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Privatization of airports before making route development funds
submited on 13.03.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 13.03.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
An innovative idea for development of airports was presented at a conference, dedicated to the development of the airport next to Plovdiv. International consultants suggested the making of public route development fund, which they think is the most appropriate way for development of flights to destinations such as Plovdiv. The aim of such a fund is the society to share with airline companies the risk of launching new airlines. Such a practice, although relatively young, has been established in several European countries, as successful examples are mentioned funds in Scotland and Malta.
In fact the benefits of the development of regular international flights will not be limited to the airport, the air companies and the passengers. The economic life a city is changing considerably from a development of airport nearby. The fact that benefits are distributed among more market participants however is not a particularly strong argument for sharring entrepreneurial risks between society and airline companies. The airline market is not an exception in this economic phenomenon (positive externalities). Many substantial investments, in fact entirely private, have also raised benefits to “external to the particular industry” players. Examples could be found in almost every sector – from the car engine through the mobile phones to Skype.
Why some investors are ready to take on the entire risk upon them, despite that they will not keep the whole profit (all benefits) just to themselves and others must be helped? Private funds supporting such undertakings, including airports and railroads, are welcome and there is no impediment to their existence. The history however shows that “the support” is always paid in by taxpayers.
The defense of state guarantee funds is difficult (and most privileges, too), but nonetheless such recommendations for the Plovdiv airport come from one of the pro-market EU members – the Great Britain. Experts on airports recommended this as the most rational scenario, probably after analyzing the structure of the airport property. The lack of perspectives for concessions of Airport Plovdiv under the current model of its property (state land – private terminal – state business “airport”) might have made advisors to solution, giving at least some chance for development of flights from and to Plovdiv.
The region of Plovdiv is relatively large and lively as demographics. The economy of the region is sufficiently dynamic, in order to maintain unemployment below the country average(6.1% for the district of Plovdiv and 6.3% for the district of Stara Zagora according to data for January).
Plvodiv provides good potential for development of low cost flights despite its close location to the Sofia airport.
Disadvantage, which might be used in the case as advantage, is the tragically developed rod infrastructure between Bulgarian cities and their relative remoteness from the world including the second biggest Bulgarian city.
The openness of the Bulgarian economy is another factor, which might attract the interest of airlines toward other cities besides Sofia. Small economy such as Bulgaria could not develop without international integration (with the export being some 2/3 of GDP). In the international integration, besides goods, people must also move.
Nobody denies that there is considerable risk in developing Plovdiv as airline destination. The issue is now who must take on this risk – the airline companies, the airport and/or the state. The misallocation of risks in such an undertaking might impede its success and even fail it entirely. If a public fund is created for marketing and flight development between Plovdiv and other cities, it must operate with private, rather than state, airport. It must support airlines, which will transport passengers at low cost and acceptable quality. The concession of the airport is the key to the success of this experiment.
In fact the benefits of the development of regular international flights will not be limited to the airport, the air companies and the passengers. The economic life a city is changing considerably from a development of airport nearby. The fact that benefits are distributed among more market participants however is not a particularly strong argument for sharring entrepreneurial risks between society and airline companies. The airline market is not an exception in this economic phenomenon (positive externalities). Many substantial investments, in fact entirely private, have also raised benefits to “external to the particular industry” players. Examples could be found in almost every sector – from the car engine through the mobile phones to Skype.
Why some investors are ready to take on the entire risk upon them, despite that they will not keep the whole profit (all benefits) just to themselves and others must be helped? Private funds supporting such undertakings, including airports and railroads, are welcome and there is no impediment to their existence. The history however shows that “the support” is always paid in by taxpayers.
The defense of state guarantee funds is difficult (and most privileges, too), but nonetheless such recommendations for the Plovdiv airport come from one of the pro-market EU members – the Great Britain. Experts on airports recommended this as the most rational scenario, probably after analyzing the structure of the airport property. The lack of perspectives for concessions of Airport Plovdiv under the current model of its property (state land – private terminal – state business “airport”) might have made advisors to solution, giving at least some chance for development of flights from and to Plovdiv.
The region of Plovdiv is relatively large and lively as demographics. The economy of the region is sufficiently dynamic, in order to maintain unemployment below the country average(6.1% for the district of Plovdiv and 6.3% for the district of Stara Zagora according to data for January).
Plvodiv provides good potential for development of low cost flights despite its close location to the Sofia airport.
Disadvantage, which might be used in the case as advantage, is the tragically developed rod infrastructure between Bulgarian cities and their relative remoteness from the world including the second biggest Bulgarian city.
The openness of the Bulgarian economy is another factor, which might attract the interest of airlines toward other cities besides Sofia. Small economy such as Bulgaria could not develop without international integration (with the export being some 2/3 of GDP). In the international integration, besides goods, people must also move.
Nobody denies that there is considerable risk in developing Plovdiv as airline destination. The issue is now who must take on this risk – the airline companies, the airport and/or the state. The misallocation of risks in such an undertaking might impede its success and even fail it entirely. If a public fund is created for marketing and flight development between Plovdiv and other cities, it must operate with private, rather than state, airport. It must support airlines, which will transport passengers at low cost and acceptable quality. The concession of the airport is the key to the success of this experiment.
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