A brake on competition: The ongoing conundrum of airport slots
The effect of slot allocations on airlines, airports and travelers is a constant across the globe, but only surfaces from time to time when a high profile request draws public attention and comment. The recent announcement that the US Department of Transportation (DoT) was willing to approve a slot swap between Delta and US Airways involving New York’s LaGuardia and Washington’s Reagan National has once again brought the issue to the fore. The case has been in dispute for a very long time and has drawn attention from competing airlines as well as consumer groups and the global airports group, Airports Council International (ACI). All have given this decision a thumbs down.
A slot, like knowledge, is power
The issue of slot allocation at London’s Heathrow was one of the primary stumbling blocks in the attempt to completely open the skies between the US and the EU. And continued wrangling over slots delayed, by years, the approval of antitrust immunity for members of the oneworld alliance.
And the unavailability of slots at desirable times has affected many new operators in their quest to gain traction, or even a presence, in new markets—witness Virgin America’s long battle to serve Chicago’s O’Hare.
What is a slot? There is a simple answer to this question; it is the right to operate a flight at a given time from or to a specific airport. By definition, since flights have both origins and destinations, proper authority must be available at both ends of the flight. The ability to leave Atlanta at 1530 probably presents no challenge—leaving a big, multi-runway airport in the mid-afternoon is easy. But a two-hour flight brings that aircraft to LaGuardia or Newark during the peak evening period, where obtaining a slot at a slot-constrained airport is a far more complex task.
This seemingly benign issue of when and where airlines can operate is one of the grand limitations on deregulation. The challenge comes in differentiation between the words can and may. The law says airlines can operate any route, but slots determine when they may fly. And unraveling that simple linguist focus is the source of endless rhetoric.
Airports are finite pieces of infrastructure. Often they are limited by runway capacity and gate availability. In some cases it is possible, but not always feasible, to expand those components.
“A slot management system is indicative of a failure of governments or airports to invest in adequate infrastructure to keep pace with airline demand. There are a multitude of reasons why airports may not be able to meet the demand, but lack of political will is probably the major cause” - Peter Stanton, Head of Scheduling and Baggage Services at IATA
It would be nice if that were the case, but reality intrudes. Some of the world’s most congested airports are popular precisely because were originally located near the cities they serve, and those metropolitan areas have now grown in ways that make further expansion impossible.
The New York/New Jersey area has added and expanded airports over past decades, but the proximity of LaGuardia makes demand for access to that airport an ongoing problem. Expanding Stewart or Teterboro will not solve the congestion at LGA and expansion of that airport’s footprint is simply not possible.
The same kind of restrictions apply at many of the world’s primary airports and while political will may indeed be a factor, the far-greater problem is one of physical constraints.
Chicago’s O’Hare is one example of an airport that has spent billions on reconfiguration of its physical layout to boost capacity, but the absolute limitations of it site will eventually cap its ability to handle more traffic—and this in a place where the political will has been present.
Capacity pays the bills
But capacity is the airport’s primary product, and all of its revenue opportunities both airside and landside are intrinsically linked to the number of operations, and passengers, that can be accommodated. That revenue stream is key to funding the bonds and loans that which underpin airport finances. In some cases, Cincinnati, St Louis and Pittsburgh, to name a few, building bigger has proven to be a bad bet. They have plenty of slots available and too few takers.
Airports, therefore have a strong, vested interest in filling their slots and making a valiant effort to meet airline demand. And in some congested metro areas, like New York, there is also the limitation of available airspace for handling traffic.
But airports also represent the interests and needs of their communities, one of which is, ideally, to create a competitive milieu. And on those grounds, we find ACI’s opposition to the swap.
In a statement issued by ACI-North America’s President, Greg Principato, he said, “ACI-NA has advocated that slots should be treated as community assets that are used to benefit the airport/community of their location, and not the airlines. As such, the interests of the operating airport proprietor should be considered in evaluating the treatment of a petition by air carriers for the exchange of slots.”
Bottom line? For airports, a slot is its primary product, allowing incoming and outgoing aircraft and passengers to utilise its primary and ancillary revenue sources. They want them filled.
Clearly Delta and US Airways have a far different take on the situation, as do their peers. Having served both LGA and DCA for decades, and having been granted continuing slot access, the airlines generally view slots as “theirs” to use as they wish.
Those terms are most concisely summed up by the 80/20 rule that says airlines must use a slot 80% of the time or perhaps lose it. Airlines complain that as they try to adjust capacity in line with demand, this rule makes them continue operations that may not be viable, however opponents view the airlines’ ability to substitute smaller aircraft, lease or sell of slots to be poor use of the public trust.
Case study: LaGuardia
The flowing charts, taken from CAPA’s online airport profiles, shows just how skewed the operation at LaGuardia continues to be a decade after low-cost airlines began to seek access.
The graphs chosen are for a Friday schedule when utilisation is very heavy, with the first one showing total operations and the next three showing the slot allocations given to first, Southwest, then AirTran and finally Spirit.
At the peak operating hour, 1900-1959 with 76 slots in use, the combined total of the three LCCs is 3 slots or 4%.
Consumers pay for the lack of slot availability
The carriers with the lowest fares have the fewest slots for operation. But one hopes that even a minimal presence by lower cost carriers has moderated all fares somewhat.
The same is not true on routes with no competition LCC such as LaGuardia-Cincinnati, where Delta charges a uniform $343.70 for the shorter journey. And to Minneapolis, where only Delta and American use slots for operation, the nonstop fare for both is $523 for the date.
New York La Guardia Airport movements per hour for Friday System (05-Sep-2011 to 11-Sep-2011)
New York La Guardia Airport movements per hour for Friday AirTran (05-Sep-2011 to 11-Sep-2011)
But airlines have their own challenges
Airlines also object to the randomness of the process. This excerpt from the IATA paper shows JetBlue’s frustration with that aspect of the system.
“We don’t see a consistent standard,” [Jeff Meyer, Manager, Schedule Planning at JetBlue] said. “At Long Beach, California, for example, we operate 31 flights per day. The airport is operated by the city, which sets its own standards. They have established a certain number of mainline and regional aircraft slots, which constrains what we can and can’t do. This has created difficulties for our scheduling.”
In such an environment, the effort by airlines to protect their slots reveals a different, perhaps defendable, position.
Best use of a limited resource?
And, because of the “use-it-or-lose-it” mandate, carriers have continued to operate at the approved times--but with a difference. In 1995 every flight operated between LaGuardia and O’Hare was a mainline aircraft: MD-80s, 727s and even 757s were the mainstay.
In 2011 a “mainline” flight is most often on an A320 or an A319, the smallest member of the A320 family. For competitive reasons, Delta some years ago began the route with only RJs because they wanted to be “New York’s airline”. Schedule integrity has been preserved, along with the corresponding slots, but seat capacity has been generally reduced but airspace congestion has been maintained, albeit with smaller aircraft involved.
Relating to the previous ACI comment, New Yorkers and Chicagoans have the same intensely competitive schedules from the same players, plus a new one, but alternative use of those limited slots has been denied along with price competition on other routes. Is it the best allocation of resources when slots are being used to boost competitiveness rather than expand the available network or open the airport to new players?
Bottom line for airlines? These resources are ours to be used as we see fit—including the sale, trade or auction of same.
Consumers weigh in
Among others, a non-profit advocacy group, The Consumer Travel Alliance finds the present system to be severely flawed in terms of protecting the public interest.
“These airport slots are public assets that airlines have received for no consideration from a government agency. That same agency, the FAA, should take the slots back based on the public good, disuse of the slots or an exhibited lack of need for the airlines ongoing business.
Airline airport slots should not be allowed to be sold, bartered or leased between airlines. These slots belong to the public and should be allocated for the good of the public, not the good of the airlines that do not have aircraft or schedules to justify their retention.”
People think slots are public property
In an article in Frommer’s written by Christopher Elliott and entitled Should Airlines Be Allowed to Trade Airport Slots?, the author argues as well that slots mean money for carriers and cites higher airfares from slot-controlled airports. And in an online survey conducted for the article, readers were asked who they believed owned airport slots.
“The results were evenly divided between those who believe that the slots are an asset shared by the people and the airline, and those who thought that they belonged to the people. Fewer than 10 percent said slots should be the exclusive property of an airline.”
One contributor noted that, "Airlines have no more right to swap slots among themselves, for the betterment of their stock price, than I have the right to give my driver's license to my doddering uncle.”
Different places, different rules
In the US, the most congested airports’ operations are overseen by the FAA. But, as revealed by the earlier Long Beach reference, there are lots of variations across the nation with different entities in charge.
In Europe, the EU commission has done a better job of establishing a level regulatory standard. As stated in a 1993 Council Regulation: “Slots will be distributed in an equitable, non-discriminatory and transparent way by an independent coordinator. The aim of the EU framework is to ensure the fullest and most efficient use of existing capacity at congested EU airports while maximizing consumers' benefits and promoting the competition”. Nonetheless, the continuance of the 80/20 rule as well as the “grandfathering” of slots continued to create debate and countercharges across the EU.
In 2008, the Council agreed to a new plan that allowed airlines to trade slots amongst themselves as a means to reduce congestion. In that case, ACI supported the decision but the airports saw the central problem not as allocation, but rather one of an overall shortage of capacity. The ruling did give credence to the airline’s claims that they owned the slots as had been given the right to swap “their” property.
A different challenge in China
The IATA report notes other complications to global scheduling by citing the fact that “the Chinese authorities do not announce which Chinese carriers will have which slots for the next season until two months after the IATA scheduling conferences have finalised. By this time, it is too late for new slots to be made available to international carriers.”
Recognition in the UK as well
In early 2001, a report was issued regarding “Auctioning Airline Slots” as a way of increasing the social benefit of these scarce resources. In the Executive Summary, the report noted that, “Scarcity creates the potential for inefficient allocation of slots,” and advocated that, “ a move towards a market-based mechanism for allocating this pool [of available slots, including those grandfathered in] would improve efficiency.”
But more than a decade later, the slot allocation system in the UK remains the subject of controversy and dissention. The recent decision to suspend any discussion of additional runway capacity in southeast England will certainly only intensify the problems in years to come.
Airports are filling up and incumbents have strong advantages
The chart shows the few departure positions still available at London Heathrow (LHR) on Mondays in 2011.
Heathrow is full
Critical at some airports, problematic at many
But not just the classic choke points are involved. The slot availability problem is becoming evident at more airports across the globe. As air traffic in Asia rapidly increases, the ability to operate will become evermore constrained by airport capacity.
Hong Kong’s new international airport was built only 13 years ago, in 1998 and yet the airport is almost full at many hours of the day.
Already there are calls for its expansion, but along with new capacity must come opportunity for new entrants, of which there are many, to have access to the facility at key times during the day. If 20 new slots become available at 0900 but are all claimed by incumbents, will the public interest be properly served?
A complex and ongoing situation that will have great impact on future growth
The problem of access allocation will be a key component of change in the coming decades. And history provides poor guidance as to what will occur. The questions of ownership, exchange and public versus airline/airport interests are far from settled and parameters for regulation vary widely across geographies.
There are airports where no LCCs operate and the incumbents will continue to use their slot authority to ensure that conditions will not change. Conversely many, perhaps most, start-ups eventually fail and given that reality, is it justifiable to take slots from established players who have shown a dedication to the local market?
These are complex issues with little common agreement, even amongst the likes of IATA, ACI and national regulators. While everyone wants operations to/from New York or London, will the current system of allocation allow for that pool of operators to expand while not unduly penalising those already present?
The answer remains disturbingly unclear.