to private sector funding for any airport privatization may include concession terms, the quality of the airport operator, the economic, legal and regulatory environment, equitable distribution of all risks. Those risks include offtake, or commercial risk; construction risk; operator risk; and currency risk.

International airports: financing methods in Japan

Capacity shortages at international airports in Japan are the most serious impediment to liberalization and free competition in international aviation. Here, we deal with the causes of this shortage, Japanese institutional systems of airport improvement and new financing methods for international airport capacity expansion in metropolitan areas. We emphasize the effectiveness of the joint-stock corporation system as a financial device. The introduction of the joint-stock corporation is one kind of airport privatization, but its characteristics completely differ from those of privatized airports in some European countries and in New Zealand.

Airport Privatization: Issues for the United States

The worldwide trend to privatize airports has led Congress to direct the Federal Aviation Administration to experiment with privatization. Because there always is a public interest in the operation of major commercial airports, which are both vital assets to the community and potential monopolies, it is generally impractical to transform airports into wholly private businesses. Most privatization projects involve substantial regulation of the private investors, detailing the design of airport services, the prices charged, and their openness to users. Worldwide experience provides three lessons: ( a) U.S. airports are among the most privatized in the world, and there is little scope for privatization in the United States compared to elsewhere; ( b) Major aspects of airport direction must remain under government control because of the public interest in these facilities; and ( c) Privatization takes a long time because the process requires considerable negotiation between the stakeholders in the airport business, and there are no simple solutions. The fundamental choice in the privatization is how the government should sustain the public interest in open access to and fair rates for airport services. The major alternatives are ( a) government regulation, an inherently adversarial process; or ( b) government ownership and partnership in the development of airports, a more collaborative approach. The partnership approach, applied by airport authorities throughout the United States and Canada, is arguably the better alternative in practice. It assures the public interest in fair operations and permits local communities to express their needs for sufficient airport capacity.

Peru’s concerns surrounding the regulatory changes

A brief presentation of Peru, including population, size topographic configuration, roads, ports and airport network, privatization policy and concessions program, is followed by comments on the 1995 Singapore meeting on air transport in Asia Pacific Regions, regulations of air transport systems in Peru and Peru’s concerns surrounding the regulatory changes. During the last 20 years, several economic organizations have been formed with the purpose of increasing and liberalizing commercial interchanges and capital flows in the Asia Pacific area. Peru believes that during the next century the Asia Pacific Region will develop more than any other area in the world. Bilateral agreements, adequate routes and frequencies, applications of open skies agreements, effective and potential reciprocity, liberalization of air transport and regulatory changes in international transport are some of the items commented on in this paper.

Measuring total factor productivity of airports— an index number approach

Abstract There is an increasing trend towards corporatisation and privatisation of airports in an effort to improve performance. However, the normal financial reporting requirements associated with these forms of organisation are not sufficient indicators of the performance of airports since profitability can be more a function of the exercise of market power than a sign of productive efficiency. Also, there are concerns that efforts to regulate the prices charged by airports can result in under-investment and declining service standards. This makes it important to monitor the cost-efficiency, cost-effectiveness and service-effectiveness of airports. There is a growing literature on these topics, but so far there has been little attempt to apply the concepts of total factor productivity to the airport sector. We use a non-parametric index number method to illustrate how such a global measure can be used to investigate the role of disaggregated performance measures that often are very useful to managers and to those monitoring airport operations.

Airport privatization: A simple welfare analysis

The interest in privatization is not new to the world nor the study of economies, for that matter. The paper contains a critique of both proponent and opponent groups of economists and policy makers who deal with the issue of airport privatization. These groups primarily rely on anecdotal evidence to support their positions. At present, privatization can only be accepted or rejected on the basis of theory, politics, or ideology. In this paper a mathematical model and decision rule based on welfare analysis are developed that facilitate the process for transition of airports from a public enterprise to a private one.

Why Privatize Airports?

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.

Airport Privatization

In today's economic and political climate, there is a growing trend toward less governmental intervention in the economy and more reliance on the private sector for the delivery of a variety of services. Deficit politics, airline deregulation, and the prospect of a windfall of cash has prompted many local units of government that own and operate airports to consider selling or leasing these facilities to private investors. Airport privatization has emerged as a contentious issue, with weighty arguments on both sides of the debate. This article examines these arguments and presents several models of airport privatization. The authors suggest that the most aggressive form of privatization–full divestiture–is unlikely to produce the benefits advertised by its proponents. However, less radical forms of privatization serve as useful models for future airport ownership and operation. The authors conclude that, given the great variation in the types of airports in the United States system, no single model is sufficient.

In the Public Interest

In today's economic and political climate, there is a growing trend toward less governmental intervention in the economy and more reliance on the private sector for the delivery of a variety of services. Deficit politics, airline deregulation, and the prospect of a windfall of cash has prompted many local units of government that own and operate airports to consider selling or leasing these facilities to private investors. Airport privatization has emerged as a contentious issue, with weighty arguments on both sides of the debate. This article examines these arguments and presents several models of airport privatization. The authors suggest that the most aggressive form of privatization–full divestiture–is unlikely to produce the benefits advertised by its proponents. However, less radical forms of privatization serve as useful models for future airport ownership and operation. The authors conclude that, given the great variation in the types of airports in the United States system, no single model is sufficient.

A note on optimal airport pricing in a hub-and-spoke system

This paper deals with the socially optimal pricing of airports in a hub-and-spoke network, taking into account explicitly the fact that demands for airport services at hub airport and spoke airports are complementary. It is shown that a welfare gain is to be made by switching from the regime of pricing each airport independently of other airports in the network to the regime of pricing the hub and spoke airports jointly. Intuitively, given the demand complementarity, the optimal pricing of a hub-and-spoke airport network as a system may require for the hub airport to subsidize the money-losing spoke airports. Our result implies that there may be a welfare loss due to the reduction in allocation efficiency if a network of airports currently being managed by a national government are to be defederalized (or privatized) separately for each airport as being carried out in Canada and in Australia. Since one of the major reasons for defederalization (or privatization) of airports is to reduce x-inefficiency caused by the centralized, bureaucratic and inflexible management, the welfare loss due to the allocative inefficiency should be weighed against the one-time gain in x-efficiency expected from defederalization of those airports. This result calls for a caution on the current debate on airport devolution which focuses mainly on the expected one-time reduction in x-inefficiency in airport operation and management and the need for flexible attitude toward local community needs, without even discussing its effects on reduced allocative efficiency which will continue to occur in perpetuity.

Obstacles to airport privatization: The case of Phoenix, Arizona: Trimble, Richard Tracy, Ph.D. Arizona State University, 1994. 222 pp

Obstacles to airport privatization: The case of Phoenix, Arizona: Trimble, Richard Tracy, Ph.D. Arizona State University, 1994. 222 pp

Airport Privatization: False Panacea?

This paper describes the recent history of airport privatization, presents the arguments for and against airport privatization, and assesses the prospects for airport privatization in the United States. The traditional role of government in aviation was challenged during the 1970s with passage of the Airline Deregulation Act, which terminated 40 years of federal economic regulation of commercial airlines. Many economists and policy analysts have argued that airline deregulation did not go far enough, and that the federal government should have also introduced competition into the airport industry. Calls for greater reliance on the private sector in aviation infrastructure development gained momentum in the 1980s that has continued into the 1990s. The authors conclude that, given the complex goals that public administrators must balance, coupled with the risks involved in total privatization, the prudent course of action is to seek less extreme solutions for the problems facing airports today. In this regard, privatization models that have combined elements of the market approach with a public administration approach would seem to represent the models worth replicating.

Airport management in a changing economic climate

The paper deals with the rapidly changing climate of aviation in a climate of movement toward liberalization, deregulation and privatization. After discussing the principal motives for deregulation and privatization, the author deals with the various methods currently used for effecting privatization of airports. A categorization of airports is produced depending on airport function, scale and political jurisdiction to identify how the volatility of air transport demand can seriously affect the viability and profitability of long term investment plans of individual airports.