Airport Privatization Research Articles

A data-driven approach for estimating airport efficiency under endogeneity: An application to New Zealand airports

Airport efficiency is commonly estimated via data envelopment analysis (DEA). This data-driven non-parametric approach is more flexible than the parametric approach, because it does not require an a priori function for the frontier or a very big sample size. However, DEA loses its discriminatory power when the number of observed airports is small compared with the number of airport inputs and outputs examined, particularly when examining airports within a country. In addition, the endogeneity problem may exist if one attempts to examine the determinants of airport efficiency. This study used the Slack-Based Measure (SBM) DEA-Window Analysis model to address the small sample issue during the first-stage analysis and used an instrumental variable (IV) in the Tobit model to solve the endogeneity issue during the second-stage analysis. Data from a sample of 11 New Zealand airports between 2006 and 2017 were used for analysis. The key findings showed the positive impact of tourism, regional economic development, an airport's domestic networks, airport privatisation, low-cost carrier services and the Christchurch earthquakes on New Zealand airports' performance and efficiency, whereas an airport's international networks has a negative impact. The literature contribution and policy implications are also discussed.

Persistent and temporary inefficiency in airport cost function: An application to Italy

Abstract We study an airport cost function with a four-random components stochastic frontier model that split the inefficiency in two parts: (1) persistent (long-run) and (2) temporary (short-run). We analyze as determinant of both inefficiency types several exogenous factors such as the airport ownership and LCCs share. We apply the model to the Italian airport system during the period 2010–15. We find that (1) average total cost inefficiency is 14%, and that a it is mainly due to temporary inefficiency, (2) that work load units have the largest cost–output elasticity (+0.31%), (3) that price of airport services has the largest cost-input elasticity (+0.50%) while labor has a +0.41% cost elasticity and capital only a +0.09% cost elasticity. There is also evidence of economies of scale. Moreover we find that LCCs reduce both types of inefficiency and that private airports are more cost efficient than public ones. These findings have interesting managerial (e.g., strictly monitoring service costs, expand LCCs flights) and policy (e.g., provide incentive to reduce temporary inefficiency, push airport privatization) implications.

Public-private partnerships in airports: the Turkish experience

Public-Private Partnerships (PPPs) have become a prevalent method to fund transport infrastructure around the world. PPPs have emerged in airports as an alternative to public airports and complete privatisation of airports. PPPs in airports have a history of 25 years in Turkey. This paper aims to provide an up-to-date review of PPP experiences in Turkish airports. With a case study design, PPPs in Turkish airports are examined in the context of policy, legal grounds, and implementations. PPPs are the main method adopted especially in the funding and operation of new airports and/or terminals in Turkey. Besides the successes, there are also areas to be improved regarding PPP design and implementation. More transparent, comprehensive, and structured contract terms, proper risk assignment, more accurate demand forecasting, and efforts to overcome certain public interest concerns are identified as the main requirements for future policy actions.

The Rio De Janeiro international airport privatization: a problem of overbidding?

We analyze the case of the Rio de Janeiro International Airport concession, which suffered severe financial difficulties after it posted the highest auction bid premium of the 2011–2013 Brazilian government airport privatization program. Given that this airport had significant potential for future expansion, we investigate whether this could have justified the high bid, or whether the value of this flexibility was overestimated. The concession is analyzed using the real options approach because these expansion opportunities have option-like characteristics. The results suggest that these options may have been overpriced, because they are insufficient to justify the bid premium offered.

ILS CAT III NO BRASIL: CUSTO-BENEFÍCIO DE INSTALAÇÃO NO BRASIL

This research talks about the need of a precision landing system also known in Brazil as ILS CAT III. It will approach if what motivates such implementation is the political or the economic bias and what is the relationship with the awards to the related private companies. In order to check the true need of the device to the country, it's necessary to acknowledge some barriers that we face when implementing this kind of device. The goals of this study are to present the concept and the history of this system, since its creation to the precision categories. Besides that, it will be shown comparative data from the airports before and after the implementation of the ILS, observing the results of such measure. The study also has as a goal to present the spending and the methods used for the homologation, certification and maintenance of the system by the regulatory bodies. The methodology is based in literature review structured in books, scientific articles, reports, Brazilian resolutions and regulations. It's expected that with this research we can prove or not the true need of the ILS CAT III to Brazil towards the predominant weather conditions in the domestic airfields, the current political and economic scenario and the questions about concession and privatization of Brazilian airports. In view of the following research, it was found that ILS CAT III in Brazil doesn’t have a cost-benefit of real viability, both for national airlines and for airports that would have to implement this system, given that a few hours throughout the year requires this type of operation, being more viable to them the expense with passengers before the resolution 141 of the ANAC.

A critical review of airport privatisation in the Kingdom of Saudi Arabia: Case study of Medina Airport

Saudi Arabia is one of the few Middle-Eastern states to have undertaken an airport privatisation programme. Medina was one of several airports that have been privatised in Saudi Arabia when it was awarded to Tibah Airports in 2012 under a Build-Transfer-Operate agreement. This paper compares the performance of Medina Airport in terms of traffic, revenues, costs and profitability with projections made during the due-diligence period prior to the airport’s privatisation. We found that the airport benefitted from favourable market conditions post-privatisation which facilitated the attainment of some important achievements with regard to route development and customer service. However, we also found that profitability was lower than forecast during the due-diligence process prior to privatisation and that this was mainly as a result of unexpected interventions by the regulator GACA. We have raised important policy implications for future privatisation transactions, the success of which is crucially dependent on the Kingdom minimising the level of regulatory risk facing potential investors. There are cultural dimensions, human resources strategies and administrative governance issues in addition to the very specific nature of the socio-political environment which are all factors that need to be considered in future privatisation transactions.

The Impact of the Ownership Structure of the Company Managing an Airport on its Functioning

This article tackles the problem of the ownership structure of the enterprises managing airports. The process of privatization of certain airports that has recently been conducted in France provoked a discussion about the possible effects of this process. The critical report of the Court of Auditors (Cour des Comptes), published after the privatization of the airports in Toulouse, Nice and Lyon, as well as the strong opposition to the privatization of Group ADP (managing the airports in Paris), leads to the conclusion that it is necessary to verify if the legal measures adopted in European Union’s and national legal systems are efficient and adequate to ensure the proper functioning of airports after privatization.

Factors Impacting Airport Performance: the Case of Prishtina and Tirana

[full article and abstract in English]
 The market liberalization, airport privatization and increased number of low-cost carriers have significantly affected airport performance lately. The aim of this study is to determine and analyze passengers’ demographics and their interaction with the external macro environment by providing empirical evidence of their impact on airport performance. The combined two-group proportion test and loglinear analysis were applied as the main analytical methods, whereas a PESTEL analysis was used as an auxiliary tool to help explain quantitative findings. The results show that due to a large diaspora and difficult socioeconomic situation, there is a gap for more direct point-to-point flights offered by the low-cost carriers in general and, more specifically, if more direct flights are being offered from Prishtina Airport, their likelihood ratio is to increase twice in its absolute value, whereas in Tirana Airport, their likelihood ratio is to increase twice if they offer more connection flights. This confirms the conclusion that there is a gap for additional services to be provided, which could significantly affect the airport performance in return. In the end, this study also raises a new hypothesis: whether the younger generation of the diaspora, members of which were born and educated abroad, will negatively affect airport performance due to their decreasing tendency and interest to visit the homeland of their parents.

What drives effective competition in the airline industry? An empirical model of city-pair market concentration

Market concentration is a widely recognized metric for assessing effective competition, as it provides a quantification of the relative success of large, mid-sized and smaller firms in the battle for consumers. Concentration has been a public policy issue in the airline industry since deregulation, due to the long-standing airport dominance by major carriers, which is a concern that is recurrently intensified by merger announcements. This paper develops an empirical model to examine the evolution of concentration in the airline markets. We analyze the case of the Brazilian airline industry, in which the two major carriers acquired a combined market share of more than 90% in the late 2000s and have experienced a sharp reversion since then. We test hypotheses regarding the association of market concentration with market size and service quality, as well as the impacts of vertical relationships after airport privatization. Our results suggest that the entry-attraction effect of market size more than compensates for the economies-of-density effect, while the vertical product differentiation created by the strategic investment in capacity is a key driver of concentration in the airline industry.

Airport Privatization in Pakistan

The airport infrastructures in Pakistan are ranked very low in comparison to airports around the world. Poor airport facilities hinder the growth of aviation sector and of national economy. In their present conditions, airports fail to attract the passenger and cargo carriers. Therefore, a large number of international passengers and cargo carriers have shifted their operations from Pakistanis to Gulf and Middle East. At the time when aviation sector is growing around the globe, the need for airport infrastructure development is immense. As a result, in many developed and developing countries, the Governments are involving private sector to develop the existing airports and to build new airports. Considering the current economic situation of the Pakistan, the Government is unable to invest heavily to develop world-class airport infrastructure. In order to modernize the airports in the country, the Government of Pakistan should infuse private capital.

AIR TRANSPORT PRIVATIZATION TRENDS

It is important to consider basic principles, practical results and consequences, in order to understand practical results and consequences of privatization. In case of airline privatization trends, it is obvious that this process is very intensive, but without guarantee for success on the air transport market. Analysis of the European airlines members of Association of European Airlines in the period 1991-2015 is confirming trends of privatization for solving the problem of “distressed state airline syndrome”, Airline foreign ownership and control rules is one of the limiting factors in privatization processes worldwide. Procedures and principles for the privatization process of airports and air navigation services are in accordance with ICAO’s standards and recommended practices.The ownership structure is not the central issue of an airport privatization with different structure of solutions in practice. In the sector of Air Navigation Services or Air Traffic Control, privatization is not so frequent but still existing. From government perspective, it is important for the selected operator to be well reputed, financially stable and experienced enough. Analysis of air transport privatization points out complexity of different options in process of sustainability in very dynamic global changes and challenges on the aviation market.

Licence to build, licence to charge? Market power, pricing and the financing of airport infrastructure development in Australia

In 2017, airport privatisation in Australia reached a 20-year milestone, with its regulatory framework been shifted to a light-handed regulation in 2002. The light-handed regulation (LHR), as in place at Australia's top four airports, has been suggested as the ‘frontier of international policy’, leading to increasing interest among transport policymakers and researchers. This article offers an in-depth examination of the LHR with focus on a) the market-power of the regulated airports, b) the commercial price negotiations between airports and airlines, and c) the airports' behaviour towards infrastructure investment. The article reports on data from 21 semi-structured interviews conducted with key stakeholder groups affected by, or with expertise in, the LHR. Findings suggest that despite airports possessing significant market power, particularly in the domestic market, the light-handed approach seems to balance the forces in a market where an airline duopoly prevails (Qantas and Virgin Australia groups). In addition, both airports and airlines perceive that commercial price negotiations are improving and refrain from a return to a stronger regulation environment. For airlines, value-for-money is the primary concern in new infrastructure investments. Interviewees also outlined specific recommendations for improving the LHR framework, including a more accessible arbitrator and improved methodologies to monitor prices and quality of service. The findings point towards the significance of vertical relationships, long-term arrangements, and transparency as key aspects of the LHR and the development of airport infrastructure.

The relationship between airport performance and privatisation policy: A nonparametric metafrontier approach

The assessment of economic and technical efficiency is a useful tool for selecting the most appropriate technology for airport operations. However, traditional models require that the units being assessed operate with the same technology. To overcome this limitation, one can use a non-concave metafrontier approach that is based on Data Envelopment Analysis (DEA) to calculate the techno-economic efficiency and Technological Gap Ratios (TGRs) with non-homogeneous technologies for airports across countries and with different ownerships. The previous studies mainly applied DEA to measure the operational efficiency of airports. Our results indicate that privately owned airports have better technical efficiency than public ones. In addition, our empirical analysis shows that public airports in the Asia-Pacific area have the lowest techno-economic efficiency.

Airport privatization with public finances under stress: An analysis of government and investor's motivations

The management model of airports has long stood as a central research area in the transport sector. There are a wide range of studies that focus on the potential benefits and pitfalls of private airport management. The results of these efficiency studies have not provided irrefutable evidence for the superiority of private management over public management, but the momentum towards privatizing airports is growing. The reason for privatization has been more related with privatization revenues for governments, rather than more efficient management. The search for maximizing the sale value can have negative impacts from a welfare perspective, for example, through excessive increases in tariffs for passengers. This research reflects on the motivations for governments to privatize, and is illustrated by a case study – Portugal – in which the privatization occurred as a result of three main large drivers: 1) a bailout programme by the IMF, the EU, and the ECB; 2) a revision of the regulatory model, and; 3) the need to increase the capacity of Lisbon's airport system in the medium term.

Forms of Airport Regulation and Privatization: Effects on Airport Charge, Capacity and Welfare

This paper examines forms of airport regulation and privatization, taking into account of behavior of public administration and both the aeronautical and non-aeronautical services. We find that with higher costs associated with public operations, a public airport cannot be identified as a welfare-maximizing body. Whether the partial or full privatization is socially superior depends on the extent of efficiency gains and regulation, as well as the regulatory forms. Full privatization of both aeronautical and non-aeronautical services can, owing to cost reductions to a fuller extent, attain higher social welfare than partial privatization. However, a full privatization without regulation yields a monopoly and related distortions. A full privatization with price cap regulation on aeronautical service could decrease airport charge, but also introduce an underinvestment in airport capacity which could lower social welfare. Finally, regarding the form of airport-pricing regulation – price cap vs. cost-based regulation – which one is superior depends on the relative importance of the underinvestment effect under price cap regulation, versus a regulatory waste associated with cost-based regulation. Cost-based regulation (price cap regulation) is better at a congested (non-congested) airport, because the underinvestment effect is a more (less) serious concern than the regulatory waste.

Study of causality between civil aviation sector and economic development in Saudi Arabia

Recently, Saudi Arabia is undergoing major privatization and Public Private Partnership (PPP) projects, as guided by the Saudi National Transformation Program (NTP) 2020 and the Saudi Arabia’s Vision 2030, attempting to shift the oil-based economy toward more diverse and sustainable economy. The main purpose of the paper is to empirically examine the aviation-led growth hypothesis for Saudi Arabia by testing causality between civil aviation and economic development, applying econometric tests such as Granger causality tests for the time period from 1975 to 2011. Empirical results reveal the existence of the Civil aviation Led-Economic growth hypothesis (economic expansion causing the civil aviation sector to grow) for a developing country like Saudi Arabia. As guided by both the NTP 2020 and Saudi Arabia’s Vision 2030, policy makers should consider updating civil aviation infrastructure, nation-wide airport privatization programs, increase the number of airports in major cities and establish long term partnerships with international airlines and carriers. This will strengthen the private sector and diversify the oil-based economy toward a sustainable economy.

What Drives Effective Competition in the Airline Industry? An Empirical Model of City-Pair Market Concentration

Market concentration is a widely recognized metric of effective competition, as it provides a quantification of the relative success of large, mid-sized and smaller firms in the battle for consumers. Concentration has been a public policy issue in the airline industry since deregulation due to the long-standing airport dominance by major carriers, which is a concern that is recurrently intensified by merger announcements. This paper develops an empirical model to examine the evolution of concentration in the airline markets and its possible drivers. We analyze the case of the Brazilian airline industry in which the two major carriers acquired a combined market share of more than 90% in the late 2000s and have experienced a sharp reversion since then. We test the effects of traffic density and route-airport dominance of flight frequencies on the Herfindahl-Hirschman index (HHI) of city-pair markets. Additionally, we investigate the effects of a potential intensification of airport-dominant airlines’ vertical relationships after airport privatization. Our estimated scenarios reveal that a long-run decline in flight dominance produced a ceteris paribus 23% decrease in the estimated HHI. Additionally, market expansion induced an extra 4% decline in concentration. In contrast, ownership change at privatized airports raised concentration by 9%. Our results also suggest that fighting market concentration with the entry facilitation of new low-cost carriers at primary airports may be an effective policy.

AIRPORT PRIVATIZATION COMPETITION INCLUDING DOMESTIC AIRLINE MARKETS

This study addresses the problem of hub airport privatization in a domestic airline market, where each country has one major hub airport and multiple local airports. We find that when both countries have very small domestic airline markets, airport privatization occurs at the Nash equilibrium. However, when at least one country has a large domestic airline market, the public airport becomes an equilibrium outcome. Furthermore, depending on the number of airline markets and degree of product differentiation, an asymmetric equilibrium may appear.

Two-sided platforms in airport privatization

This paper develops an empirical model to examine the relationship between ownership change and two-sided-platform formation in the air transport industry. We investigate whether privatization enhances the dynamic capabilities of airports so that they more closely resemble a two-sided platform. We study the case of the recent privatization of Brazilian airports. We find evidence of a permanent, ceteris paribus increase in demand triggered after the privatization program. The results are consistent with a preemption of assets with a view to expanding operations and so benefiting from the network effects offered by a two-sided platform.

Two-Sided Platforms in Airport Privatization

Two-Sided Platforms in Airport Privatization