The International Air Transport Association (IATA) – representing 290 airlines - resembles Donald Trump. It utters a lot of self-praise and it serves primarily its own interests. First, it claims that the experience of airline privatization resulted in enhanced competition in lower pricing to consumers. In reality, however, the US airline market is not competitive. Due to mergers it has become an oligopoly where 4 carriers control 80% of the market.
Second, on intercontinental routes carriers have formed joint ventures that basically rule out competition. They not only sell seats on their own flights, but also on those of their partner airlines (codeshare flights). The prices are exactly the same, so they have effectively ruled out any price competition.
Airfields are a kind of monopolists by their very nature. Thus, the IATA’s complaint that airlines have not yet experienced an airport privatization that has fully lived up to its promised benefits over the long term does not come as a surprise.
The IATA is right when it cautions that privatization of airfields may have unwanted consequences. It calls on governments to prioritize the long-term economic and social benefits delivered by an effective airport ahead of the short-term financial gains provided by a poorly thought-out privatization.
"We are in an infrastructure crisis. Cash-strapped governments are looking to the private sector to help develop much needed airfield capacity. But it is wrong to assume that the private sector has all the answers,” says IATA’s director-general Alexandre de Juniac, a former CEO of Air France-KLM.
And he adds: “It is important that governments take a long-term view focusing on solutions that will deliver the best economic and social benefits. Selling airport assets for a short-term cash injection to the treasury is a mistake."
IATA research shows that private sector airfields are more expensive and do not show any gains in efficiency or levels of investment. “Airports have significant market power. Effective regulation is critical to avoiding its abuse, particularly when run for profit by private sector interests," says de Juniac.
He also notes that 5 of the top-6 passenger ranked airfields by Skytrax are in public hands. Even though Skytrax is not the most reliable source when it comes to rankings due to conflicts of interest in their business model, it may serve as a warning against privatization of airports. After all, there is only 1 thing worse than a government monopoly and that is a private monopoly.
But the IATA is silent about airlines successful attempts to rule out competition in their own market, in particular in the USA and on the lucrative Atlantic routes. Thanks to the lack of competition and government protection US carriers are the world’s most profitable despite their inferior products. So the pot is calling the kettle black. Carriers should be the last to complain about private airfield monopolies, even though they are right as it is.
Tags: IATA, ruling out competition, codeshare flights, airport privatization