Auction airport slots

In April, the U.S. Congress passed a law that prompted the Federal Aviation Administration to increase substantially the number of flights at New York's LaGuardia Airport – already one of the nation's busiest. But the resulting increase in traffic brought near-gridlock to the airport and the FAA hastily rolled back the number of flights to pre-April levels. Then the agency held a lottery to dole out the slots.

Some economists familiar with airline industry operations say the lottery was a bad idea. The slots should have been auctioned off, instead. They cite the advantages of an auction:

The LaGuardia lottery wound up giving preferences to nine small airlines – the kind that may use 19-seat planes.

While those small planes are taking off or landing, airlines with jumbo jets are kept waiting along with their 200 passengers – and they may be the lucky ones, considering the number of larger airlines and their thousands of potential passengers who are denied use of the airport altogether because the company lost out in the lottery.

Auction of slots would serve the purpose of reducing traffic while serving the maximum number of passengers because the slots would go to the highest-bidding airlines.

Thus, carriers paying, say, $5,000 for a take-off right would have to charge passengers on a 20-passenger flight $250 more for a one-way ticket, while those on a 200-passenger flight would have to pay only $25 more.

Passengers on small flights would have a strong incentive to divert to less crowded times or to less crowded airports.

Source: Robert H. Frank (Cornell University), "Scarce Slots? Hold an Auction," New York Times, December 13, 2000.

For text http://www.nytimes.com/2000/12/13/opinion/13FRAN.html

For more on air travel regulations http://www.ncpa.org/pd/regulat/reg-1.html

RSA Note:
Congestion, whether at airports, on roads or elsewhere, is always evidence of demand being greater than supply. The solution is to use the price mechanism and charge more when demand exceeds supply. Charging more for peak periods is common practice for many services – including telephones, electricity and leisure resorts. The same principle should be applied to airlines using peak period slots.

One of the problems is to determine the amount that should be charged for peak period slots and an auction is probably the fairest and most efficient method. Airlines that value a particular time slot most will be prepared to pay more for it than airlines that place less value on it.

Terry Markman, Council Member, FMF