Doug Henwood dhenwood at
Mon Jun 22 12:32:36 PDT 1998

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(SMTPD32-4.03) id AEC840112; Sun, 21 Jun 1998 17:44:40 est Message-Id: < at> X-Sender: lhanft at X-Mailer: QUALCOMM Windows Eudora Pro Version 3.0.5 (32) Date: Sun, 21 Jun 1998 17:55:40 -0400 To: lbo-talk at From: "Lila Hanft, Ph.D." <lhanft at> Subject: Should an Airport be a free market? Mime-Version: 1.0 Content-Type: text/plain; charset="us-ascii"

Dear lbo_talk participants,

My name is Dave Roberts (wife is Lila Hanft, above). I have been a manager at Cleveland Hopkins airport since November 1997 and am interested in advice on how much to let an airport be a free market or how to regulate that market. Airport finances are among the strangest, as I am learning.

Please note: I am not writing officially for the Airport, only for myself out of personal interest in these issues.

Consider this. The main source of airport income is from airlines through two negotiated rates (the Rates & Charges): 1. the rental rates for space in the terminal building and concourses; and 2. the landing fees for each airplane which lands. At CHIA (Cleveland Hopkins International Airport) the two rates are determined by a negotiation with all the signatory airlines (i.e. signers of leases for terminal space). But it's not a free market negotiation. It's a zero sum negotiation. Essentially, the airport presents a budget to the airlines for all the costs of running the airport (including, most importantly, debt service on bonds issued to do capital expansion). The airlines then approve or object to this budget. To win approval, the budget needs only the "majority in interest" approval. "Interests" are measured by the amount of traffic. Thus at CHIA, Continental who has more than 51% of the traffic is the only airline needed for MII approval. More on their domination later.

This strange zero-sum financing means that the City's role (CHIA is a municipal airport under the Mayor's administration, not an airport authority as many airports are) is to spend enough to make the airport of value to citizens and to not spend so much that the cost of this value drives airlines ticket prices too high (or costs too high for the budget airlines, like Southwest, to stay at CHIA).

Not all costs are passed on to rental rates and landing fees. Anything the airport can do to make money, parking fees, concessions, advertizing, goes into the budget prior to the Rates and Charges and reduces the rent and the landing fees (and, presumably, ticket prices). Thus, you can fly to San Francisco out of CHIA for $205 round trip which is a great rate. But you will pay a lot to park (depending on how far away) a lot to buy a cup of coffee and will look at many, many backlit advertizing signs on the way to Gate C-23 at the end of the concourse.

A Free Marketer will say, good, I can get dropped off, skip the coffee and have no obligation to buy anything in the ads. But I think there has to be a limit to this. There is a sense that we do not want to be gouged when we are in public spaces and have to pay hidden subsidies by paying more for coffee or parking. Better to have reasonable prices for these and pay the costs direct as part of the service. Or does it matter?

I suppose this may prove more interesting to me than my fellow lbo_talkers since I live it every day but I would appreciate anyone's thoughts. I know that Doug makes issues like this interesting to me in LBO and may have an interesting take on it.

A bigger question would be Airport expansion. But I will stop here for now.

Looking forward to your responses,

David Roberts

p.s. Hope you won't think me paranoid but I will repeat my caveat here that I am writing for myself, not for the airport. I am not, after all, the top decision maker (there are three levels above me).

___________________________________________________________ Lila Hanft, Ph.D. lhanft at Cleveland, OH

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