The U.S. is pretty unique is that almost all of air travel is managed by the government. Our airports are almost all owned by local governments. Unlike much of Europe, airport security isn’t just regulated by the government, screening is actually performed by the government at most airports.

The federal government directly provides air traffic control, unlike in places such as Canada and the U.K. And in the process the government provides pretty significant subsidies to U.S. airlines but often provides poor service.

It would actually be much better if the TSA wasn’t its own regulator, and if the FAA didn’t regulate its own air traffic control service. That’s the recipie that gives us poor accountability. If you don’t like privatization, at a minimum split up regulation and service provision into different agencies. That doesn’t get you all the way there, but it would be better than what we’ve got.

Airports, though, should be privatized. Municipalities own assets that in some cases are worth several billion dollars on net. But the money is locked up tight and can’t go to provide services, reduce debt, and shore up finances (including retirement obligation timebombs).

• Since airports get federal grants, the federal governments require that all airport money stay in the airport. It can’t help support the local communities that own the airports.

• But airports can be privatized, with the sale (or long-term lease, versus short-term concession) revenue going to the municipality. And the private company that takes it over is allowed to earn a specified rate of return.

A 2021 study found that over $130 billion was locked up in just 31 airports. Taxpayers have these huge assets they don’t benefit from owning, but it doesn’t have to be that way.

• Chicago O’Hare is worth $7 – 10 billion
  
• Phoenix Airport is worth $3 – $4.5 billion
  
• LAX is worth $12 – 18 billion
  
• Dallas – Fort Worth is worth $8 – 12 billion

A National Bureau of Economic Research paper offers lessons from airport privatizations from around the world, some of which are surprising:

• Privatization improves airport performance only when private equity firms are the buyers, driving higher passenger volumes, more international routes, fewer cancellations, and stronger financials through investment and capacity expansion (not cost-cutting).

• By contrast, non-private equity owners, often targeting airports in more corrupt countries, show little improvement beyond pre-existing trends.

The study looked at 2,444 airports in 217 countries from 1996 through 2019. There were 437 privatizations, inclduing 102 involveing private equity. For private equity privatizations:

1. Passenger volume increased 87% after privatization, and there were 21% more passengers per flight.

2. Airports gained more international routes, more low-cost carriers, and had fewer cancellations.

3. Operating income increased 108%, driven by revenue growth (retail + fees), not cost-cutting or layoffs.

4. The gains were largest when there was competition from nearby airports and when deals were structured as long-term leases.

In contrast, non-private equity owners didn’t show improvement. Margin tended to come from cost-cutting. This difference seems to be because private equity owners incentivize larger aircraft through fee structures, expand terminal capacity, and lobby for deregulation. They break cozy ties between airports and state-owned carriers, opening access to new airlines. They bring in professional management and global best practices.

This suggests that privatization per se doesn’t guarantee improvement – but that private equity seems uniquely effective. Since airports tend to have strong regulators, wealthy consumers, and powerful airline counterparties, we don’t need worry about downsides that raise concern in other sectors.

To be sure, we expect to see higher airport fees than when profits are entirely locked into the airport and prevented from supportin gthe local community. That indirectly raises travel costs (offset by greater competition and seat capacity increases incentivized by the airport). But it’s also balanced by better service and more flights. Airlines may lose, while passengers gain through choice and quality.

Of course, airports aren’t the only assets that could be unlocked we rarely hear about. Did you know that the federal government owns over 600 million acres of land or more than a quarter of the land in the United States?