Detroit Metropolitan Airport is one of the largest and busiest airports in the United States. The fact that it is owned by government, like most other airports, is a result of the economic history of the industry.
The Airline Deregulation Act of 1978 freed the airlines to expand in a more competitive environment. Airlines have thrived by using lower fares to create new demand for its services. But to take advantage of new lower fares, passengers must patronize airports which must also meet increased demand.
To keep pace with increased air traffic and consumer demand, Metro must expand. As a resource experiencing increasing demand, airport capacity must be developed where it is physically possible to do so. It is possible in Detroit, and in the best interest of the community, for expansion to occur. If the airport is unable to expand, the benefits of deregulation will be stifled, leading to higher airline ticket prices and lower public accessibility to air travel.
The current ownership and financing of Detroit Metropolitan Airport make it difficult for the airport to adapt to change in the air travel industry. Changes in government and the complexity of government operation make it increasingly difficult for government agencies to manage airports. Airports are big businesses which require sophisticated business decisions and should be run as businesses.
Metro Airport is only one operation of the government of Wayne County. Many county operations are being made more efficient by its current leadership. County agencies, not airport management, control many of the resources necessary to operate the airport and provide services such as maintenance, snow removal, and accounting. County leaders who are pre-occupied with other matters of county government must sign-off on airport decisions.
By their nature, government agencies are accountable in different ways than businesses. Political considerations affect government decision making. Government work rules impose inefficiencies on operations. Government officials are accountable to an electorate who have little interest in airport management. But, airport management must be accountable to its users. This accountability can lead to more efficient operations and lower costs for airport users if freed from government control.
Airlines were given incentives to help create Metro many years ago with basic agreements which gave the airlines tremendous control over their destiny at Metro. The contract, in effect since 1959 and not due to expire until 2009, has made it difficult for airport management to respond to changing market demands. The contracts are unusual even by U.S. standards and need to be replaced with more efficient short term operating agreements.
Although successful in Great Britain, airport privatization has not been tried at any commercial airports in the United States. If it is possible to privatize airports, one must conclude that privatization has not occurred due to the lack of incentive for current owners to do so. Units of government which operate airports have a strong vested interest in those airports due to the needs they meet for the community, the importance of airports for economic development, the patronage and government jobs associated with those airports, and the prestige associated with the industry.
These conditions also existed in Great Britain. Yet, more pressing national problems convinced government leaders and ultimately airport staff that privatization was a viable alternative which helped solve some of the other national problems. Privatization of Heathrow and Gatwick airports, in particular, demonstrate that very large active airports can be successfully privatized.
Some might suggest that airports are not normal businesses. Airports cannot enter and exit markets and airport users have limited alternatives for their needs. Nonetheless, even without normal business conditions and effective competition, the British have shown that with the correct balance of regulatory controls and corporate autonomy, airports can perform their function profitably and meet the needs of users.
Privatizing Metro Airport may result in higher landing fees for users in the future. Because of the need for expansion, future landing fees will be higher. However, the efficiencies of privatization can keep future costs below what they will be under public sector ownership.
With a more efficient operation, Metro would generate profit for its owners through reduced operating expenses. This cannot be expected currently.
Competition with other hub airports will require Metro to keep landing fees competitive with those airports. Hub airports compete with other hub airports all over the U.S. If passengers connecting through Metro are unhappy with Metro, they may use many alternatives to get where they are going. Passengers originating in Detroit who are unhappy with service at Metro may find alternatives becoming available elsewhere (such as the recent reopening of Detroit City Airport). Huge alternative Detroit area airports are unnecessary. So long as a passenger can leave from an alternative airport such as Detroit City Airport and connect to a hub in another city, competition exists.
It is not clear how best to sell Metro Airport. Until it is triad, a market value for hub airports in the U.S. will not be established. However, whatever method of sale is chosen, the taxpayers of Wayne County stand to gain increased services and lower taxes.
A similar case can be made for airports all over the United States. With changes in our nation's economy and government, there is no clear value in having airports owned by the public sector. Government should be limited to perform those functions which the private sector cannot. Government should divest itself of operations where private-sector management can be used and the services improved as a result.
Airport capacity is a scarce resource. Given urban development patterns, it is difficult to build new airports to cope with increasing demand. Therefore, existing airports are going to be called upon to adapt to this demand through expansion and improvements inefficiency. It will take effective leadership and management to make the necessary decisions to accomplish change.
Airlines with lucrative airport contracts must recognize that their own profitability is threatened by poor decision-making at airports and fee structures which prevent growth. As airlines were given freedom to determine their own destiny by deregulation, so must airports be given the opportunity to adapt to changing needs. Privatization provides the most effective vehicle to allow airports to meet the challenges of the future.