Saturday, August 06, 2005

Another airport investment curbed

When the State intervenes in commercial decisions it creates new problems for itself and commerce. What starts as appropriate intervention to ensure safety, amenity and a clean environment, extends by accretion into commercial matters. The sort of problems arising from general intervention are illustrated by the little, but promising, contra-tempts in Washington State, USA, over a Southwest airlines' proposal.

The Seattle Post Intelligence (5 August) reports:

“Last month, Southwest said it wants to build a new $130 million terminal at Boeing Field and run up to 85 daily flights there, compared with 38 now at Sea-Tac, to avoid rising per-passenger costs that would help pay for Sea-Tac's $4.2 billion, 10-year expansion.

The airline has said it would pay less at Boeing Field, which serves private planes, cargo jets, and Boeing Co. commercial and military aircraft operations.”

But this was no easy commercial decision where the airline puts its own capital at risk. The guardians of the public purse cry ‘foul’.

“Both U.S. senators and five other members of the state's congressional delegation have denounced Southwest Airlines' proposal to leave Seattle-Tacoma International Airport and move to a King County-run airport”

Interestingly, and not surprisingly, the local political reps, a Senator and five members of congress, are using the ‘we need time to study more details’ stalling ploy (i.e., check how widely local opinion is in favour, or not too opposed, to the switch in airports). That a commercial decision has become a political decision, with local regulators and councilmen involved too does not augur well for it becoming a good decision.

One obvious item is the theory that there is a fixed amount of traffic for air travel and dividing it between two airports means both would be sub-optimal investments. There is no evidence that air travel is fixed in quantity. Indeed, new air ports, new airlines, new fee structures, and competition are all associated with growth in air traffic. Governments are lobbied to keep the status quo and potential opposition candidates scrutinize openings for flanking a sitting representative with a pro- or anti-stance in these matters.

Now it happens that one of the Democratic congressmen who signed the letter denouncing Southwest’s proposed move, is our friend, Adam Smith, of whom I wrote about last week on his opposition to CAFTA. The case for or against Southwest is not so clear cut as the case for CAFTA in terms of the original Adam Smith of “Wealth of Nations” fame. From Scotland and only one report to go on, I cannot presume to tell Congressman Smith that he is wrong (or right) on this issue.

I can, however, speak generally about the principles behind such a decision. The prejudice of a Smithian approach would be that commercial decisions (provided they do not break laws, are safe to people and the environment, and are paid for by the beneficiaries, including users) should be left to those who put up the capital for the venture. It would take considerable evidence to the contrary to say ‘no’ in these circumstances.

So far, the opponents have not in my view sustained that contrary evidence. They appear to be intervening in a commercial decision on commercial grounds and that is not good enough for a Smithian.

In Scotland we had a similar intervention in the location of airports some years back. Post-war the Scottish Office decreed that Prestwick Airport, on the distant south-east coast of Scotland, miles from the main population centers, was to be the sole international airport for Scotland and for many years refused permission to either Glasgow or Edinburgh regional airports to offer international flights to anywhere other than England. Indeed, so frustrated were some people that Glasgow and Edinburgh were ‘squabbling’ with each other for international rights, that they proposed that a new third airport be built half-way between the two cities.

It was a ‘brilliant’ idea that was used by the pro-Prestwick lobby to keep its monopoly for an extra-20 years. Eventually, sense prevailed, and Glasgow, Edinburgh and Prestwick now fly direct to hundreds of international destinations.

Might the vested interests in Washington – those running and planning major multi-million dollar tax-paid projects and infra-structure around the state; those holding or seeking political office locally, Statewide and nationally; and the most important of all, the consumers of rival air travel – move out of the way and let the markets for air travel settle the issue of the viability of one, two or more airports in Washington State?

Of course, this could all be a ploy by Southwest to have its airport and landing fees reduced at Sea-tac ... but that it is probably a tad bit too cynical.


Post a Comment

<< Home