Oversight of airport monopoly necessary
IN A television interview last week, Audley Deidrick, CEO of the Airports Authority of Jamaica (AAJ), said that while he operates in the public sector, he fully embraced the centrality of private businesses to the economy. Private firms drive competition, which leads to efficiency, innovation, competitive prices, and improved service quality. And that, Mr Deidrick declared, is good for consumers.
No one, not least this newspaper, would challenge Mr Deidrick’s observations as a general principle. Indeed, we robustly embrace them. Except that in this case, Mr Deidrick was highlighting his expectations from last week’s divestment, via a concession agreement, of Norman Manley International Airport (NMIA) in Kingston to the Mexican firm Grupo Aeroportuario del Pacifico (GAP).
In this matter, the jury is out. It is some time before it reports. And how GAP performs, including what it offers to consumers, and the price points at which it delivers those services, may well depend on the vigilance and effectiveness of Mr Deidrick’s organisation as a regulator.
To be clear, we have no question about the qualifications of GAP to run NMIA, or of the integrity of the bidding process by which the 25year concession deal, whose financial closing is to be within the next 12 months, was arrived at. Given the people who were in charge of the process, we take it at face value that GAP had the best bid, including proposals for extending the airport’s runway and generally upgrading its facilities.
These things will require spending more than US$100 million, which, as Prime Minister Andrew Holness observed, the Government couldn’t afford, unless it diverted capital from other critical infrastructure, such as roads, schools and hospitals.
This newspaper’s concern is the emergence of, or return to, monopoly control of the island’s international airports, as was the case up to the early 2000s when the Government operated Donald Sangster in Montego Bay. In 2015, GAP spent US$190.8 million to acquire Spanish company Albertis Airports’ 74.5 per cent in MBJ Airports Ltd, which has the concession for Donald Sangster.
MONOPOLY CONCERNS
That is not of itself an issue, if you assume that the Manley and Sangster airports, in different cities, 180 kilometres apart, operate in separate and distinct markets. Like University of West Indies economist Peter-John Gordon, we hold that they do not. The new North-South Highway has substantially cut the driving time between Kingston and Montego Bay. Further, price differentials between flights from Kingston and Montego Bay to foreign cities, as Dr Gordon noted, often makes it economical to drive from the capital to travel abroad from Sangster Airport.
Against that backdrop, with both airports in GAP’s ‘ownership’, it means that the company will compete against itself. In other words, it becomes a monopoly. Monopolies do not naturally provide incentives for firms to be innovative, efficient, and to deliver the best prices to consumers. It may be that on the basis of the bid received, nothing could be done to avert a monopoly situation, short of rejecting GAP’s tender.
Where monopolies occur, naturally or otherwise, strong regulatory oversight is necessary to ensure that the power of the supplier is not abused to the detriment of consumers. That demands transparency.
In this case, that job falls to Mr Deidrick’s AAJ. He must start by giving the public, who are ultimately owners and lessors in this arrangement, the full terms of the concession, including the service standards to be achieved and the systems to prevent the worst behaviour of monopolies. This is not because we don’t trust GAP. It’s being prudent.