Research

Terminal Problem? The case for a market-based airport slot allocation system


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.


https://iea.org.uk/wp-content/uploads/2022/05/DP107_Terminal-problem__web.pdf

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Head of Political Economy

Dr Kristian Niemietz is the IEA's 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).


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