The Economist again revisited the plight of London’s three airports in an excellent editorial piece entitled "How to fix Heathrow" (the editors of The Economist obviously fly into and out of London frequently as often as the magazine talks about the airports). London made it’s first mistake when it privatized its airports in 1987, selling Heathrow, Gatwick, and Standsted to BAA (now owned by Spanish firm Ferrovial).
I’m not opposed to privatization at a philosophical level. Nor do I join with the liaise faire capitalists’ strident claims that the private sector always bests the public sector in efficiency and effectiveness. I am also skeptical of the frequent claims that the waste seen in the public sector would never happen in the private sector. I’ve worked in the private sector long enough to know that vast swaths of inefficiency and waste exist, and that it is not a magic pill in of itself.
The three factors that do constitute a magic pill are competition, transparency, and accountability. Normally the private sector trumps the public sector in these factors, but legislation pushed by big business often is aimed at reducing these. Even more unsettling, attempts to shift responsibilities from government to the private sector often dramatically reduce the last two factors (transparency and accountability) while failing to improve the first (competition).
The privatization of the London airports is a perfect example of this. At its face, the sale seemed like a great idea, but it the manner in which it was done was to the detriment of the government’s constituency. The fatal flaw of the sale was that it was to a single company. This eliminated the vital competition at a local level. Why were all three airports sold together? Simple, the three airports commanded a higher bid as a package deal than separately. Why? Buying all three airports freed the purchaser from a significant amount of competition, competition that would cut into profits.
An argument could be made that the government made the right decision in selling the airports together, because it had an obligation to its constituency to take the highest bid. I would counter that its obligation to its constituency is in the long-term as well as the short-term. And although the highest bidder was accepted, in the long-term the sale has resulted in an inferior set of airports. As anyone who has traveled to London can tell you (I have personally had the displeasure of flying into and out of Gatwick several times), they are nice malls but terrible airports (although the ready availability of free samples of good, American whiskey elevates it to the top of my personal mall rankings).
The UK’s Office of Fair Trading was making noise about forcing the sale of one or more airports by BAA (BAA also owns the three major Scottish airports) as early as 2006, but BAA stills owns all six airports. Some of Europe’s discount carriers have recently joined in calls for divesture. At the very least, BAA should be forced to sell two of the six airports (one in London and Scotland each). The best case scenario is for all six airports to be owned by separate firms, perhaps with one of the London and Scotland airports ran by the government.