Airport is a public good inasmuch as it provides access to inter-city transportation services to all inhabitants of the region (secondary effects of that access might be attractivenss of that particular region, available services, real estate prices, etc). It is a non-public good inasmuch as it provides fee-based services to actual users (travelers and visitors). It follows that, as such, an airport is financed through two different mechanisms: public sector payments (public good financing) and fees-for service (non-public good financing). Thus T=P+F where T is the total revenue necessary to operate the airport which is the known amount; P is the amount of public subsidies to pay for the "public good" part of the operations, while F is the amount genereated from fees (tickets, concession stands, parking etc.).
Hence the question of free market vs eregulation can be rephrased as to what degree an airport should be publicly subsidized, and to what degree it should depend on fees? Given the equation above, that question can be answered by determining either the amount P (public subsidies) OR the amount F (fees for services).
1. The public subsidy route. Following Weisbrod's public good financing argument that level of public payments for public good is limited by voters consent, the amount P is defined as the maximum airport tax the 'median voter.' The tax can be fairly progressive on the assumption that the airport has a greater value to wealthy residents' (who travel by air more frequntly) than to poor residents.
I such scenario the F=T-P amount must be generated by user fees.
In plain English, in that approach, you first go to the city hall and get as much money as you can, and then generate the reminader of your budget from the user fees.
2. The fee-for-service route. This approach is essentially a mirror image of that described in item #1. The amount F is determined as the maximum the market can bear, and the remainder P=T-F must be matched by public subsidies.
In this approach, you first ask the users (airlines, travelers, vendors, etc.) to pay up as much as they can, and then generate the reminder of your budget from public subsidies.
Method 1 will tend to maximize subsidies and minimize user fees, hence the actual users may get a 'free ride' if the subsidies are sufficiently high. Method 2 is likely to maximize user fees and minimize public subsidies, hence the residents are likely to get a free ride if the fee revenues are sufficiently high.
As I understand the description, the current method of financing the airport is method 2: the airport gets as much as it can from fees, and the rest must come from public subsidies. The question is, whether this method is preferable to its alternative, where public financing of the airport is 'subsidized' by fees.
My answer to that question is that assuming there is an intrinsic use value in air transportation, the currently used method 2 (get as much as you can from user fees and subsidize the rest by public funding) is preferred because:
1. it reduces free-riding by distributing the burden of payment on two parties who benefit, albeit in two different ways, direct users and those who benefit form the 'neighborhood effect' (public good)'; assuming that direct users benefit more than those who benefit from the neighborhood effect; this method places heavier burden on the former than the alternative method would;
2. the reliance on concession stands, parking fees and advertising introduces an element of 'sliding scale' to airline pricing; the wealthier travelers can afford buying overpriced parking, coffe and sandwiches, and thus pay a higher price for using the airport; the poorer ones (like myself) can eat at home, take the light rail for $1.35 to the airport, and thus pay less.
3. An important caveat is that the public subsidy of airport services is paid for by a progressive tax, on the assumption that the wealthy use the service more than the poor.
It should be added that the alternative method (get as much public subsidies as possible and supplemnt the rest with service fees - e.g. like subsidizing automobile transportation) would place a heavier burden on indirect users or non-users, and would reduce the 'sliding scale' effect created by choice of overpriced supplementary services (parking, consession stands). That effect would be difficult to compensate (in terms of fairness) even by a steeply progressive tax, because wealthy travellers coming into the city and then going out (but residing elsewhere) would avoid paying such a tax.
Regards,
Wojtek Sokolowski