The Economist run a good piece about how airport slots are allocated on the print edition last week that I was reading on a recent flight.
The problem is that new entrants cannot get access to major airports that are already at capacity unless they buy slots from other airlines that can cost millions each at airports such as London’s Heathrow.
Here’s an excerpt from the Economist (access the piece here):
Slots have been sought-after since the 1960s, when airports began to fill up. In response IATA, an airline-industry body, developed a set of guidelines which state that an airline can keep a slot from the previous year if it has been used at least 80% of the time. Those that are not are put into a pool and reallocated; half are supposed to go to new entrants. Over 190 congested airports—103 of them in Europe—follow rules that IATA describes as “fair, neutral and transparent” (see article).
A better solution would be slot auctions, in which carriers bid to hold slots for staggered periods of five or ten years. Regulators in America and China have thought about this sort of approach. An alternative would be to adopt a congestion-pricing model for runways, in which airlines pay more to land or take off at busier times of the day than quieter ones. Facing higher costs for using prized early-morning slots, airlines would have a greater incentive to fill planes to capacity and to get rid of slots they cannot use. The extra money could be put into a central infrastructure pot to build more airport capacity.
Not convinced that the model suggested by the Economist would be necessarily the best especially at the airports that are independently owned. The owner would just pocket the fees and this would likely lead to higher airfares.
Airlines are known to fly “ghost” flights at times to keep their slot utilization at over 80% to ensure that they don’t have to give their priced slots to potentially new entrants.