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Does privatisation mean government washing its hands of?

Updated: May 17, 2023

Hands-off management vs washing hands of. Read till the end to connect the dots.. 🙏 Chapter 1 - Two decades of airport privatisation in India: - As of Dec’22, 13 privatised airports control: ~65% pax traffic ~79% freight traffic - 25 more airports to be privatised by 2025. Once done, private airports will account for: ~80% pax ~93% freight - Compare this with global traffic (pax) under privatisation (ACI 2018): Europe: 75% Latam-Caribbean: 66% Asia-Pac: 47% M. East: 18% Africa: 11% N. America: 1% World Average: 43% Reportedly Government of India (GoI) plans to divest its stake in top private airports– HYD, BLR, DEL, and BOM Chapter 2 - Post privatisation role of the govt in the UK - UK was the first country to privatise major airports in 1987 when it privatised British Airports Authority (BAA) - Fast forward two decades - in 2007, BAA operated 7 airports in the UK. 4 in South-east England –Heathrow, Gatwick, Stansted, and Southampton 3 in Scotland – Glasgow, Edinburgh, Aberdeen - BAA dominated both markets In South-east England, four BAA airports controlled 90% of pax traffic In Scotland, three BAA airports controlled 85%

In 2007, UK’s Competition Commission (CC) set up a study to find out: If there is real competition in the market? Is lack of competition responsible for the (unsatisfactory) performance of BAA airports? By 2009, it was found that being under one group, BAA airports were not competing despite substantial scope for it. Lack of competition was leading to: Lack of responsiveness to the interest of airlines and passengers Slow route development Failure to ensure operating excellence and service quality Inadequate investment due to a single highly geared group parent balance sheet Cash generated out of one airport was being used elsewhere To ensure fair competition, CC announced remedies including: BAA must sell Gatwick and Stansted airports Either Edinburgh or Glasgow should be sold CC’s order was compiled: Gatwick was sold in Dec 2009 Edinburgh in May 2012 Stansted in Feb 2013 In 2016, the impact of remedies was identified & measured for smaller airports: Higher traffic growth and market share Higher return on capital employed Higher operational efficiency and service quality More full-service and long-haul flights Reduction of apt charges and introduction of off-peak, and seasonal discounts etc. The value of benefits is estimated to be GBP 870 million or (~7, 000 Crore +) during 2009 – 20. For me, this is a great example of how not to wash hands of govt's responsibility after privatisation. My top 3 takeaways for India: 1. Apt privatisation is a success story in India. Capacity growth and #paxex are testimony to this. 2. Enhanced privatisation levels and Govt's exit from apt biz is inevitable 3. Govt's role should be to curb market power abuse, anti-competitive practices and, effective economic regulation. Competition will take care of the rest. What is your top takeaway(s)? Add in the comments.

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