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:
- Passenger volume increased 87% after privatization, and there were 21% more passengers per flight.
- Airports gained more international routes, more low-cost carriers, and had fewer cancellations.
- Operating income increased 108%, driven by revenue growth (retail + fees), not cost-cutting or layoffs.
- 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?
Just another way to spread the wealth and dilute other services in the process…
I seem to recall a similar argument was made for privatizing parking in Chicago to “unlock value”. That didn’t exactly work out as advertised.
Better use in the airport system than some corrupt democrat run city that doles out welfare to societies most worthless.
@ Gary — Um, not a good idea. Privatizing airports would lead to runaway lease costs, and it would give crooked politicians access to more public money. No thanks
Of course there are many upsides to privatization of airports.
A word of warning though.
Huge increases of “airport taxes and services” as we see in Canada and soon, many parts of Europe. Add another $70-90 bucks to your airplane ticket for these “enhanced” services.
Just saying.
I am surprised that airlines haven’t sold naming rights.
Salesforce San Francisco International Airport
Microsoft Seattle Tacoma International Airport
Hyundai Philadelphia International Airport
But some names are already long…
Nvidia Thurgood Marshall Baltimore Washington international Airport
Ben and Jerry’s Ice Cream Bill and Hillary Clinton Little Rock National Airport
Delta Airlines Founding Member of Skyteam Hartsfield Jackson International Airport
Nice article, Gary. You’ve raised two subjects, with the first being Federal Agencies that provide both Services and Oversight. I’d argue that in all cases, Services should be privatized, and Oversight should remain a Federal Agency. As for the value of all of the Airports, you can file this under “Why we cannot have nice things”. Politicians on both sides of the aisle will tend to spend any excess value in the near term (under their watch), leaving what used to be terrific assets as empty, valueless and depreciating non-assets. If the value is under-utilized today, so be it, I prefer that to robber-baron politicians destroying their value on useless causes.
Case Study #1 – LHR
I guess they consider PANYNJ as a private company, what a crappy study report.
Do you really want private equity running airports? If you think things at airports are expensive now, wait until private equity turns their talent for “make line go up” on airports.
Gary, you regularly rail at force maze walking through gift shops to get from security to your gate. You rail at international airports not posting gate info (to get you to linger more and maybe spend more). You rightfully point out the stupidity of removing moving sidewalks at JFK (more walking, more opportunity to impulse buy stuff)
If you like what Elliott Capital did to Southwest, you’ll LOVE what Bain will do DFW.
[Gary, I know this is just “engagement farming”. Really, a low-effort post. Perhaps you’re traveling and had this queued up to auto post]
The issue is that most major airports don’t have any competition. If private equity were to get involved, they would squeeze it for everything it is worth, just like they did with Chicago parking meters. Look up that corrupt boondoggle.
Several people have already brought up serious concerns with your suggestion. I will just add that a figure like “Passenger volume increased 87% after privatization, and there were 21% more passengers per flight.” is too vague to be useful. What was this based on in terms of what was studied, and for what period? What was the numeric baseline? And if it is across the board accurate (and not including a post-COVID rebound) could the system really handle that much of an increase?
But that last line about selling off public lands–well, the GOP is already sniffing around at that. I can just see their logical endpoint, which would be something like “Have a Geyser Burger at McDonalds-Yellowstone Park”, or “Stay at Yosemite Sam Resort at Warners-Yosemite”. Cute.
I oppose the privatization of our high-value airports used for my common carrier flights. Privatizing these airports will be but a means to rob the country and consumers Russian mafia business style.
I’ve already had enough of Project 2025 types destroying that which made America great, and they are only just getting started.
Just say no to the further Russianization of America.
Do other countries with government-owned airports have artificial revenue restrictions like this?
Why not just get rid of the artificial revenue restrictions (and raise the PFC cap)?
And PS: Private equity ruins absolutely everything it touches. And aren’t there national security concerns with allowing such an important piece of infrastructure to fall into private hands?
It’s entertaining to read some of these comments. For those who oppose the free market due to man’s human nature and moral weakness, then you must, for the same reason, reject every type of government action.