The case for reforming airport-slot allocation

By C.R. | MADRID

GULLIVER is back from the 141st Slot Conference in Madrid, a meeting of airlines and airport co-ordinators run by the International Air Transport Association (IATA), an airline lobby group. In this week’s issue, he opened the lid on how landing and take-off slots are allocated at congested airports around the world:

Instead of letting airports decide who would use their runways and when, the system was designed to have schedules hammered out by committees of airlines. In the 1960s, as growing traffic started to fill up some airports, the committees became a way of parcelling out the most prized slots.

Since the 1970s, allocation has been steered in most countries by IATA’s “Worldwide Slot Guidelines”. These state that an airline can keep a given slot from the previous season as long as it used the slot 80% of the time. Any slots freed up under this “use it or lose it” rule are allocated to other applicants. Some places, including the European Union, insist that new entrants must receive half of these.

The problem, as Gulliver goes on to explain, is that incumbent airlines—particularly those legacy carriers that originally got their slots for free—are hogging them in order to try and shut out new entrants.

Over 190 congested airports—103 of them in Europe—follow rules that IATA describes as “fair, neutral and transparent” Hogwash. To comply with the “use it or lose it” rule, many airlines resort to artifice—flying smaller planes than necessary in order to spread capacity across their slots, for example, and even running empty “ghost” flights to ensure that the runways are busy at the appointed time. So instead of slots being recycled from established carriers to new ones, they are clung to. One analysis showed that only 0.4% of London Heathrow’s total slots and 0.7% of Paris Charles de Gaulle’s were allocated to new entrants during the period under study.

Around the world regulators want to change this system in order to boost competition and help consumers get cheaper fares and better services. Aviation watchdogs in America and China, for instance, have suggested that they should run the allocation of slots by an impartial auction. Others have suggested congestion pricing as an alternative. These ideas have faced much criticism by airlines. Many complain that they, “who know all about the industry”, should allocate slots instead of “know-nothing economists” working for the regulators. Yet a quick glance at the “Wealth of Nations” by Adam Smith, the father of economics, suggests why competition watchdogs are so unhappy with the current set-up:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

The current regulations for slot allocation, particularly in the European Union, rely on meetings of airlines at slot conferences to operate. IATA also used to run gatherings to set international fare levels and even service quality—even down to what sort of sandwiches could be served onboard transaltantic flights. Anti-trust laws have now outlawed this sort of behaviour. Yet slots conferences survive as one of the last vestiges of the ancien régime of the industry being run by committee to favour incumbents instead of by the sort of market forces that produces the best outcome for consumers. Regulatory reform of slot allocation is therefore more than overdue.