Political Decisions vs. Business Decisions

The importance of the profit incentive in private sector decision-making is well known. Without such incentive, government agencies do not have the same motivation to operate as efficiently as possible. In Chapter II. we examined the method by which Metro airport revenue is determined. In effect, the airlines must reimburse the airport for all expenses not already covered by charges collected from other airport vendors.

When a function is performed by government, it normally uses public employees to perform those functions – especially when a civil service system exists. Such is the case at Metro, where Wayne County civil service salaries and rules arguably lead to labor costs higher than that of the private sector.

In both environments, employees may be unionized. But business is allowed the opportunity to negotiate with employees while fully understanding that all labor costs will affect the profitability of the business. In a civil service system, those representing management in the negotiations have less incentive and ability to control costs especially since reimbursement for cost is guaranteed.

An airport owned by a unit of government uses public employees and tends not to subcontract activities. In a business setting, management generally has the opportunity to decide who will perform certain services. Management may use its own employees or outside contractors. Such a decision would normally be based on efficiency and profitability.

Incentives to maximize use of a resource also do not exist whore total revenue cannot be increased. Does the airport, owned by government, have incentive to charge market prices for non-airline vendors and garner revenue wherever possible when all shortfalls in revenue are made up by the airlines? For example, would a key location – normally used for revenue producing advertising – be used for non-revenue producing political advertising by a proprietary business? Most likely, the proprietary management would lease the space and not use it for the company's chief executive officer's picture. [30]

Similarly, when establishing lease rates and fees for non-airline concessionaires, does airport management have incentive to maximize revenue from these other sources if it has the contractual guarantee that airlines will cover any revenue shortfall?

The dynamics of efficient operation vary between public and private sector operations. Current management of Metro lacks the legal tools and incentives to operate Metro as efficiently as would be possible in the private sector. Current Wayne County leadership has tried to reduce the cost of government due to budgetary constraints. Such budgetary constraints are not applied at Metro because of guaranteed airport revenue.

Under the control of county government, Detroit Metropolitan Airport is also subjected to political decision-making. Airport issues are often addressed from a political rather than a consumer point of view. As political leaders, the elected officials representing the county are concerned about the county's budget and the overall well-being of the people of the county.

The county's decisions regarding its relationship with airlines and other vendors might be affected by issues such as the number of jobs a vendor brings to the airport. The decision by Republic Airlines to create its largest hub in Detroit was widely hailed because of the number of airport jobs it created. 1f another airline were now to decide to add a hub in Detroit would the county allow that airline use of Metro for the political value of the jobs it brings at the expense of passenger comfort and safety at the airport?

In the early 1970s, the decision was made by the Wayne County Road Commission to construct what is now the Michael Berry International Terminal. In retrospect, the wisdom of that decision might be called into question. While the facility is impressive in appearance, some of the decisions made about the location and design clearly were not in the best interest of the user. The terminal is not connected to the other passenger terminals. The aircraft parking areas are inadequate for the number and size of aircraft using them.

In short, the facility follows form over function in its design. In a political environment, buildings may more often be monuments than functional facilities.

It may be argued that political leaders are not as accountable as business managers. Political leaders are accountable to those who put them in office every four years (in Wayne County). Voters must decide at one time and on many issues whether their elected leadership has been effective. Management of an airport is not likely to be a key issue in the election process. In the private sector, airport management would be accountable to a board of directors and shareholders. If an airport were badly run, decision-makers could react, as needed and when needed, to correct the problems.