Policy commentary

Delayed: Is Privatizing America's Airports the Answer?

May 19, 2008 | Clifford Winston, Ginés de Rus

Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.

In this week's commentary, Clifford Winston and Ginés de Rus, editors of a recent book on aviation infrastructure performance, consider how improvements in U.S. airports and air traffic control could better help passengers get to their destinations efficiently and cost-effectively. This study explores how different countries address aviation congestion and delays, carrier competition, and safety. The assessment amounts to a study in comparative political economy because countries have established different institutional arrangements - public versus private ownership, light versus heavy regulation - to tackle these issues. Surprisingly, the United States, often considered a leader in using economic incentives to achieve policy objectives, relies on public ownership and heavy regulation of its airports and air traffic control system, while many other nations are exploring some form of privatization of their aviation infrastructure.

We all know the personal cost of flight delays and airport security: the missed connections, the hassle of going through screening, the annoyance of having to show up so far in advance of the scheduled departure time. In aggregate, in the United States alone, those costs are estimated at $40 billion annually. Meanwhile, ticket prices keep rising, and periodic reports of breaches of security - the grad student whose fake boarding pass goes undetected, the planted weapons that screeners don't see - undermine public confidence in the system. Is there a remedy? 

Air travelers seek value - convenience, price, and safety. In theory, aviation infrastructure policy should reduce travel delays, facilitate competition, and keep flying safe, all at the least possible cost. What we see instead is the failure of publicly owned and managed airports and the federal air traffic control system to introduce innovations - a failure that arises from the paucity of economic incentives and the multitude of institutional and political constraints. Certainly there are lessons to be learned from the efforts of other countries to restructure their airport systems to better address these issues.


Clifford Winston
Senior Fellow, Economic Studies

The key to reducing delays efficiently is to rid the system of its major inefficiencies and to institute policies that enhance airline system performance: 
  • Air travel could be safer and faster if ground-based radar systems were replaced with more accurate satellite communications. Travel time would be reduced because planes could fly closer together and take the most direct routes.
  • The price of air traffic control services should reflect the marginal costs that a given flight imposes on the system, including delay costs to other users. The current ticket tax that funds air traffic control, however, bears little relationship to those costs and therefore does not reduce congestion.
  • Runway pricing should be based on an aircraft's contribution to congestion instead of on its weight or arbitrary quantity controls, like takeoff and landing slots. Replacing inefficient administrative solutions with a potentially efficient market solution would redistribute traffic both temporally and spatially, reducing delays.
  • Funding for new runways and terminals should be based on market-derived, rational assessments of which airports would benefit most from additional runway investment, rather than determined by political forces.
  • Service could improve and fares fall if restrictions that prevent carriers from using certain airports or gates were removed.  Travelers are worse off when incumbent carriers are permitted to slot new entrants into gates only at inconvenient times and locations or at excessive cost, or are able to prevent them from gaining access to gates altogether.
  • Innovative solutions to thwarting terrorism may exist but are not likely to emerge in a government bureaucracy like the Transportation Security Administration. Israel has prevented problems by identifying suspicious passengers, for example, and private security firms provide effective but subtle security for millions in the Las Vegas casinos. One very cost-effective approach in aviation was installing bulletproof cockpit doors, which the airline industry did for a mere $500 million.

Ginés de Rus
Professor of Applied Economics
University of Las Palmas de Gran Canaria (Spain)

Although air travelers are painfully aware of the suboptimal service provided by U.S. aviation infrastructure facilities, regulations and political forces have made reform extremely difficult. The Federal Aviation Administration lacks organizational independence and is prevented by Congress and the administration from using its resources more efficiently. Peak-period pricing for air traffic control, for example, was blocked by pressure from owners of corporate jets. Political pressure is, in fact, the primary cause of misallocated FAA expenditures and ineffective management is impeding development and implementation of the satellite tracking system, which will consolidate air traffic control facilities. Any effort to replace current funding mechanisms is seen as the first step to taking air traffic control out of the congressional funding process - and taking power away from lawmakers.

Predictions of continued growth in air travel make innovation imperative, but improvements won't happen under the current system: only privatization of the nation's aviation infrastructure is likely to result in constructive reform. Operating in a more competitive environment, privatized airports and air traffic control would have incentives to improve service and reduce the cost of operations while maintaining the nation's outstanding safety record. Privatized airports could even facilitate greater competition among airlines that would lead to lower fares.

Though privatization may appear a drastic and potentially risky solution, examples from other countries already exist - right next door, even. To increase investment in airport infrastructure without government funding, Canada quasi-privatized its airports in the mid-1980s and transferred them to locally based, not-for-profit authorities. The country's biggest airports then built additional runways and terminals, thereby reducing congestion.

Australia and New Zealand began privatizing their major airports in the late 1990s, specifically to sharpen incentives for efficiency, and lightened their regulation. Today, the prices charged to airlines are high but well below monopoly levels, and the airports are considered to perform well.

The United Kingdom's airport infrastructure is now mainly private. Although regulatory burdens persist, air traffic control services are provided by a public-private organization that took over from a public agency in 2001.

China went from a paramilitary organization to a system of local control of airports, a liberalization that contributed to dramatic growth in air traffic, raised airline productivity, heightened competition, improved air safety, and increased investment in infrastructure.

None of those systems work perfectly, but the examples prove that far from having an adverse effect on aviation system performance, privatization has much to offer. Taken together, the experiences of other countries are a playbook of potential solutions that U.S. policymakers can adapt to American circumstances. Just ask any road warrior: anything that promises better value in air travel - more convenience, lower prices, and an even higher level of safety - is worth a look.


Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.

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Additional Resources: 

This commentary is based on Aviation Infrastructure Performance: A Study in Comparative Political Economy (Brookings Institution, 2008), which Clifford Winston and Ginés de Rus edited.