The Problem of European Airport Slot Allocation
According to a recent European Union-sponsored study, “an extra 28 million passengers a year could use European airports if slots were allocated to airlines more efficiently” (2011). To give a sense of this statistic, the United Kingdom handled 214 million air passengers in 2010 alone. Here, a slot is defined as “the scheduled time of arrival or departure available or allocated to an aircraft movement on a specified date at an airport coordinated under the terms of regulation.” According to this historic regulation, an airline (e.g., British Airways, Lufthansa) using a slot during one season keeps the slot for the next season, unless the slot is being used improperly.
While this rule leads to a greater stability in the market, it does not allow for competition in the industry; thus, it would be crucial to consider other such strategies that encourage efficient slot competition and utilization. In general, the goal of successful slot allocation in the airline industry is to provide a high level of social welfare to not only the passengers but also the airlines themselves. One such solution to the issue of efficient slot allocation that the dutch Aerlines magazine recommends is a constrained Vickery-Clarke-Groves (VCG) mechanism, similar to the VCG auction discussed in class. In this particular auction, bidders (i.e., the airlines) submit bids for a combination of assets (e.g., a group of gates at a single airport terminal, a seasonal grouping of flights, etc.), rather than individual items. These VCG auctions would be held at the European airports, where the constraint might be that at least a fraction of the airport slots would be available solely for the newer airlines (e.g., BMI, EasyJet, RyanAir), or that the government could keep slots for specific routes, as is presently done. The payments of each airline participating in the auction would be calculated from the standard VCG procedure.
In spite of the benefits of the VCG proedure, I think the practicality of this constrained VCG auction is questionable. Because slots at different airports are interdependent, it would only make sense to hold a single, global VCG auction covering all airport slots. But if this were the case, the global auction would suffer from what is known as a “combinatorial explosion” on the number of bids, and finding a set of non-conflicting bids that maximizes social welfare would be nearly impossible. Instead, one option might be to restrict the number of flights or terminals per bid to simplify the task of determining optimal allocations.
References:
http://www.bbc.co.uk/news/world-europe-13601459
http://www.aerlines.nl/issue_27/27_Slots_Gruyer_Lenoir.pdf