A price forecasting model for predicting value of commercial airports: a case of three Korean airports

As the privatization of airports progresses throughout the world, the economic value of these strategic assets must be determined from a commercial perspective, rather than the economic impact perspective, which is typically used by governmental agencies to justify their construction. This paper applies financial theory of asset valuation to commercial airports. The authors have selected three airports for valuation purposes: Gimpo, Kimhae and Jeju. These airports are ranked top three in terms of annual traffic volume, among the 16 airports operated by Korea Airport Corporation (“KAC”). The authors estimate the intrinsic value of three major airports; Gimpo, Kimhae, and Jeju based on the discounted cash flow (DCF) model at $1.8 billion. The ultimate price achieved depends on the individual expectations of potential buyers, their opportunity costs and entrepreneurial abilities, as well as the ensuing negotiations. This paper, therefore, provides a benchmark for determining airport valuation in the event of privatization.     

Price regulation of airports: principles with Australian applications

This paper analyses the various issues that are likely to arise with price regulation of privately owned airports. It begins with a brief background on Australian airports, and a review of regulatory experience elsewhere. Issues which can create problems for price regulation include congestion, noise and other externalities, quality degradation and underinvestment, and the choice of the initial price level. Price regulation limits the use of prices as rationing devices where congestion is present. Efficient handling of congestion can be reconciled with price caps if the regulator determines the appropriate congestion/capacity trade off, and supervises allocation of slots, e.g. through auctions or creating a market for slots. Noise externalities can be handled through noise charges set by a regulator who may also be called upon to resolve capacity/noise trade offs. Resolving the problem of quality degradation and underinvestment is inherently difficult, and may need to involve active participation in investment decisions by the regulator and airlines. The difficulties of setting initial price levels arise from conflicts in ensuring that existing assets are utilised efficiently, and that prices give efficient signals for future investment. Regulatory design issues, dealing with whether pure price caps or mixed regulatory rules are superior, are examined in the airport context. The paper concludes with a brief examination of the price regulatory regime as announced by the Australian government.     

A comparative analysis of economic performance of US commercial airports

There have been various agreements between the US commercial airports and the airlines each of which has defined how the risk, responsibilities, and reward of running an airport should be shared among them. The airport–airline financial relationships at the nation’s commercial airports are based on four basic approaches: the residual cost, the compensatory, the hybrid, privatization approaches. In this paper, the authors provide a comprehensive review of airport–airlines financial agreements, and develop an analytical model to measure the financial performance of the US commercial airports. In general, compensatory airports have had a higher marginal contribution to profitability than residual airports.     

Covid −19, the collapse in passenger demand and airport charges

This paper analyses the price responses of airports to a demand collapse, such as that prompted by Covid-19. In the crisis, airports need to achieve viability, in the short run through sufficient liquidity, and in the long run, by covering costs. From a public policy viewpoint, price increases in a crisis are argued to be undesirable, as they would further jeopardise the viability of airlines and tourism as well as the wider economic transport benefits such as connectivity. The institutional environment of airports differs from airport to airport; some are publicly owned, others are private but regulated, and others face competition. The price response of each (of 6) types of airport is considered, and how policy could respond to keep prices low in the crisis while ensuring longer term viability. Regulated airports could defer price increases until demand had recovered, if regulators insisted they do so. Publicly-owned airports could be directed by governments to keep charges low. Governments might also state that unregulated airports that raised charges could be made subject to price regulation in the future. Competitive airports would be unable to raise charges but this could jeopardise their viability. In this case and others where airports might need financial assistance, assistance could be made conditional on keeping charges low in the crisis.     

Regulation of commercialized state-owned enterprises: case study of South African airports and air traffic and navigation services

The purpose of this paper is to discuss the regulatory framework pertaining to the recently commercialized State airports and air traffic and navigation services in South Africa. The need for regulation of these companies is reviewed briefly, as well as the supporting legal and policy framework that was put into place before commercialization. The basic process, time frame and interaction concerning regulation are presented. The two main aspects of regulation, namely economic regulation and the regulation of service standards, are also discussed. The various mechanisms for economic regulation are given, followed by a discussion on the service standards that were identified for regulation, and the monitoring procedure. Finally, experiences with the process to date are summarized.     

Estimating the impact of airport privatization on airline demand: A regression-based event study

This paper develops an empirical model of passenger demand for routes of airports subject to either imminent or recent privatization. We investigate whether the privatization process produces a sequential impact over traffic. By employing a regression-based event methodology and controlling for fixed effects, price endogeneity and sample selection, we perform an econometric analysis of pre-privatization and post-privatization dynamic patterns of demand to infer the demand consequences of the major change in airport governance. We examine recent Brazilian airport privatization experience as a case. The main results suggest that privatization produced an overall increase in airline demand and that the airport notably recognized with the greatest demand potential and with the largest market penetration of a fast-growing low cost newcomer had the highest estimated ceteris paribus effect of privatization on demand.     

An evaluation of yardstick regulation for European airports

The European airport industry is subject to various forms of economic regulation and there is debate as to which of the systems provides the best incentives for allocative and productive efficiency. This paper deals with the applicability of benchmarking as a regulatory tool for airports. This form of regulation aims at evaluating the cost level of a firm by comparing it to the mean marginal cost structure of all other firms in the market. The paper investigates the difficulties arising from airport benchmarking as well as the benefits that might be derived from it by drawing lessons from benchmark regulation in other industries and the few cases where it has been applied to airports. In particular, it assesses whether yardstick regulation is a feasible alternative to the existing forms of economic regulation or whether yardsticks are more useful for internal management purposes.     

Airport privatization with public finances under stress: An analysis of government and investor's motivations

The management model of airports has long stood as a central research area in the transport sector. There are a wide range of studies that focus on the potential benefits and pitfalls of private airport management. The results of these efficiency studies have not provided irrefutable evidence for the superiority of private management over public management, but the momentum towards privatizing airports is growing. The reason for privatization has been more related with privatization revenues for governments, rather than more efficient management. The search for maximizing the sale value can have negative impacts from a welfare perspective, for example, through excessive increases in tariffs for passengers. This research reflects on the motivations for governments to privatize, and is illustrated by a case study – Portugal – in which the privatization occurred as a result of three main large drivers: 1) a bailout programme by the IMF, the EU, and the ECB; 2) a revision of the regulatory model, and; 3) the need to increase the capacity of Lisbon's airport system in the medium term.     

The design of light-handed regulation of airports: Lessons from experience in Australia and New Zealand

The difficulties experienced with traditional forms of economic regulation of airports involving direct control of prices have led to an interest in light-handed regulatory frameworks. Experience with light-handed regulation of airports is primarily confined to Australia and New Zealand. The paper examines the design features of light-handed regulation in Australia and New Zealand in relation to the stated objectives associated with the introduction of light-handed regulation. The paper identifies important aspects associated with the design of light-handed regulation including the incorporation of a credible threat of stronger regulation and the characteristics of this, and an apparent trade-off in objectives achieved with different approaches to light-handed regulation.     

Privatization of airports in Asia

It has been claimed that Asia lags behind the rest of the world in the privatization of airports. At the same time, the air transport sector has been growing quickly and this has placed enormous pressure on airport infrastructure. This paper reviews the situation and finds that the private sector is involved extensively with new airports and the upgrading of existing airports in Asia. Although the models used to accommodate the private sector appear similar to those used elsewhere, governments in Asia have retained majority control in every case. Despite the fact that some governments say that efficiency is important to them, the most common and important motive in “privatization” in Asia is to mobilize a new source of finance. Airports remain high on the agenda of public policy. Governments are concerned about abuse of monopoly powers and they want to cross-subsidize regional airports, but they lack the institutional strengths to regulate effectively. By retaining majority control, however, governments risk losing the efficiency benefits of privatization. The paper explores the reasons why airports are such difficult cases to deal with and concludes that there is a greater need than ever to be able to compare the performances of airports.     

Airport partial and full privatization in a multi-airport region: Focus on pricing and capacity

This paper studies the capacity and pricing choice of two congestible airports in a multi-airport metropolitan region, under transition from a pure public, centralized airport system to partial or full privatization. We develop analytical models to investigate three privatization scenarios: public–private duopoly, private–private duopoly, and private monopoly. We find that, airports follow the same capacity investment rule as prior to privatization when capacity and pricing decisions are made simultaneously. Pricing rule after privatization becomes more complicated, with additional factors having an upward effect on the privatized airport(s) and a downward effect on the remaining public airport.     

Performance assessment of UK airports: Evidence from a Bayesian dynamic frontier model

This paper analyzes the cost efficiency of UK airports over the period 1998-2008, using a Bayesian dynamic frontier model. This model provides a more structural explanation for the variation in airports inefficiency than has been presented by previous models, and also allows for cost inefficiency effects. On average, the dynamic frontier results, estimated via the Markov Chain Monte-Carlo simulation, indicate that UK airports improved their efficiency over time. Factors found to be important determinants of cost efficiency include airport size, price regulation, price cap variations and airport competition. Policy implications of the results are derived.     

The evolution of airport ownership and governance

This presentation examines the evolution of airport governance from public utility to modern business. I also briefly look at airport regulation and in this context ask the questions, do airports need to be regulated and if so, why? I consider the new thinking on two-sided platforms and examine whether this may be the new way of thinking about governance. In judging governance structures and regulation, I argue that dynamic efficiency has been underemphasized in the debate over privatization and that airline deregulation has been most important in shifting the balance of power between airlines and airports.     

Two-sided platforms in airport privatization

This paper develops an empirical model to examine the relationship between ownership change and two-sided-platform formation in the air transport industry. We investigate whether privatization enhances the dynamic capabilities of airports so that they more closely resemble a two-sided platform. We study the case of the recent privatization of Brazilian airports. We find evidence of a permanent, ceteris paribus increase in demand triggered after the privatization program. The results are consistent with a preemption of assets with a view to expanding operations and so benefiting from the network effects offered by a two-sided platform.     

Lessons from railway reforms in Brazil and Mexico

This paper describes the rail restructuring processes in Brazil and Mexico during the 1990s. It first reviews the way in which the transfer of public railroads to private concessionaires was accomplished in these countries, and then focus on the major challenges faced by them just after the privatization. From this analysis, at least three core lessons are drawn: concessioning can be a viable mechanism for rail privatization in some developing countries; regulatory problems inevitably emerge during and after the concessioning process; and, therefore, to minimize them, contract design should be carefully addressed in previous stages of the process.     

Airport efficiency in the dawn of privatization: The case of Greece

Until recently, all airports in Greece were owned and managed by the state; however, the recent economic crisis led the Greek government to privatize 14 regional airports. This paper evaluates the performance of the 38 Greek airports open to civil aviation just before the privatization was concluded. It also aims to highlight that the majority of airports with high efficiency were selected to be privatized. The analysis was performed applying Data Envelopment Analysis (DEA) and Malmquist Productivity Index (MPI) using 2011 and 2015 operational and financial data. Results showed that, despite the economic crisis, overall efficiency improved between 2011 and 2015, mainly due to the spectacular increase in incoming international passenger traffic. Changes in efficiency can be attributed by and large to exogenous factors such as operations of low-cost carriers and charter operators along with the seasonal operations of established carriers at individual airports. Findings confirm that the majority of high efficiency airports were offered to private investors.     

Operational efficiencies across Asia Pacific airports

This paper analyses various dimensions of operational efficiencies in major Asia Pacific airports through Data Envelopment Analysis (DEA) models that simultaneously account for external macroeconomics and price factors. Results from this study show that technical, scale and mix efficiencies are high among the major Asia Pacific airports. In addition, significant disparities in cost efficiencies were detected amongst these airports. These disparities can be attributed to the presence of country-specific effect and differences in allocative efficiencies. A virtual airport is then introduced as a superior performer to rank the efficiency performances of airports.     

Airport regulation in Europe: Is there need for a European Observatory?

This paper provides an overview of how the major airports are regulated in Europe. In order to eliminate the potential of airports to exercise market power and protect the public interest, it has become increasingly necessary to set a common regulatory framework. We intend to discuss the need for a single regulator in Europe to monitor or establish the quality of service and the charges practiced by the airports, to ensure cost-relatedness, transparency and non-discrimination. The existing regulatory approaches regarding aeronautical charges and their economic implications are also analyzed. We propose the creation of a European Observatory for this sector.     

Contribution to the study of PPP arrangements in airport development,management and operation

Following the liberalization wave in the airline sector, airports have been gradually taken out of the public sphere and open to the private initiative. This phenomenon is generally referred to as privatization, but not all the cases consist of, in fact, a full divestiture of assets. Although infrastructure management is undertaken by the private sector during a pre-defined period, usually 30 years or more, the property remains public or is transferred to the public domain after that period. This is a form of Public–Private Partnership (PPP) where two different models can be found: institutionalized PPP or a typical contractual regime, such as the concession arrangements. PPP options have been a “hot” topic over the last decade, but few studies can be found in the literature on the PPP projects development in airport systems, for example, as far as risk sharing is concerned. This paper looks at recent developments in airport “privatization”, distinguishing privatizations from PPP arrangements, through a case study approach, and establishing a comparative analysis of different PPP models used for airport management. Some comments are made about the Portuguese model and the announcement of future privatization.