Privatizing airports: Efficiency enhancing?
The case of the United Kingdom
Project group 6DJorn de Ruijter - 3813894David de Vos - 3805638Franceska Toader - 3726177Ruben Verdoorn - 3833259
| Supervisor: A. van den BergCourse: Institutional Economics (ECB2IE)
The UK Government transferred the ownership of the British Airports Authority from the Government to the private sector on the first of April 1987. After 25 years, more than 50% of the British airports became privatized. There has been a lot of political debate about past privatizations and future plans of privatizing other airports (Ison et al., 2011). Today, most of the British airports are good examples of privatized firms operating in a regulated market. Some studies of public and private ownership suggest that privately owned firms can achieve higher levels of operating efficiency than state owned firms. Other research however confirms that a change to private ownership, especially where state regulation continues, may produce fewer economic benefits. In this paper we try to research whether the privatization of airports leads or has led to an efficiency enhancing situation. The field of research of the paper will be Institutional Economics and we use the relevant theory on efficiency from that field. We will however not only focus on the theoretical differences between privately and publicly owned airports, but we will also test if the theory holds by analysing available relevant data on airport efficiency. We will consider the different ownership forms to be able to compare the different situations in terms of efficiency. Lately, a lot of debating and research has been going on about whether to privatize airports or not. The relevance of our paper is therefore to contribute to the existing literature, providing new insights in the specific case of airport privatization in the UK. Besides that our paper can contribute to the debate on whether or not to privatize airports, as we want to make clear what is the most efficient way to go. Therefore this paper can be a guide for policymakers in order to make decisions regarding the privatization of airports. This paper will focus on answering our main research question: What is the difference in efficiency between privately owned and publicly owned airports in the UK? We split this question up into two sub questions regarding different efficiency perspectives: What are the differences in efficiency from a financial perspective? and What are the difference in efficiency from an operational perspective? For answering the former we will analyse data such as profitability, operating costs and financial ratios. Data to be analysed for the latter are punctuality and consumer experience.
The paper contains four more sections. The second section provides some background information about the airports we will be comparing. In section three we review theory from Institutional Economics about private and public ownership related to efficiency and we state research hypotheses. Section four then tests these hypotheses by analysing data from the two airports that were introduced in the second section. The final section gives a conclusion.
Although the idea of shifting ownership of airports from public to private is not new, privatization is a rather recent concept. The first privatizing of airports was done in the United Kingdom and that is why we chose the UK as our research country in this paper. The United Kingdom set an example towards the rest of the airports that followed changing from public to private ownership (Vogel, 2006). In this research paper we will use the data from two airports: Manchester Airport, which is publicly owned, and London Stansted Airport, which is privately owned. We chose these two airports and not, e.g. London Heathrow, as we want to be able to compare two similar airports. The airports that we chose...
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