At first sight, the current system for administering take-off and landing slots in Europe looks attractive to the continent’s aviation users: slots are vital to an airline’s operation, yet they are doled out for free by slot co-ordinators across Europe. However, in a world of increasingly liberalised markets and super-congested airports, the system comes with hidden costs and there is a strong case for reform.
Slot allocation in Europe is currently governed by the snappily titled European Regulation 793/2004, which establishes detailed administrative rules on how national slot co-ordinators should decide between competing demands for slots. The rules are detailed and complex and the European Commission (EC) has been considering possible reforms for a number of years.
Why the desire to tinker with the system? For airports with spare capacity throughout the season and operating day, there probably isn’t much need: airlines are able to get the slots they want at the time they want. However, the regulation is aimed at those airports where there is more than one airline wanting to get their hands on each slot.
Arguably, Europe’s main airports have never had it so good; market liberalisation and rising prosperity has stimulated a seemingly relentless rise in demand for air travel. And airports are struggling to keep pace; tougher environmental standards, lack of available land, vocal local opposition and lengthy planning approval processes present costly and time-consuming obstacles to expansion. This all means that demand for the larger airports is increasingly outstripping supply. Eurocontrol estimates that by 2010, more than 20 airports, representing some of the biggest airport names in Europe, are expected to be short of capacity throughout the day, if current growth continues .
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| "Reform is necessary to the sector's ability to operate effectively" Dan Edwards, International aviation policy advisor, UK CAA |
This all means that conflicting demands for slots are likely to become the norm rather than the exception.
Under the current slot regulation, priority is given to airlines that have been in the queue the longest or “new entrants” holding less than five slots a day at an airport. The slots can be exchanged, but only one-for-one, with no pure slot-for-cash exchanges allowed. Airlines already established at an airport and looking to expand their services find that accessing new slots from the unused slot “pool” is close to impossible. Furthermore, swapping slots is a ponderous process and comes with some legal uncertainty when accompanied by cash payments due to the wording of the current regulation.
The net effect is that the choice of new routes are dictated more by the rules of the slots allocation process than the level of demand for the service.
The CAA has long-held the view that optimising the benefits from slots will only be achieved if the system is reformed so that allocation decisions better reflect the inherent value of the slots. This should mean:
■ Firstly, changing the regulation to permit secondary trading – allowing the straight-forward purchase and sale of slots so that they can be used by those who value them the most (and are prepared to meet a demanding use-it-or-lose-it requirement). This is not a particularly radical idea: it works at some airports in the USA and at London Heathrow – albeit currently constrained by the requirement that all exchanges must include a slot swap.
■ Even where congested airports are able to expand and secondary trading has been introduced, the problem of allocation is not guaranteed to disappear. If excess demand continues, as is likely at Europe’s most popular airports, the co-ordinator is likely to be faced with a profound problem of conflicting demands for a limited resource on a much more challenging scale. Step two should therefore be to give airports the ability to allocate slots by auction.
Of course any reforms must be workable. Auctioning in particular may not be suitable for all airports. This is why the CAA proposes making auctioning a permissive part of the regulation, leaving member states to decide whether to make use of the option. The UK’s Department for Transport has commissioned further work into the practicalities of auctioning – to report later this summer – feeding into discussions with the EC on possible reform.
Some European airlines might instinctively oppose a policy that appears to have them paying for something they currently stand to get for nothing. Such a position overestimates the “lottery” level chances of getting the slots they want at present and underestimates the value of market mechanisms and the greater autonomy that reform would give to airlines.
Trading of slots could also raise competition concerns, where airlines create or enhance a dominant position at an airport. A joint report by the CAA and UK Office of Fair Trading showed that increasing competition within Europe had done much to dilute the likely dominance of such airlines, but the market situation will vary at different locations, and a case-by-case approach would be appropriate, with competition authorities given the power to undertake market enquiries and implement remedies should problems emerge.
Reform is necessary and desirable. It may look radical, but it is important to the sector’s ability to operate effectively. Without it, competition will continue to be determined more by chance than by the airlines best able to match the needs of the market, and Europe’s airports and users will not be best equipped to face a future of chronic under-capacity. ■
To read the CAA’s briefing paper on this subject click here
Source: Airline Business
