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Airport security and monopoly

Economist Joseph Stiglitz writes in the Financial Times (sorry, subscription required to get to the link) that normal competitive pressures to improve service are not working in the British airports industry. The privatised British Airports Authority, now owned by Spanish based group Ferrovial, has nothing much to gain, he argues, from improving security because it gets no real benefit in terms of consumer response, but it does have an incentive to boost profits through cost cuts, which must, he says, come into conflict with security. Does he have a point?

The way in which BAA operates seems to me to be, at first glance, greatly influenced by government and its regulatory agencies, so I think it would be hard to come down too much on BAA’s neck in this case. The regulatory environment surrounding the current security furore is largely driven by government and looks likely to remain so. So it is probably academic to speculate how security would operate in a ‘pure’ free market environment. If it were possible for people to shop around for different levels of security, it would be interesting to see how businesses would responsd. If airlines could directly negotiate their own security policies with the customer without having to mediate via an airport business or government, then you might get an interesting spectrum. Some airlines would market themselves as high-security, enforcing tough checks on passengers, banning certain types of luggage. If you want to fly on such an airline, fine. Other airlines might go for a more relaxed approach, and passengers would fly in the knowledge that they were taking more of a chance in exchange for not having to put up with intrusive security. Come to that, I am in favour of busineses such as child-free airlines, for reasons spelled out by Jeff Randall recently).

And even if BAA were to remain dominant as an airports landowner, if passenger numbers dropped off alarmingly due to heavy-handed security and massive delays, then sooner or later shareholders of BAA would revolt, or sell the business, and new entrants to the airports business would offer something better. The problem with this subject of course is that we have become so used to the idea of a whole network of big airports being run by one former state-established company that it is sometimes hard to imagine something different. But it could change and there is plenty of thinking that can and should be done on how to use the incentives of the market to improve passenger service and give people the security they want.

Some related thoughts about airports and privatisation issues here.

10 comments to Airport security and monopoly

  • nic

    You should remember that there is the additional problem of large tubes of metal flying through the air generally. An insecure airline isn’t just a risk to itself and its (perfectly reasonably consenting) passengers but also to whatever inhabitants might be living below the flight path or indeed major landmarks. To drift into NUlabour speak for a second, one might argue that there are other “stakeholders” in this transaction than just the airline and its customers.

    I suppose one could try and build a market solution by privitising the airways (thereby forcing someone to take personal responsibility for whatever falls out of their air space), but I guess all I wish to show is that the situation is slightly more complicated as it stands than mere airport/government intransigence.

  • ibarraclough

    As a Yorkshire Welsh Jew living in Saudi Arabia, I can only repeat the old Arab saying:
    “Four things come not back: the spoken word, the spent arrow, the past, the neglected opportunity.”
    – Omar Idn Al-Halif mo. (I don’t know who Omar was – not a Taliban, I think, anyway.)

    Thus, whatever drivel is on this page does not matter.

    I can’t find the details, but I recall a quote from a British envoy in the 19th century to the effect that the rest of the world was pretty much going to have to come to a compromise with Islam.

    We are experiencing the historical process that will arrive at that compromise. We may not like it, but it looks like it’s going to happen. I am interested in whatever the outcome may be. All I see is Muslims killing people, and I wonder if Islam may be “666” (the number of the Beast) – anti-life, anti-Christ. If it is, then it is the Enemy, and it is implacable.

  • Dishman

    IIUC, in the last 10 years, the majority of commercial aviation fatalities (including accidents) in the US have been non-customers. Virtually all financial losses have been borne by non-customers.

  • The reading public

    BRING BACK MICHAEL JENNINGS!!!

  • Johnathan Pearce

    . An insecure airline isn’t just a risk to itself and its (perfectly reasonably consenting) passengers but also to whatever inhabitants might be living below the flight path or indeed major landmarks. To drift into NUlabour speak for a second, one might argue that there are other “stakeholders” in this transaction than just the airline and its customers.

    Well of course. That is why we have things like the rule of law, and so on. Clearly, if an airliner crashes and kills others besides the passengers and crew, the airliner may be held legally liable, so airline companies have a natural incentive, even under a basic system of tort law, to establish minimum standards of safety. The question your point raises, though, is how high this security should go before it kills these businesses off or turns airlines back to the time when only the very rich and powerful could afford to fly.

    I fear we are in danger of going back to that point.

  • Julian Taylor

    … has nothing much to gain, he argues, from improving security because it gets no real benefit in terms of consumer response

    With those hordes of consumers are now being shepherded through airport security in this naked demonstration of authoritarianism I should think that BAA are enjoying the sudden consumer response very much indeed. We forget that you may not bring any foodstuff, beauty product or hygiene product to any BAA airport at all right now, practically on pain of arrest and, as a direct result, BAA are now using this scare to create a vast income boost from the airside sale of those same products that passengers are not permitted to take through the security checks. Thus they manage to guarantee retailers for their new terminals and rapidly replace those existing retailers who fall by the wayside of substantially increased rents and sales premises’ premiums.

    From what I gather at present Eurostar are doing an enormous amount of business from carrying people to Paris Charles De Gaulle or Brussels International, who don’t want to undergo thorough bodysearches or be forced to orally test their babies’ formula in front of some 18 year old security guard at Heathrow. As it happens there are very few, if any, security checks being carried out on Eurostar – I wonder why that is?

  • BRING BACK MICHAEL JENNINGS!!!

    I’ve been busy earning a living, sadly. Hopefully I will find time to write something for this blog fairly soon. (I am going away for the long weekend, and in normal circumstances I would take my laptop and write something while on the plane, but in the present circumstances I think I will leave it at home).

  • Mary Contrary

    I think if airlines had free reign to control their security regime, there would be far fewer rules on what you could carry, and far more on who was allowed on board.

    The low-security end of this “interesting spectrum” would consist largely people at the intersection of
    * paying a lower fare,
    * not frequent flyers,
    * with little credible documentation to identify them, not to mention
    * Arab and/or Muslim.

  • Julian Taylor

    As we have seen, when an airline is given free reign to run its own security you end up with a 9/11. Most aircraft have (or used to have) bulletproof security doors fitted at the cockpit and the routine during the hijack era of the 70’s was that there was no way that door could be opened in flight – a rule that had been progressively relaxed ever since. Not surprisingly that rule seems to have been brought back into force since 11th September 2001.

  • Johnathan Pearce

    As we have seen, when an airline is given free reign to run its own security you end up with a 9/11.

    It is not great for business to have your punters die. So in fact, if there were demand for secure airlines, such airlines would arise. Given the times in which we live, I can see how it would be smart business practice for an airline to market itself as ultra-secure, safe, etc. The idea that such impetus can only come from government strikes me as, well, not very plausible. Security is now becoming as much a consumer demand as well-brewed coffee. I am sure a lot of people would pay the extra charges if they thought it bought them peace of mind.