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.
Swine flu: the dark side of international air travel
Posted in Evan's Commentary, tagged asia, australia pacific, health, regulation, usa on April 27, 2009| 3 Comments »
The outbreak and rapid spread of the H1N1 swine influenza virus in Mexico and now the United States puts policymakers and business leaders in a difficult position vis-a-vis air travel. Pandemics exploit all the virtues of the air travel boom of the past few decades — a system that transports people and goods for travel, commerce, and economic opportunity suddenly becomes a primary agent of deadly disease. It’s the downside risk of international economic and cultural integration. Such integration still pays handsome benefits, however, and the risks can be mitigated by a multilateral public health infrastructure poised to go into action.
We are now in a critical moment for U.S. and World Health Organization (WHO) policymakers and the international aviation industry. To declare a pandemic right now and impose travel restrictions (as the U.S. and WHO have not done) might overstate the threat from swine flu and excessively impair travel to Mexico and U.S. border regions. But this outbreak appears to be unusually aggressive, with high mortality, suggesting that policymakers should nip it in the bud regardless of the cost to the travel industry. As the first case was reported in Europe, EU authorities issued travel advisories for the United States and Mexico. The danger to the aviation industry from either an over-aggressive response or from a widespread pandemic is high. In April and May 2003, at the height of the SARS epidemic in Southeast Asia and Canada, air traffic in the Asia-Pacific region dropped 45 and 51 percent, respectively. U.S. carriers with extensive routes in Asia — Northwest and United, especially — also suffered. This is an even worse problem in a recession, in which the prospect of future growth after an epidemic-related contraction is limited.
Part of the problem for policymakers is that U.S. citizens are inexperienced with pandemic response procedures. We are used to frequent and easy travel, not only by air but also locally, for work, school, or recreation. With deadly infectious diseases like smallpox and polio eradicated, we have become lazy. Less than half the number of people for whom the annual flu vaccine is recommended get it. Activists play on fear to spread the unproven belief that ingredients of children’s vaccines can cause autism, and their success in misinforming the public is correlated with a spike in pediatric measles infections (Megan McArdle referred to parents who decline to vaccinate their children as “twee BoBo sociopaths“). Our cities are unaccustomed to quarantines. How would you react to an order to stay indoors except for essential business? Would you obey it? The discipline of disease control is honed over time and cannot be immediately adopted with success. Moreover, the scale of the United States is also unsuitable for a concerted public health response. It’s one thing to isolate SARS in a tiny enclave like Hong Kong (which is extremely vigilant, at any rate) or on an island like Taiwan (unconscionably prohibited by Beijing from receiving WHO support during epidemics, by the way).
Whether or not this swine flu outbreak becomes an epidemic or a pandemic, policymakers and airline industry leaders need to be prepared for the dark side of global integration. Preventing the spread of epidemic diseases should be at the top of any government’s list.
Further reading:
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