How governments think about supply and demand

Now that government has in effect seized control of General Motors, it is worthwhile considering the difference between government and private sector thinking on basic management issues.

Any commercial enterprise quickly learns that it must supply perceived value for the money it charges its consumers. Most new enterprises fail, learning this lesson the hard way.

Government, on the other hand, assumes people must have whatever it produces, so that when demand drops (or costs rise), it can freely raise prices, assured that customers will have no other option but to pay. Government, in other words, thinks and acts like a monopolist.

Most American Thinker readers are familiar with government water suppliers raising their rates when water conservation efforts (often in response to drought) succeed, driving down revenues. The latest example, in an entirely different sphere, comes from Los Angeles World Airports, a part of the City of Los Angeles. LAWA owns and operates two airports: Los Angeles International Airport (LAX), the largest airport on the West Coast, and Ontario International Airport (ONT), located far from the LA City Limits (38 miles east of downtown LA), in Ontario, CA, in what Southern Californians call The Inland Empire.

The Inland Empire enjoyed rapid growth thanks mainly to inexpensive housing construction. With the financial collapse, the local economy has faltered badly, and traffic fell. LAWA did what comes naturally to governments: it raised the fees it charges to airlines, making ONT the most expensive airport for airlines in all of Southern California. The Riverside Press-Enterprise reports:

In March, the airport raised the annual rate it charges airlines for terminal space from $131.36 to $190.23 per square foot until June 30, more than other Southern California airports. It is an effort to overcome a potential $4 million shortfall in annual revenue. The airport may also raise parking rates.

San Diego Airport charges $73.35 per square foot and John Wayne charges $74.29 per square foot. Long Beach Airport and Palm Springs International charge $37.44 and $20.63 respectively.

It will cost airlines $14.50 per passenger after July to serve Ontario, up from $9.70 this year.

That's a big difference compared to Bob Hope Airport in Burbank, which charges $1.83 per passenger.

Obviously, airlines are going to respond to these fees by cutting flights to ONT even further. Fortunately, LAWA does not control Bob Hope Airport, which is run by a local Burbank/Glendale authority, or John Wayne in Orange County, not to mention Long Beach or Palm Springs airports.

Of course, if you live in Ontario, Riverside, or any of the other Inland Empire cities and want to take a flight from Bob Hope Airport, you have a long drive. Airlines which remain serving ONT will have to raise their fares.

ONT built a new terminal in 1998 (and is still servicing the debt), but has two old unused terminals which are frequently used for filming scenes in movies and television. IF LAWA doesn't mend its way, it may soon be offering a more modern abandoned terminal for film use.
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