Aviation agency remains wary of airport privatisation

Aviation agency remains wary of airport privatisation

Group argues for cost efficiency

A passenger passes through an automated immigration control gate at Changi airport in Singapore, which was ranked as the top airport by Skytrax. (Reuters photo)
A passenger passes through an automated immigration control gate at Changi airport in Singapore, which was ranked as the top airport by Skytrax. (Reuters photo)

SYDNEY: Partial or full privatisation is not an ideal way to make airports efficient and cheap for airlines or consumers, despite Asian airports dominating this year's world ranking of the top six, says analysts from the International Air Transport Association (IATA).

The listing of the top six airports by Skytrax was mentioned at a session on airport privatisation held at the 74th IATA annual general meeting and World Air Transport Summit in Sydney, Australia. Singapore's Changi airport retains its title from last year, followed by Incheon, Tokyo (Haneda), Hong Kong, Doha Hamad and Munich.

Except for Haneda, all these airports have been privatised. Although that fact should speak for the merits of privatisation, said Brian Pearce, IATA chief economist, as that is not always the case.

"Investments [in airports] must be cost-effective. Investments must be made where they are needed," he said.

Bangkok's Suvarnabhumi airport is operated by Airports of Thailand, which is partly privatised, with the Finance Ministry still owning the majority stake.

On paper and in practice many of the privatisations have brought transformation. However, Mr Pearce said the data shows some airports that became privately operated are more expensive to use for airlines and customers.

He said in some cases, governments adopted privatisation, gambling on short-term gains from selling shares without thinking about the long-term economic damage. They ended up catering to shareholders and not to the benefits of consumers.

Mr Pearce said airports do not compete as fiercely as do other industries, such as steel and airlines, which lessens their incentive to make what they offer cost-effective.

The association feels there is no guarantee the privatisation models of the past will be fit for the requirements of the future.

In its analysis, IATA said the aviation industry is highly dynamic and models that incorporate flexibility are likely to best facilitate timely adaption.

The industry is reliant, and will be more so in the future, on collaboration and coordination between airports, airlines and regulators to meet the needs of the customers and the economies they serve. New solutions and innovations including technology, service delivery, alternative financing models, and realising value from airport assets are leading to the emergence of new ownership and operating models, and governments seeking to adopt multiple solutions to meet a range of strategic objectives, said IATA.

The association noted airport public-private partnerships and privatisation programmes may stem from a range of government objectives, which typically include financial sustainability and maximising financial benefit, new sources of private finance and enhanced management capability.

In fact, they have led to a range of both advantages and disadvantages. Advantages have included the efficiency gains associated with greater specialisation in the airport industry, access to new sources of private sector investment, and stimulation of aviation-driven economies.

However, the private ownership and operation of airports with high degrees of market power and the monopolistic tendencies of the industry can increase the risk that these benefits are not passed on to airlines and consumers.

Nick Careen, IATA's senior vice-president for airports, passengers, cargo and security, said whatever business model is employed to run airports, transparency and competitiveness are key. There must also be economic oversight.

But he cautioned there is a great risk of market abuse.

Alexandre de Juniac, IATA director-general and chief executive, said while the association's stand is not against privatisation, airlines do not accept that privatising airports must lead to higher costs.

"How can making the transport infrastructure more expensive -- which means less competitive -- be a legitimate public policy objective?" he said.

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