Comment on privatization


By Alexandre De Juniac

PRINCE Muhammad Bin Salman’s recent appointment as Crown Prince of the Kingdom of Saudi Arabia heralds a period of transformation in the country. Prince Muhammad has already laid out an ambitious set of economic, social and cultural reforms through his blueprint ‘Vision 2030’ for the Kingdom’s future.

Central among these reforms is the drive to transition the Kingdom’s economy from government-led to market-driven. Sixteen sectors including aviation infrastructure have been earmarked for privatization.

In general, governments undertake privatization, with the intention of improving customer service, increasing efficiency and promoting innovation. Some privatizations have succeeded. Many have not.

For example, in the UK, the privatization of state-owned industries that could operate in competitive markets such as airlines and steel production were successful. However, the privatization of natural or statutory monopolies such as water supply, airports, electric utilities and rail networks saw most failure.

Today Saudi Arabia’s plan to privatize 28 airports is in the spotlight. The laudable intent is to harness commercial discipline in managing airports. But I will sound a note of caution and be totally blunt in saying that despite many attempts at airport privatizations around the world, we have not seen any examples that have truly met expectations.

Of course, it is the government’s responsibility to provide infrastructure. Airports are public assets, owned by the state and controlled and managed by a public authority. With very few exceptions, they are monopolies. And the connectivity that they enable plays a vital role in the economies they serve.

Putting an airport in private hands changes the focus of its management. The pressure to maximize shareholder returns too often outweighs the core objective of delivering user/consumer benefits. That’s why, private sector involvement in funding infrastructure improvements must be balanced by strong and independent regulation to protect national and consumer interests.

I urge the Saudi government to take great care in its privatization consideration. The objective must be clear—to create benefits for the traveler. The best way to understand how to achieve that is through consultation with users — including airline users. Keeping that in mind, the concessionaire must be a solid long-term partner with an interest in supporting the local and national economy. Selling to the highest bidder would be a terrible mistake as it simply increases costs.

Lastly, the process does not end when the concessionaire moves in. And it is vital that an effective neutral body is in place that has powers and resources to review and set charges to protect the public well-being and ensure that the privatized entity does not abuse its monopoly power. The current Civil Aviation authority cannot play this role.

Prince Muhammad Bin Salman’s ‘Vision 2030’ is ‘to be an exemplary and leading nation on all aspects.’ Vital to achieving this vision is ensuring that airport privatization does not dent the Kingdom’s competitiveness by increasing the costs of mobility and compromising service levels.

Saudi Arabia has a great opportunity to ensure that its airport privatization efforts avoid the pitfalls and failures seen in other parts of the world. We are committed to providing full support to the government as they undertake this process.

— This opinion piece has been written by Alexandre De Juniac, IATA director general.