The UK government is considering changes to the current process for slot allocation, asserting it can limit competition in the market, particularly at highly constrained airports like Heathrow and Gatwick; it prevents the efficient allocation of scarce capacity; and it lacks transparency. Certain aspects of the system used by the country’s designated slot coordinator Airport Coordination Limited are “opaque” to the public, the Department for Transport (DfT) said, including how it deals with competing bids and the independence of airline members that sit on its board.
It is also highly critical of what it calls “slot hoarding and gaming” where airlines sell slots that are initially allocated for free, on the secondary market, potentially obtaining slots under the new entrant rule with the sole purpose of later transferring these to an incumbent or affiliate airline.
The conclusions and proposal to potentially move to a market-based approach to slot allocation, or auctioning, are based on a report from the UK Competition and Markets Authority (CMA). It is part of a DfT consultation on a new comprehensive aviation strategy, released on December 17, to bolster the sector’s competitiveness and the country’s connectivity after it exits the EU. The “Aviation 2050: the future of UK aviation” consultation period runs until April 11 next year, with plans to finalize the strategy in 2019.
In its assessment, the CMA said that removing grandfathered rights and introducing slot auctioning allow for greater competition between airlines and “would lead to a greater allocation of slots to the most efficient user and may encourage greater innovation in the subsequent use of those slots.” The current mechanism, it noted, has created “rigid incumbent slot holdings that are slow to respond to changes in demand.”
Further, auctioning potentially provides a way for airports and airlines to forward-contract for new capacity. Airports could use the revenues from the auctions to help pre-fund infrastructure investment costs, while airlines would get greater security ahead of the capacity becoming available. Their advance contribution would be offset with airport charges when the capacity is available.
The CMA analysis recognized that auctioning slots is not without risks. Airlines risk disruption and reduced security if slots are auctioned periodically. From a competition perspective, the main risk of auctions is that incumbent airlines with market power bid a higher price than new entrants and reinforce their slot concentration. To prevent this, the CMA advised introducing a series of auction designs, including capping the number and proportion of slots that could be purchased by specific airlines or groups.
In its 22-page assessment, the UK competition watchdog pointed out that the International Air Transport Association (IATA) Worldwide Scheduling Guidelines on slot allocation might restrain the UK’s discretion to make radical changes. But, it added, “IATA has no enforcement powers.”
IATA is not thrilled by the proposals, which are not yet policy. “Slot auctions, in our view, are good for the treasury but bad for the consumer,” the association’s head of worldwide airport slots Lara Maughan told AIN. “Requiring all carriers to pay for entering or growing at an airport after it has expanded distorts competition by severely impacting commercial viability. China trialed an auction and lottery a couple of years ago and has never used this allocation mechanism again. It didn’t provide any new airlines access to the congested airports, and arguably did not produce better consumer outcomes.”