Although ACI does not promote any particular form of airport ownership and management structure, the recent attacks on one form, privatization, prompts some elucidation.
Until relatively recently, nearly all major commercial airports around the world were government-owned and government-operated, primarily on a cost-recovery basis. Deregulation in the aviation sector was initially focused on airlines, although a number of countries also divested their airports and air traffic control services. Most recently, this deregulation in many parts of the world was followed by a dramatic shift in the way airports were operated such that, airports no longer operate as a homogeneous group of public utilities but as a heterogeneous group with ownership structures ranging from being government-owned to being partially or fully privatized. More than that, even government-owned-and-operated are increasingly required to have a commercial focus.
In an economic climate where states are increasingly cutting government expenditure to reduce growing debt, continued government financing and full ownership of airports are not always viable and sustainable options. By the same token, many national governments find themselves in a predicament where a surge in air transport demand is outstripping the infrastructure available to accommodate growing markets in their jurisdictions. In addition, the liberalization of air transport presents airports with new challenges for their operation, planning and development, and financing.
The need for airports to have both the flexibility and financial resources to meet those challenges should therefore be recognized and actions must be taken today. The fundamental motive for airport privatizations or public private partnerships (PPPs) is to finance what states are no longer able or willing to finance. Private sector stakeholders bring commercially-driven management and the flexibility to adapt to a fast-changing world. Furthermore, private investment and entrepreneurship often go hand-in-hand. Entrepreneurs generate innovations and value for customers, but they also expect a return for the risk that investors must bear in doing so.
While the airport industry is characterized as having high barriers to entry, which include significant capital and infrastructure costs, airports also face increasing competition from other airports and modes of transportation. Many airports compete for connecting traffic, be it domestic or international. In some regions, airports not only compete with one another for connecting traffic but also with airports in other world regions. Over the last 30 years, airport privatization has become an important investment vehicle for the development of infrastructure to accommodate air service demand; to contribute to community and national economic vitality; and to enhance the customer passenger experience. It has been applied globally in important aviation markets, including Europe, Australia, Brazil, China and India.
Airports with private sector participation account for an estimated 14% of airports worldwide, handling over 40% of global traffic and investing 44% of global capital expenditure to develop both the aeronautical and non-aeronautical side of the business.
There is strong evidence that private investment in airports generates an improved passenger experience. ACI’s Airport Service Quality (ASQ) programme – the well-established global benchmarking programme measuring passengers’ satisfaction while they are travelling through an airport – shows that airports that had some form of private sector involvement experienced an increase in passenger satisfaction scores over the last decade.
Contrary to the assertion that the appropriate regulatory framework has not been found for privatized airports, the flow of private capital to the airport industry is enabled by well-crafted economic incentives, together with general consistency in regulatory frameworks. Liberalized approaches and national policies that lean away from the “single till” accounting method toward “dual” and “hybrid till” frameworks are more attractive to private investors. This is consistent with market-based principles that create efficiency gains that generate value throughout the air transport value chain.
Statements made by some that airport privatization has, over time, increased costs for users is unfounded. The ACI 2018 Airport Economics Report reveals that, worldwide, unit airport charges have been broadly flat over the past years.
Privatization has normalized the way airport infrastructure is financed allowing airports to move from a dependence on tax payer funding towards a greater reliance on the ‘user pays’ principle espoused by the International Civil Aviation Organization (ICAO).
ACI World continues to advance the development of an effective aviation system by enhancing regulators and public awareness of the economic and social importance of airport development. For that reason and to better inform policymakers, ACI World is publishing a third Policy Brief on “Best Practices for Airport Privatization: How can Governments create fertile grounds for private investment airports” that will showcase best practices for airport privatization.
As well, we will take up this discussion at the 28th ACI EUROPE/World General Assembly, Congress & Exhibition, from 18-20 June along with other important issues facing the senior leadership of the aviation industry.
I look forward to sharing with you the informative and engaging sessions and the opportunities to network with peers from around the globe.