Beyond Pure Public and Pure Private Management Models: Partial Privatization in the European Airport Industry

ABSTRACT

The use of private funding and management is enjoying an increasing trend in airports. The literature has not paid enough attention to the mixed management models in this industry, although many European airports take the form of mixed public-private companies, where ownership is shared between public and private sectors. We examine the determinants of the degree of private participation in the European airport sector. Drawing on a sample of the 100 largest European airports, we estimate a multivariate equation in order to determine the role of airport characteristics, fiscal variables, and political factors on the extent of private involvement. Our results confirm the alignment between public and private interests in partially privatized airports. Fiscal constraints and market attractiveness promote private participation. Integrated governance models and the share of network carriers prevent the presence of private ownership, while the degree of private participation appears to be pragmatic rather than ideological.

ACKNOWLEDGEMENTS

Germà Bel thanks ICREA-Academia. We received useful comments when a preliminary version of this article was presented in the Symposium on “Neither Public nor Private: Mixed Forms of Service Delivery around the Globe” (University of Barcelona, May 2012).

Notes

Local services management offers an appropriate background for the analysis of airports economics and management. Local/metropolitan responsibility for airports is by far the most frequent model in the large Organisation for Economic Co-operation and Development (OECD) countries—the U.S.A., Canada, France (besides Paris), Italy, the UK (besides BAA), Germany—together with state governments, etc. (see Bel and Fageda 2007a for a review and discussion of management models in the OECD countries). More fundamentally, airports are single facilities (as opposed to surface transportation, usually characterized by networks), so they have economic characteristics similar to those of local/metropolitan public services.

Empirical evidence on the effects of mixed delivery in the U.S. is scarce. A recent work by Davis (2012) compares different types of waste services delivery arrangements in three cities and finds that mixed public-private in Indianapolis’ delivery is more fiscally efficient and environmentally effective than single monopolistic provision in Denver, and also than atomized provision by private market in Colorado Springs.

In this regard, see also Agranoff and McGuire (2003) and Sonenblum, Kirlin, and Ries (1977).

Bognetti and Robotti (2003) analyze how the 2002 Financial Law promoted the using of market mechanisms in local services in Italy, including different types of public-private mixed firms.

See Bel and Fageda (2007b) and Bel and Fageda (2009) for a statistical review of this literature.

%Airline_alliance_traffic has been shown to be the most important factor determining the degree of hub characteristics in each airport, especially when considering the largest airports, as we do in our sample. Furthermore, our variable is almost perfectly negatively correlated with % of low carriers in airports (Fageda and Flores-Fillol 2012). Therefore, considering simultaneously our variable and a variable for % of low costs is not necessary, and would undermine the robustness of our estimation.

We are thankful to a referee for the advice to use a variable related to non-aeronautical revenues in each airport. Indeed, that could be an interesting variable to include in the estimation, but our sample will have a considerable reduction because of lack of homogeneous data for many airports.

An infrastructure is indivisible if it has a minimum size below which it is unavailable. Therefore, capacity can only be augmented by adding large indivisible units, which are incompatible with marginal capacity increases, leading to periods of overcapacity or congestion.

This fact could be compensated for if the acquiring companies are granted monopolistic power over all of the airport system, because monopolistic conditions could entail larger future benefits, leading to a higher up-front payment in privatization. However, as shown by recent activity by the UK Competition Commission forcing divestiture of several BAA airports because of market dominance, regulatory risks of transferring a monopoly to private partners in the sector is high, which could be a deterrent for likely private partners in this type of operation, as shown, for example, by the long experience of failed privatization attempts in Spain, the country with the largest integrated management system in the OECD.

See Papke and Wooldridge (1996) for details of this econometric method.

Recall that this variable is only statistically significant in the equation that uses the fractional response variables method.

Additional information

Notes on contributors

Daniel Albalate

Daniel Albalate ([email protected]) is an Assistant Professor of Economics at the University of Barcelona. His research interests include public sector reform, privatization, and regulation, infrastructure, and transportation. He publishes regularly in international journals of public administration, economics, and transportation.

Germà Bel

Germà Bel ([email protected]) is a Professor of Economics at University of Barcelona, and visiting professor at the Woodrow Wilson School at Princeton University. He is also a researcher with ICREA-Academia. His current research examines public sector reform, with special emphasis on privatization, regulation, and competition in local services and transport infrastructures.

Xavier Fageda

Xavier Fageda ([email protected]) is an Associate Professor of Economics at University of Barcelona, where he received his PhD in economics. His current research follows three related lines: (1) transport economics and policy, (2) airline markets, and (3) policy reforms in local services.