Alternative Methods of Allocating Airport Slots: Performance and Evaluation

Abstract

This study analyzes alternative methods of allocating scarce airport capacity (slots) among competing airlines. The findings are as listed below. 1. The method of allocating slots at airports can substantially influence the competitive structure and the efficiency of the air transportation industry. 2. The current method of allocating slots at the four high-density airports (the slot committee process) is inadequate in almost all dimensions of economic efficiency. • The allocations are very sensitive to the regulatory political climate. The current climate is fostering the following tendencies. • The process places downward pressure on the carriers with the largest number of slots at a given airport. • The process prevents the growth of large and medium-sized firms even if the economics suggest growth. • Entry is allowed independent of the efficiency of the entering firms and possibly at the expense of more efficient firms. • The ability of committees to coordinate operations at the systems level (the multiairport level) is not good. • The committee allocations are generally unresponsive to changing economic conditions. • The committees provide a forum in which possible anticompetitive agreements can be forged and enforced. • The committees provide no vehicle for the economic expansion of airport capacity. 3. The study surveys several alternative methods of allocating slots. From these a process is recommended with the following features. • A primary market for slots organized as a sealed-bid one-price auction operating at regular, timely intervals, • a computerized aftermarket with "block transaction" capabilities, • special provisions for small communities, • special provisions for changes in the definition of a "slot," • provisions requiring that the funds be used for expanding airport capacity, • the possibility of "negative bids" for off-peak periods at airports for which a "zero-sum" feature is appropriate, • sanctions to prevent the "non use" and/or monopolization of slots, • a gradual introduction. While this process has never been used to allocate airport slots, various aspects of it have been used successfully to allocate critical resources in other industries. It meets the goals of the 1978 Airline Deregulation Act and all experiences with the process within controlled environments suggest that the process will operate at economic efficiency levels near 100 percent. 5. The above process is recommended on the assumption that some problems can be solved which are not addressed in this study. The problem of how slots are to be defined is left open even though some guidelines are suggested. The funds from the sale of slots should be used to provide additional airport capacity. The study makes no recommendations about how this will be guaranteed. While the study recommends a vehicle for the establishment and maintenance of service to major hubs for small communities, no attempt was made to define such areas. 6. Among the options considered, aside from the one recommended, the one with the second most favorable features is a slot lottery with an aftermarket. This process itself involves several problems which are referenced in the text.

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