Fixing NAIA (Part 1): The Case for Privatised Airports in the Philippines

The future growth of the Philippine economy will depend heavily on reliable and affordable air transportation. With the introduction of low-cost carriers to the Philippine market, commercial aviation is no longer a luxury reserved for the elite but rather a service that is now available to a wide segment of the Filipino population. But by the same token that the Philippines is estimated to lose P2.4 billion daily due to traffic congestion in Manila, the same can be said for the nation's primary international gateway where airlines cannot open new routes or increase service due to congestion at Ninoy Aquino International Airport.

Image Source: Live Philippines
Air transportation plays a major role in the economy as it fuels tourism, business travel, and trade. But growth of air transportation relies heavily on the nation's aviation infrastructure. At present, the nation's major commercial airports are virtually all owned and operated by the Philippine government with the exception of Caticlan and Cebu Airports, which are operated by the private sector.

Many analysts have already written reports indicating that the demand for air travel in the Philippines is expected to surge. However, the nation is not presently equipped to handle the growth with the current aviation infrastructure in place. In addition, there is a shortage of air traffic controllers in the country as many have been lured to work overseas. Major change is necessary as the increased air traffic will one day prove to exceed the limits of the present air traffic control system in the Philippines.

The Philippines has been slow to embrace the types of reforms necessary to address these issues. Such reforms include the privatization of airports and the commercialization of air traffic control services, which have already been adopted in many countries around the world and been integrated successfully.

Unlike the Philippine government, commercialized air traffic control agencies and investor-owned and operated airports such as the Mactan-Cebu International Airport are in a much better position to respond to changing market conditions. In addition, they are able to freely tap debt and equity markets for capital expansion to satisfy growth in demand.

In a report published in the United States and authored by Robert Poole, Director of Transportation Policy for the Reason Foundation, Poole advocates that such enterprises are also better equipped to address workforce issues and complex technology implementation as a result of greater management flexibility.

Poole highlights vast foreign experience that can be used as a model in the pursuit of reforms for the aviation industry including the privatization of airports in Europe and the commercialization of air traffic control in Canada. Although the majority of commercial airports in the Philippines are owned by the Philippine government, the trend around the world is for airports to be viewed more as a business enterprise, rather than a monopolistic public service. 

Even former Philippine Transportation Secretary Joseph Abaya came to the realization that airports perform better when operated as a business enterprise. "It should be run like a hotel," said Abaya. "There should be an attention to detail, and the importance of customer service and efficiency should be a main priority." Consequently, governments in developed and developing nations are now looking to the private sector for airport development and management. 

An entrepreneurial approach to airport management will increase operating efficiency, improve passenger amenities, and lead to rapid expansion to reduce congestion. Ultimately, all major stakeholders from passengers to airlines and taxpayers benefit from this commercial approach to airport management.
Poole notes in his report that the simplest form of privatization for existing airports is to contract out management of the airport on a short-term basis. However, long-term leases are more likely to provide incentive to private operators to invest more in the development of the airport, shifting responsibility from the government to the private sector.

In terms of the development of new airports, the private sector can either be granted a long-term contract to finance, design, and operate the facility, or they can be granted full private ownership and management as is seen in many airports throughout Europe. Britain led the way in 1987 as the British Airports Authority was privatised. Some other examples of privatised airports include London, Rome, Sydney, Frankfurt, and Amsterdam. In the case of Australia, most of the nation's major airports have been privatised or contracted out under long-term leases.

Another benefit of airport privatisation can be derived from the deregulation of the airline industry. As deregulation occurs, new airlines enter the market, prices fall, and the volume of air traffic increases significantly. This enables more people to travel and consumers to save money.

Unfortunately, under the existing system, existing airlines operating in the Philippines are unable to expand and new entrants are unable to enter the market as Ninoy Aquino International Airport is already too congested and there are limited slots available for new entrants, which stifles the growth of air traffic and competition. Most recently, this issue led the President of Philippine Airlines to ask the Duterte administration to prioritise addressing congestion at the nation's airports to enable the national flag carrier to expand.

Since its inception, the Ninoy Aquino International Airport has been run in an old-fashioned and bureaucratic manner. However, investor-owned airports are operated like businesses with the goal of making profits and tailoring services to meet the varying needs of customers including passengers and airlines. In his report, Poole cites detailed research performed by scholars at Oxford University, which demonstrates that the management approach of privatised airports is significantly more "passenger friendly" than that of traditional airports.

Meanwhile, air traffic control in the Philippines is predicted to face challenges as air travel demand outpaces the ability of the existing system to expand capacity. One issue is whether future projected system funding will be in line with the rising air traffic, as the system already faces shortfalls in labour due to poor remuneration in the industry.

The best way to address this issue is to remove the Air Traffic Control system out of the hands of government and to create a self-supporting entity that would be funded directly by its customers. Instead of charging aviation related taxes, fees for air traffic control services would be paid directly by customers to a new self-sustaining Air Traffic Control organization. This would enable revenue to grow at a consistent pace with increased flight activity. In addition, commercialization would also address management problems such as the labour shortage, enabling a new organization to attract the best skilled labour necessary to adequately satisfy the demands of the industry.

Canada was one of the first countries to pioneer the commercialization of the ATC system. In 1996, a private, not for profit ATC corporation was set up by the Canadian government called Nav Canada. The system has earned worldwide praise for its sound finances, solid management, and investment in new technologies, which are all self-supporting and funded by charges levied on aviation users.

Overall, studies have determined that the commercialization of air traffic control has typically resulted in improvements to service quality, better management, and a reduction in cost. More importantly, air safety has remained the same in countries that have pursued such reforms.

Airline competition can expand, which would benefit consumers, if the Philippines reformed the antiquated ownership and management structures of Philippine airports. As the world shifts to operating airports as a for-profit enterprise as opposed to a government subsidised service, the Philippines must adopt a similar paradigm that is more consistent in fostering a dynamic and competitive airline industry.

References: Airports & Air Traffic Control

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