Privatize the Airports; L.W. Reed

The poor rating comes despite hundreds of millions of dollars and many commendable efforts by county and airport officials to make Detroit Metro, in the words of director David Katz, "the most friendly place on the planet." Good intentions and lots of nice new carpeting notwithstanding, the aging airport is simply not keeping up with exploding traf fic volume. The planned opening of a long overdue additional terminal in 2001 will help, but realizing Katz's ambition probably will require something much more dramatic and fundamental. Lawrence W Reed is president ofthe Mackinac Cen ter for Public Policy (www.mackinac.org), a free market research and educational organization in Midland, Michigan, and chairman ofFEE's Board of Trustees. 12 Twenty years have passed since Congress deregulated the domestic airline industry. With airfares down and traffic volume up con siderably, airports like Detroit's have experi enced problems of congestion and a general decline in the quality of services. Though the general public is aware that airlines were deregulated (specifically, their fares and routes), what is much less known and appre ciated is that almost all airports remain large ly outside the marketplace, hostage to politi cal decisions and budgetary concerns of the government entities that own and manage them. For consumers, the market has worked well in the skies. It's on the ground, where politicians and their employees rule the roost, that problems often seem frustratingly intractable.

These problems don't have to exist. A growing number of governments around the world are ending similar troubles, but they're doing so by making more than cosmetic changes. They are realizing that private for profit firms have the incentive and the exper tise to operate airports better than almost any public, politicized bureaucracy. These govern ments are privatizing the management and in some cases even the ownership of their air ports. The results are impressive: privatized airports are far more innovative, efficient, and responsive to consumers than are public ones. Twelve years after Great Britain sold seven of its largest airports in 1986-including Heathrow, Gatwick, and Glasgow-the pro gram has proven successful by every measure. An astonishing 2.2 million citizens bought 1.4 billion shares in the newly privatized British Airports Authority (BAA). The flying public has been greeted with an aggressively entre preneurial attitude aimed at pleasing cus tomers. The airports themselves have under gone substantial physical improvements, and the British treasury has stopped being drained by subsidies.

The British model is spreading. Patrick Cowell, president and CEO of Airport Group International, reports that, "countries from Germany to Australia are now racing to priva tize their airports." Operation and manage ment of most of Canada's largest airports including Vancouver-are now in private hands, as is air traffic control. This past November, I landed at Nadi International Air port in the Fiji Islands within days after it too went private, and I survived just fine. In the United States there have been no out right sales of major commercial airports, but contracting with private companies for many elements of operation and management is tak ing off. Allegheny County in Pennsylvania contracted with BAA in 1992 to have it design, build, lease, and manage a retail com plex for Pittsburgh International Airport. The resulting "AirMaIl" of commercial business es-many entering the Pittsburgh market for the first time-has increased per-passenger sales at the airport from $2.40 in 1992 to $8.10 in 1997, generating at least 900 new jobs.

In 1995, the city of Indianapolis turned over the day-to-day management of Indi anapolis International Airport entirely to BAA. The company agreed to a performance based contract in which certain operations and maintenance-cost savings had to be met before it received compensation. That incen tive spurred BAA to work hard to cut costs dramatically. At the same time, the addition of 22 new retail stores, 2,300 new parking spaces, and a shuttle bus service boosted non13 airline revenue at the airport by 20 percent, with further increases expected. The next log ical step-actually selling a major commer cial airport to private owners-may occur within the next decade or so. If Indianapolis and Pittsburgh-indeed, even London and Fiji-can privatize, why can't Detroit? One reason is the same political inertia that afflicts most government airports. As long as the airport is a patronage machine for the politically well connected, politicians naturally resist any move that diminishes their role.

Another reason that may be particularly acute in Detroit is organized labor. Excessive labor costs because of featherbedding and cumbersome work rules have characterized one Wayne County operation after another. For a privately run Detroit Metro Airport to happen, those practices must give way to more reasonable and hospitable labor management relationships. Yet another reason for the lack of privatiza tion is the "Basic Agreement" that exists between Wayne County and the airlines, over whelmingly dominated by Northwest Air lines. The agreement effectively gives North west a veto over the privatization option at Detroit Metro. The airline is worried about landing fees, among other concerns. (Interest ingly, landing fees at Indianapolis have remained low and reasonable since BAA took over; the private company understands that gouging major customers is not in its inter est.) Wayne County has done what no govern ment should ever do: grant monopoly privi leges to one firm when competition was not only possible but would surely have served the public far better.

There is nothing in the stars that ordains air ports to be owned and managed by govern ments. Both economic theory and recent expe rience demonstrate that. The sooner airports are run by private enterprise, the better. D There's No Philadelphia in Europe by Norman Barry T he member states of the European Union, in their struggles to find some form of international authority, are going through debates that have a strange resonance with America's arguments about constitutional forms in the late 1780s. However, there has been no Philadelphia-no equivalent Euro pean city at which the fundamental issues of freedom and constitutionalism have been thrashed out. Instead, there has been a steady accretion of power to central regulatory authorities in Brussels, either by international treaty or even more significantly, by innova tive and creative decisions of the European Court of Justice, which is rapidly becoming what its U.S. equivalent took some time to achieve-the de facto creator of a constitu tional order.