Auctioning off slots to airlines would reduce delays and decrease costs, argues Professor Richard Steinberg, chair in operations research at the London School of Economics
Once the pandemic is behind us and airline flights return, airports will face a major problem that has been building for years: severe congestion on runways.
It’s this congestion, above all, that limits the growth in flight operations across Europe and around the world.
But it doesn’t have to be this way.
Virtually all large airports in Europe deal with congestion by allocating airlines runway slots twice a year – the problem is that the way they allocate these slots is very inefficient.
Under EU regulations, if a runway slot is used by an airline 80% of the time over a season, then it has use of the slot for the following season, and in this way the airline can retain the slot in perpetuity.
This rule has led to some wasteful behaviour.
Airlines have been known to organise ‘ghost flights’ with empty seats so as not to lose valuable runway slots, and to prevent entry by potential competitors.
A market-based approach, in which airlines bid for slots would be a much better approach.
Economic theory and historical data strongly indicate that the number of flights could increase, there would be a reduction in flight delays, and the cost of flights to both passengers and airlines would go down.
When British Airways requires a runway slot for a flight from Heathrow going non-stop to Los Angeles, it also requires a runway slot in Los Angeles for the flight’s arrival.
Likewise, for a Lufthansa flight departing London and stopping in Frankfurt before arriving in Los Angeles, three runway slots are required; and for an Air Canada flight from London, stopping in Toronto and Chicago before arriving in Los Angeles, four slots are needed.
In each case, the airline will be reluctant to place separate bids for its two, three, or four required slots because winning some, but not all, would commit the airline to paying for one or more runway slots that it does not need.
In each case, the airline will instead want to bid for a package of slots, that is, an ‘all or nothing’ bid.
Auctions that allow bids on packages of items are called combinatorial auctions. Over the past 20 years, combinatorial auctions have been used very successfully in many industries, most notably for the allocation of leases for radio for use by telecoms companies in order to provide mobile phone service.
With the number of flights limited for the moment due to the pandemic, now is the ideal time to change tack and introduce a combinatorial auction bidding system for runway slots.
The UK should be the trailblazer here, after all, airports are no longer restricted by EU regulations.
As Klaus Schwab, founder and executive chairman of the World Economic Forum, has said, the pandemic represents “a rare, but narrow window of opportunity to reflect, reimagine and reset our world”.
For the airline industry, the time to reset is now.