Summary

•  Since the mid-1980s, the UK’s aviation sector has undergone
  substantial liberalisation. This was a great success story as far as it
  went. But two major components have bucked that overall liberalisation
  trend: airport capacity, and the allocation of take-off and landing slots.
  These are the two remaining islands of central planning in an otherwise
  liberalised sector.


• At congested airports, airport operators have little control over
  the allocation of take-off and landing slots. If an airline has used a
  particular slot in the past, it has an automatic right (subject to some
  conditions) to carry on using it – indefinitely. The remainder of the
  slots are allocated by a quango, via an administrative process, under
  retained EU law (ultimately derived from the International Air Transport
  Association (IATA)).


• As a result of the ‘grandfathering’ of slots, most slots at large airports are
  simply held by the airline that has always held them. This distorts the
  market in favour of well-established incumbents. It is the main reason
  why large European airports continue to be dominated by national
  legacy carriers. Despite certain exceptions to the slot allocation rules,
  the market remains distorted. There is scope for major improvements.


• As in many other areas, Brexit is a double-edged sword when it comes
  to aviation. Brexit enables the UK to replace the EU/IATA slot allocation
  rules with an alternative system. This could mean replacing it with a
  more liberal and market-based alternative – but it could also mean
  replacing it with an even more dirigiste one, under which slots are
  allocated on the basis of political considerations.


• A more liberal alternative would mean introducing a primary market for
  airport slots. That could be done by a simple auction, or by congestion
  pricing, or it might be possible to allow airport operators to devise
  whatever slot pricing mechanism they see fit, and rent out airport slots
  to whoever they choose. Grandfathered rights would be phased out,
  and the slot allocation rules would cease to apply.


• Taken to the fullest extent, this could mean different things in practice.
  Some airports might use periodic slot auctions, under which slots go to
  the highest bidder. Auction design and auction rules could then differ
  from airport to airport. Other airports might use a system of dynamic
  runway pricing, in which they set market-clearing prices for slots. It could
  also lead to the emergence an altogether different allocation mechanism.

Kristian Niemietz

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Head of Political Economy

Dr Kristian Niemietz is the IEA's Editorial Director, and Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).