Are privatizing airports any good?

By Ray Cádiz Macalalag

During his recent visit to Iloilo, the newly appointed Secretary of Transportation, Vince Dizon, shared that the government is actively considering expediting the approval of the PHP21-billion unsolicited proposal from the Villar Group to privatize the Iloilo International Airport. The inspection of the airport was attended by Iloilo Governor Arthur Defensor Jr., Iloilo City Mayor Jerry Treñas, and Uswag Ilonggo party-list representative James Ang Jr. Ranked second in the region after Godofredo Ramos Airport (Caticlan Airport) in the Province of Aklan, the Iloilo International Airport serves as the second busiest airport in the area. In the coming months, it will expand its international connections to Hong Kong, Singapore, and introduce a Cebu Pacific route between Iloilo and Bangkok via the Don Mueang International Airport.

Dizon emphasized that the President has instructed the Department of Transportation (DOTr) to privatize airports as a strategic move forward. A report by the Philippine News Agency further revealed that the DOTr is also considering privatizing airports in Davao and major tourist destinations such as Siargao, Kalibo, Bacolod, and Dumaguete. Given these plans, it is understandable to encounter skeptics. However, the world has witnessed the success of privatized airports, providing a solid foundation for optimism.

Generally, privatization aims to transfer business and operational risks to the private owner, who will be responsible for planning, financing, and operating the airport. Government-owned airports often operate less efficiently due to complacency, lack of competition, and the need for assured profitability. Additionally, bureaucratic processes in procurement, budgeting, and other areas often hinder necessary repairs and upgrades. For instance, the Berlin Brandenburg Airport experienced cost overruns due to mismanagement by public authorities.

On the other hand, privatization offers several advantages, particularly in terms of investment. This year, the Civil Aviation Authority of the Philippines allocated PHP190 million for the repair and rehabilitation of the existing terminal building, primarily for equipment, escalators, elevators, and additional seating. This amount is relatively small compared to the multi-billion investment made by the Villar Group. Thus, the privatization will significantly transform the Iloilo International Airport. Although not yet officially announced, Governor Defensor’s proposal to open more space for retail, hospitality, and food and beverage establishments could further enhance the airport’s profitability by turning the current terminal into a terminal mall.

Finally, improved service quality can be anticipated with the privatization of Iloilo International Airport. Case studies, such as London Heathrow Airport, demonstrate that privatization often leads to higher service quality standards and significant efficiency gains in passenger processing and reduced waiting times. For instance, Changi Airport in Singapore, while not fully privatized, benefited from private partnerships that enabled the adoption of innovative procedures in immigration clearance and baggage tracking. Moreover, Skytrax rankings suggest a correlation between privatization and improved service quality. Prior to privatization, Sydney Airport faced congestion, long waiting times, and outdated terminals. However, after privatization, the airport’s services improved, as evidenced by its Skytrax ranking.

One valid concern that deserves attention is the potential risk of higher passenger fees associated with privatization. However, a study from the Journal of Air Transport Management found that passengers are willing to pay more for better service quality, shorter wait times, and a smoother travel experience. To mitigate this risk, ensuring strong regulatory oversight remains the responsibility of the government. The government should ensure the levers are balanced between the operational efficiency and the associated costs passed on to passengers.

In conclusion, the privatization of Iloilo International Airport holds great promise for Iloilo and the region. It will not only enhance the travel experience for Ilonggos but also contribute to their global connectivity.