Midway’s mythical $8 pretzel

midway_aerial_updated.JPGWe chatted the other day with the head of the Vancouver airport unit that’s leading the buyout of Midway Airport in Chicago, the biggest airport privatization effort to date. George Casey, who’s the chief executive of YVR Airport Services, the big airport operator, said he’s just very glad to have won the bidding against. We hear was up against some other very well-known names in airport finance, including, we’re told, Macquarie, Hochtief, and Aeroports de Paris. Midway can’t be expanded because it’s surrounded on four sides by highways and railroads, but Casey says its efficiency will grow and capacity will be increased.

Out in Chicago, they’re already predicting $8 pretzels and $10 beers at the Midway concessions, but Casey is adamant that this is not to be the case. He notes that Midway’s airline tenants agreed to terms of the deal, and those tenants include some carriers that are very focused on low fares and so on low costs, including Southwest, the largest at Midway and an airline noted for its hard-nosed real estate department, as well as AirTran. “The airlines would not have agreed if the costs were going to be too high. Midway has to stay competitive,” he says.

The city and the investors agreed to a 25-year agreement with those airlines now at Midway, capping their rates and charges at the outset and freezing them for six years. Rate increases after that would be pegged to the inflation rate. Casey says, “We’re very comfortable that the mayor and the city worked out consumer protections.”

Interestingly, other cities are talking more about raising funds through infrastructure sales, but the FAA will only allow one airport the size of Midway to enter its privatization pilot program. And one has to wonder where the money to buy airports and other infrastructure would come from these days anyway.

Although other US airports have considered privatization, and New York’s Stewart was briefly owned by National Express, a UK-based firm, Midway will be the first large airport to leave public control. National Express turned Stewart, in Newburgh, NY, over to the Port Authority of New York and New Jersey late last year and other airports that applied under an FAA pilot program all withdrew or ended their applications. The first was Brown Field Municipal, San Diego, which pulled out in 2001, and Niagara Falls International and the Rafael Hernandez airport in Aguadilla, Puerto Rico. These both withdrew in 2001 and New Orleans Lakefront Airport ended its application earlier this year.

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