Do Airports and Airlines really need Auctions too?
Mumbai’s Chhatrapati Shivaji International Airport (India) recently inaugurated a new Terminal in February 2014. This terminal, currently being used for International Flights only, has finally satisfied the local’s needs for a truly world class facility. Unfortunately, behind the scenes, there are still many problems at hand.
The article published in the Times of India newspaper, mentions one such problem that still needs a solution. The airport “has just one parking bay and Terminal 2 (the new Terminal) has a solo twin-level aerobridge” which is used for docking big planes such as the Airbus 380. Singapore Airlines uses this docking site daily at midnight followed by an Emirates A380 flight which arrives from Dubai at around 2 am. Lufthansa, the German carrier is planning to operate a daily A380 flight to Frankfurt starting this winter. The authorities in Mumbai International Airport Pvt Ltd plan to offer Lufthansa either a 10 pm or 4 am time slot to use the single parking bay with a twin level boarding gate. Lufthansa, on the other hand wants to use the much in demand parking bay at 2 am to ensure that their flight reaches Frankfurt on time for onward connections to the Americas and other places in Europe. This leaves the Airport Authorities in a conundrum with both the Emirates A380 and the Lufthansa A380 wanting the same time slot.
This situation calls for one of the concepts we have studied – an auction. There is a single object to sell which in this case is the right to use the parking bay and aerobridge at 2 am. Both the buyers, Emirates and Lufthansa Airlines have a value attached to that time slot as it is crucial to some of their other connecting flights. The seller, in this case, Mumbai International Airport Pvt Ltd (MIAL) would have a choice of auctions to maximize their own profit. They could use the Ascending or Descending type of auctions but that would require representatives of the two airlines to interact in the bidding process in real time. An auction such as the First Price or Second Price type, in which the airlines (buyers) would send in sealed bids simultaneously, would be more appropriate to avoid the media hype of a real time auction. MIAL (the seller) could choose the auction type based on whichever they feel would yield a higher outcome and use the funds to offset some of the massive costs incurred to build the new Terminal. Thus, an auction would be an ideal strategy as MIAL would not accurately be able to estimate the market value of the rights to the 2 am time slot.