The Wall Street Journal has a fascinating item today (via the WSJ‘s great new Middle Seat Terminal blog) on the vigorous competition emerging between Moscow’s two main international airports. I’d long read of the older, state-owned Sheremetyevo Airport as a hellish transportation hub with limited services, long lines for immigration, and oft-solicited bribes. Then, according to report Daniel Michaels, it was forced to bring its game when the privately owned Domodedovo Airport renovated a terminal in the 1990s, built a rail link to downtown, and began wooing new airlines — and even carriers that had previously served Sheremetyevo.
Moscow’s airport rivalry highlights a paradox of the global aviation industry: Airlines compete fiercely with each other for customers, but they face many monopolist suppliers, such as air-traffic control systems, fuel distributors and airports. Resulting costs and poor services get passed on to travelers.
Regulators world-wide are starting to tackle the issue — and some see Moscow as a paradigm.
Britain’s competition authority, for example, last year considered breaking up BAA, the company that runs London’s three big airports. In testimony before the regulator, officials from the International Air Transport Association, a trade group, cited Moscow as evidence of the benefits that competition could bring London’s airport system. IATA testified that fees at Moscow’s fast-growing, privately owned Domodedovo Airport are as much as 20% lower than at Sheremetyevo, the state-owned hub of flag carrier Aeroflot.
This echoes a point I’ve made before: we have a relatively competitive airline sector and a relatively uncompetitive airport infrastructure sector.
The article also points out that privatization alone will not bring competition. Consolidating ownership in a single firm, either private (BAA) or public (Port Authority of New York and New Jersey), will not engender competition. One sees more competition (and lower published airport use fees) at the three San Francisco Bay Area airports, each of which are publicly owned by different authorities, than at the three New York area airports. And the case of Moscow confirms this.
But can private airports really work here in the United States? Two fascinating items from Brett Snyder illustrate an experiment in this. Branson, Missouri — a totally retro vacation spot not far from my hometown of Memphis — is building a brand-new airport entirely without federal money. The airport will be entirely privately owned and financed. It’s not just a new terminal project: this is an entirely new airport project — 7,000-foot runway, terminal, tower, general aviation facilities — designed to offer competitive service to low-fare airlines.
The owners of the airport have also kept their construction costs down. Writes Snyder: “To flatten the tops of the mountains, build a 7,000 ft runway, erect a terminal, construct a control tower, and create a 2.5 mile access road with 2 bridges has only cost $155 million. That’s $35 million in equity with the balance in debt. As a comparison, Indianapolis spent $1.1 billion on its new (much larger) terminal and control tower.”
We need more experiments in privatization like Branson, Chicago’s Midway airport, and others here in the United States. Competitive privatization may provide the needed funding for upgrading and maintaining our aviation infrastructure.
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