007 – Scoring Auctions: The Key for Airport Slots’ Market-Based Allocation?

Eduardo Cardadeiro & João Gata
European Review of Business Economics, Vol1 (2)
Abstract

Air transport has increased almost fifteen-fold worldwide in the last half-century (1970-
2019) and is expected to return to this trend in the next few years, after falling from
4.558 billion passengers in 2019 to 1.809 billion passengers in 2020 due to the Covid-19
pandemic. Airport capacity has not kept pace with such growth and, therefore, more than
two hundred major airports worldwide face capacity constraints and are “coordinated”.
Efficient allocation of scarce airport capacity is critical for air traffic growth, as well as
for the overall air transport dynamic efficiency. However, the allocation of airport slots
in Europe and elsewhere is still ruled by administrative processes, based on the IATA
Worldwide Slot Guidelines, which follow historical precedence (called “Grandfather
Rights”) and time adjustments of historical slots. Several objections have been raised to
the adoption of market mechanisms in slot allocation, as an alternative to administrative
processes, and they are still rarely used. Despite often being suggested in the literature,
the use of auctions for slot allocation has only been implemented in some local routes in
China, and apparently this underemployment of auction mechanisms has been due to
the reluctance of coordination authorities to face the risks that have been pointed out
regarding airlines’ long-term route planning, the usage costs related to excess slots,
origin-destination pairing, and competition distortions. However, scoring auctions have
never been considered and our research shows that their properties combined with an
appropriate auction design could overcome most of those objections and mitigate the
associated risks. Furthermore, the current drop in air traffic provides an opportune
window for the introduction of auctions as a mechanism for the allocation of airport
slots with minimal risks of disruption to airline business models.

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